Nearly 70% of U.S. electronics manufacturers reported lower profit margins as a result of the U.S.-China trade war and tariffs on products they import, according to a study by IPC, an association representing the electronics manufacturing industry. IPC surveyed its U.S. members between Sept. 25 and Oct. 2, 2019. "Lower profitability due to increased tariff costs appears to be hindering investment in the U.S.," the study said. Twenty-one percent of companies in the survey said they are reducing investment in the U.S., and 13% said they're laying off workers or cutting back on hiring. More than half of the companies in the survey said they are sourcing products from countries other than China as a direct result of tariffs.
UPS is flying high on the push for faster delivery. U.S. next-day air shipping volume jumped 24% in the third quarter, pushing the company’s profit to $1.75 billion as it works to lower costs through automation and other measures. UPS expects the surge to extend into the holidays, as U.S. consumer strength and the rise of online shopping offset softening industrial production and weak global growth. Those latter elements may be casting a shadow over UPS’s freight division. Less-than-truckload shipments per day dropped 7.7% from the prior year, though UPS said revenue per LTL hundredweight rose nearly 4% on-demand from small and medium-sized businesses. In the domestic package, segment revenue rose 9.8% on higher volumes but next-day air yield slid 10.1% as UPS navigates the changing mix of shipments brought by e-commerce.
Amazon's shipping costs increased 46% year-over-year on the back of a 24% net sales increase, the company announced Thursday. Profits fell 26% year-over-year in Q3. CFO Brian Olsavsky attributed the increased costs to continued capacity building related to the shift of default Amazon Prime shipping from two days to one. The increased expense, though it exceeded the company's $800 million expectation in Q2, was closer in line with expectations in Q3. Transportation makes up the largest portion of that cost, said the CFO, and other expenses include inventory staging and extra warehouse shifts to extend order cutoff times. "It’s going to be the route density and other things will improve over time and get our cost structure down, but for now, there is certainly some start-up paying in adding new capacity," said Olsavsky, calling the switch a "drastic change to the whole network topology."
A survey of 1,000 small business decision-makers for FedEx's Fall 2019 SME Trade Index found 82% believe trade is key to economic growth, particularly when it comes to job creation. Half of the respondents said increased trade and global business opportunities would "moderately increase job growth" and 24% said it would "significantly increase job growth." The percentage of small businesses that support increased global trade has been on the rise since the fall of 2016 when the index was first launched. At the time, 77% of those surveyed saw expanding trade in a positive light. Furthermore, 65% of respondents engaged in trade said their revenue was increasing compared to 46% that did not trade. The firms that were trading were also 20% more likely to report hiring more employees. Since 2016, according to FedEx's indices, costs and uncertainty from the trade war with China highlighted how access to foreign-made components and U.S. participation in international trade agreements is crucial to the success of small domestic businesses.
The window for passing the Trump administration’s renegotiated trade deal with Mexico and Canada may be closing. U.S. lawmakers worry that progress on the U.S.-Mexico-Canada Agreement, or USMCA, could fade against political priorities in the coming election year if negotiations in Washington over the pact don’t conclude soon. Democrats and the administration are at odds over how to ensure that new labor rules in USMCA are enforced, a priority for U.S. unions aiming to deter companies from moving production. There’s little progress so far, although U.S. Trade Representative Robert Lighthizer met with lawmakers on Wednesday. Trade at North American borders appears to be showing some impact from a wavering industrial economy, meantime. Transborder freight by value fell 1.7% in August, according to the U.S. Bureau of Transportation Statistics, and the U.S.-Canada truck trade fell 3.1% in the second straight monthly decline.
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