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For importers and exporters, the past few years have been largely spent dealing with disrupted supply chains. Several elements of the past and current situation are pandemic-induced, and some elements may result in permanent changes.

 

Landside congestion and bottlenecks have been caused by a variety of factors such as major surges in demand, ports closures, blockage of the Suez Canal, shortages of truck and chassis, shortage of labour due to Covid-19, De hire yard congestion as well as Maritime Union actions within Australian ports. There are a number of industry reforms in play to address a raft of these issues and they will eventually be resolved. Global demand for containers shows only a slight increase from back as far as 2019 at 5% higher than pre-pandemic levels. This is reassuring that current resources of vessels and shipping containers is not a major global problem.

 

As landside logistic bottlenecks are resolved, we can expect an improvement in vessel schedule reliability on face value, though contributing factors may also impede on these improvements.

 

IMO2023 Rules

 

Low Sulphur Fuel, part of Oceanfreight costs, are triggering record levels at present. In the past vessel slow-downs were a tool employed by carriers to alleviate the high fuel costs and this may be repeated in 2023 should other bottlenecks be removed. As reliability returns to the market, transit times may become slightly longer.

 

Blank Sailings

 

The past 2 years have shown carriers that many shippers are capable of paying freight rates thousands of dollars higher than pre-pandemic levels, and to still have a viable business model. As freight rates start to drop blank sailings may once more become a yield management tool for carriers.

 

While we recently enjoyed lower freight rates from North Asia , mid-December sees carriers increase ocean freight rates to Australia on this route. Despite some lower rates remaining in the market, it is impossible to book space on these contracts and it is clear that carriers will use yield management strategies leading into CNY.   Larger shippers account for a high proportion of carrier capacity and thus carriers have little incentive to keep freight rates depressed.

 

Pallet resources continue to be in high demand, and thus contributing to record prices and low supply. Timber shortages, and warehouse sitting inventory have contributed to the issues which will flow into 2023.

 

China Covid Management

We have witnessed a dramatic U-turn on China’s previous three-year strict zero-Covid policy. It reflects dramatically the interplay between the agendas of politics, economics and science within the dynamics of pandemic management.

Last Wednesday, the authorities announced that coronavirus patients who were either asymptomatic or had only mild symptoms could isolate at home rather than in hospitals or centralised quarantine facilities, while public venues in many cities would no longer have to check for negative Covid tests.

The U-turn is largely a response to political pressure from the thousands who have taken to the streets against president Xi Jinping’s Covid controls and in the face of a severe external trade downturn and rise in youth unemployment. Due to the slackening of controls, infections and deaths are likely to spread more quickly, though this was an inevitable outcome due to a virus that has a long survival rate.

The relaxed rules come at a time leading up to Chinese New Year, where domestic travelling and family gatherings are the norm. While Covid restrictions might alleviate punitive measures for those falling ill, it will no doubt have a major impact on available labour in the weeks after CNY. It is strongly recommended to ship any available cargo prior to CNY to alleviate any potential delays that may occur thereafter.

Free Trade Agreement Updates (as published by FTA)

Australia-India Economic Cooperation and Trade Agreement (AI-ECTA)

  • The Australia-India Economic Cooperation and Trade Agreement (ECTA) will enter into force on 29 December 2022.Year 1 reductions will start 29 Dec 2022. Year 2 reductions will then start 1 January 2023.
  • Note that the tariff reduction provisions at this time only cover up to and including Chapter 72 of the tariff. Further negotiations will occur next year for the remaining chapters of the tariff and are hoped to be concluded in 2023. This second agreement will be referred to as Australia-India Comprehensive Economic Cooperation Agreement (AI-CECA).
  • Certificates of Origin will be required.

Dr A Draft guide to this FTA can be located on the DFAT website https://www.dfat.gov.au/trade/agreements/negotiations/aifta/australia-india-ecta-official-text

  • Rules of Origin are contained in Chapter 4 of the above.

https://www.dfat.gov.au/trade/agreements/negotiations/aifta/australia-india-ecta-official-text/annex-4b-product-specific-rules-origin

  • Extract of the Consignment Rule:

A good shall retain its originating status as determined under Article 4.2 (Originating Goods) if either of the following conditions have been met:

(a) the good has been transported directly from the exporting Party to the importing Party; or

(b) the good has been transported through one or more non-Parties provided that the good has not undergone any subsequent production or other operation outside the territories of the Parties other than unloading, reloading, storing, repacking, relabelling in accordance with the laws and regulations of the importing Party, splitting up of loads, consolidation of loads or any other operation necessary to preserve it in good condition or to transport the good to the territory of a Party and the good has remained under customs control in the non-Parties.

Australia-United Kingdom Free Trade Agreement (A-UKFTA)

An originating good transported through the territory of one or more non-parties shall retain its originating status provided that the good:

(b) does not undergo further production or any other operation outside the territories of the Parties, other than unloading, reloading, separation from a bulk shipment or splitting of a consignment, storing, repacking, labelling or marking required by the importing Party or any other operation necessary to preserve it in good condition or to transport the good to the territory of the importing Party.

Australia-European Union Free Trade Agreement (A-EUFTA)

  • While progress was delayed as a consequence of the reaction to the submarine projects decision it now appears to be back on track following the Prime Minister’s visit in July.
  • Still in discussions on about 30 chapters of the Agreement including technical barriers to trade and intellectual property, including geographical indicators.
  • Hope to finish negotiations mid 2023 but operative date would be some time after that due to the treaty making process.
  •  Consignment rule still in discussion as are eligibility for goods made from imported parts and drawbacks. EU FTA commonly do not include these last two provisions

Should you have any queries on the above subject matter please contact our office directly.

 

 

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