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Trade friction hits international shipping industry and the industry is most worried about demand side being affected

As the United States subsidized agricultural products and reached asettlement with the European Union, trade disputes between China and the United States were difficult toresolve in the short term, and the long-term impact began to highlight. As atrade channel, the shipping industry has become an industry that many investorsare worried about being hit.

Trade frictions create uncertainty in theglobal shipping industry because they distort the free flow of goods and altershipping routes, making it difficult for shipping companies to effectivelyarrange their routes in advance. In addition to short-term shocks, the industryis more worried that tariffs may reduce transport demand for goods.

Sino US shipping industry suffers

In March this year, the United Statesimposed a 25% tariff on imported steel and imposed a 10% tariff on aluminium.Subsequently, a 25% tariff on China's$34 billion worth of goods, mainly electronics, came into effect on July 6. Drybulk and container shipping worldwide has been significantly affected by the US tariffs onsteel and aluminium.

In 2017, the United States imported 18 million800 thousand tons of steel and 4 million 400 thousand tons of aluminum. Atpresent, the amount of transportation already collected is only 0.5% of the US dry cargotransport. However, the tariffs already levied by the United States on Chinese products will affectcontainer transport, especially on the east coast of the United States.This part of the 4 million 700 thousand tons of goods imported from the United Statesis equivalent to 470 thousand standard containers. The west coast of the United Statesimported 4.2% of container imports in 2017.

From China's perspective, dry bulktransport is the most affected. Soybean shipped to Chinais the single largest commodity on China's tariff list, with importsof 32 million tons in 2017, equivalent to 22% of global seaborne soybeantrading. However, soybean imports from Brazilwill supplement the gap after reducing imports from the United States. Brazil's road soybean exports reached a record12.35 million tons in May, but were not enough to fill the gap with China.

On the whole, the impact of trade disputeson shipping between the two countries is limited, but the impact is stilllimited. Many analysts believe that alternative routes will make up for thereduction in trade and transportation between Chinaand the United States.Pitt, a shipping analyst at Pacific Asset Management, pointed out that China is thehub of global dry cargo and crude oil transport, and that higher tariffs wouldnot immediately reduce demand for related goods, but would change the course ofglobal trade.

Founder Securities analysis pointed out thatfor Sino-US routes, because the recent three major domestic shipping allianceshave reduced some capacity, so Sino-US container freight rates are rising.Shipping companies need to pay close attention to the future development ofSino-US trade frictions and make some preparations in advance: for example, toincrease the distribution of third-country routes. Because if the volume ofgoods between China and the United Statesdecreases, the volume of goods in other neighboring countries will increase.

Wharf will reduce cargo handover.

Losangeles and Long Beach wharves, as the gateway for us toimport Chinese goods, will also face great impact. Southern California docksimported $173 billion of goods from Chinalast year, equivalent to one-third of those imported from China, and arefacing increasing cancellations of shipping orders.

At present, the trade between the US port and China has not changed, and evenbecause of the fear of subsequent tariff increases to speed up imports andexports, there has been a small increase. But many economists in the United Statesbelieve that the Trump administration misread the impact of trade frictions.The impact has already been felt at the Los Angelesdocks in the United States:last year, half of the port's imports and exports came from China, and any decline in business from China wouldinevitably lead to higher unemployment and lower local taxes.

After the United States unilaterally imposed tariffs on $34 billion worthof Chinese goods, Chinaimmediately imposed the same amount of retaliatory tariffs. Then Trump said hewould impose tariffs on imports worth 200 billion US dollars from China.

It is understood that trade between theUnited States and China usually enters the busiest season in August, asbusiness activities such as student return promotions from September willcontinue until the end of the Christmas shopping season. Although domesticconsumption is forecast to increase by 4.9% over last year, with tax cuts andconsumer confidence still strong, if tariffs are calculated and imposed, theprice of consumer goods will be affected, and once consumption enthusiasm isreduced, the transport of goods will be affected.

Marine transport products or affected

Many maritime-dependent commodities may alsobe affected, including liquefied natural gas, which has grown rapidly in recentyears in energy trade.  At present,liquefied natural gas has not entered the Sino-US trade war in the tariff list,but if the list changes, it will immediately cause prices to rise. Paul,president of Gaslog, a U.S.liquefied natural gas transportation company, said that higher prices wouldoffset demand for liquefied natural gas in some markets, although this has nothappened yet, but this risk is uncontrollable.

The United States is becoming the largest exporter of LNG, and China is one ofthe world's largest energy importers, highlighting the impact of trade disputeson energy commodities.

In fact, the industry's biggest concern nowis whether trade frictions will lead to a recession affecting the transportindustry. At this stage, the transport industry is still in an upward cycle, aslong as the demand side is not affected by the trade war, there will be nosignificant adjustment, but the biggest risk comes from the demand side.