Toys and Tires

By Jock O’Connell

Most discussions about market share loss cite highly aggregated numbers like the number of TEUs that might have transited a West Coast port were it not for [insert whatever explanation best suits your agenda]. This month, I thought it might be interesting to bore deeper into the available trade statistics by focusing on two particular commodity classifications to see whether recent developments on the trade policy front have been reshaping the flow of containerized imports through U.S. seaports.

In both of the cases examined here, U.S. West Coast ports have been seeing import traffic routed through ports elsewhere in North America. In the case of toys, the erosion of the USWC share of containerized imports looks like straightforward pilferage by ports on the East and Gulf Coasts. In the case of tires, U.S. tariffs and quotas have dramatically – and with remarkable alacrity – altered the supplier landscape, to the detriment of USWC ports.

Toys R China. Back when I was a railroad baron in the 1950s, I would receive gifts nearly every Christmas and birthday containing new components for what I regarded as my private segment of the Boston & Maine Railroad, the one that ran through the attic of our house in Portland. Admittedly, it was not as impressive as the layout my friend Charlie had in his basement, but then of course his father was CEO of an actual railroad, the Maine Central. Still, I’m sure I derived much more enjoyment from model railroading back then than the average ten-year-old today gets playing ephemeral video games. Times certainly change.

My electric train sets were manufactured in Hillside, New Jersey by Lionel, a company that later floundered through a debilitating series of mergers, acquisitions, and bankruptcies. Although I understand that someone did eventually buy the trademark, my guess is that the rolling stock now being marketed under the Lionel brand is no longer “Made in the USA”.

With The Toy Association reporting that the average retail price of a toy today is $10, it is scarcely surprising that much of the toy industry’s manufacturing capacity long ago fled offshore. U.S. Commerce Department data indicate that imports of toys (Harmonized System Classification Code 9503) amounted to $14.6 billion last year. Nearly all of which ($13.2 billion) arrived in containers.

Equally unsurprising is that the overwhelming majority of our imported toys come from China. Despite the trade policy disputes between President Trump and the Chinese over the past couple of years, China’s share of U.S. toy imports was 84.2% in 2019, down only slightly from 85.8% in the pre-tariff-war year of 2017. A once-feared Tariff War on Christmas toys fortunately never materialized.

China also dominates imports of the more expansive category of playthings that includes sporting goods, exercise equipment, and even pinball machines—in addition to a vast array of toys, puzzles, tricycles, and model railroads. In 2017, the year before the tariff wars erupted, the United States imported $31.3 billion in toys and sporting goods (HS95). China’s share was 81.5%, easily besting second-place Mexico, which accounted for just 3.4% of HS95 imports. By last year, China’s share had slipped to a still commanding 78.1%, while Mexico (with a 2.9% share) had been overtaken by Vietnam and Taiwan (both with 3.9% shares).

In terms of containerized import tonnage, China’s role has been even more imposing, accounting for 90.2% of the 3.45 million metric tons of toy, games, and sporting goods offloaded at U.S. seaports in 2017. Bilateral trade disputes had little impact, with China’s share of containerized HS95 import tonnage slipping to 89.4% last year.

As with so many other categories of imported merchandise, U.S. West Coast ports have sustained a significant

Commentary Continued

Exhibit A Containerized Imports of HR 95 (Toys, Games, Sporting Goods) Source: U.S. Commerce Department

Exhibit B Containerized Imports of HR 95 (Toys, Games, Sporting Goods) Source: U.S. Commerce Department

loss of market share to ports along the East and Gulf Coasts. As Exhibit A reveals, the USWC share of containerized HR95 import tonnage, which was as high as 74.9% in 2004, fell to 59.1% last year. By contrast, East Coast ports saw their share rise from 24.5% in 2003 to 33.8% in 2019, while the share held by Gulf Coast ports jumped from less than one percent in 2003 to 7.1% last year.

As Exhibit B indicates, all three USWC port complexes experienced diminished shares of the U.S. toy import trade. In 2003, the San Pedro Bay ports of Los Angeles and Long Beach handled nearly 60% of all containerized HR95 import tonnage arriving at U.S. seaports. By last year, that share had declined to 46.2%. The Northwest Seaport Alliance ports of Tacoma and Seattle saw their collective share of toy imports peak in 2009 at 14.3% before declining almost steadily to a 9.7% share last year. The Port of Oakland handled as much as 4.3% of the trade in 2012 but then saw that share drop to a low of 2.4% in 2018 before recovering to 2.9% last year.

Competing ports on the East Coast saw their shares grow. The Port of New York/New Jersey enjoyed a smallish gain, from 9.4% in 2003 to 10.9% last year, while the Ports of Savannah and Charleston saw their combined 8.7% share in 2003 jump to 12.7% last year.

Tires R Thailand. Supply chain disruptions occasioned by tariffs and plagues have reportedly prompted many U.S. businesses to consider the presumed virtues of diversification in sourcing. More specifically, U.S. companies are said to be growing increasingly dubious about relying extensively, if not exclusively, on suppliers in China. Perhaps all of the rhetoric being spouted in the nation’s capital these days about “de-coupling” the economies of America and China have prompted skittishness in many boardrooms. It certainly seems to be the intent of Secretary of State Michael Pompeo and White House epidemiologist economist Peter Navarro to discourage commercial ties between the world’s two largest economies.

To be sure, migration of manufacturing operations out of China has been underway for some years now. Over lunch in Hong Kong in 2007, I listened as a Chinese entrepreneur laid out his plan for moving his textile business out of neighboring Guangdong Province because of rising costs. His intended destination: Kenya. More current thinking is that manufacturers will shift from China to locations in Southeast Asia. And that prospect, of course, has given rise to fears that goods produced in places like Vietnam, Thailand, Malaysia, and Indonesia would more readily find their way to U.S. markets via the Suez Canal.

Some cynics have pushed back, arguing that a shift of manufacturing capacity out of China big enough to substantially alter maritime trade flows would take years to accomplish. Moving manufacturing capacity from one country to another is a daunting challenge, one that involves much more than throwing up a new building and hiring a workforce. Entire clusters of suppliers and subcontractors would also have to move. The conclusion drawn by many pundits is that it will be many years before today’s doubts about the dependability of Chinese suppliers translates into a reshaping of maritime trade routes.

But then there is the example of tire imports.

Last year, U.S. imports of new passenger automobile tires (HS4011) totaled $14.6 billion. Once upon a time (i.e., 2014), China was the leading source of U.S. imports of new automobile tires with a 29.2% share of the trade. That was more than double second-place Canada’s share that year. Since then, though, a series of import restrictions has resulted in a sharp decline in China’s import share, all the way down to 7.9% last year. Canada, while still the second largest supplier of tires, also saw its share slide to 10.8% in 2019 from a high of 19.1% in 2009. The big winner has been Thailand, which saw its share of the U.S. import market grow from less than one percent in 2003 to 24.2% last year.

Let’s focus now on containerized imports of tires from countries outside of North America. What we find is that there has been a remarkable and relatively rapid shift in the regions accounting for the great majority of containerized tires arriving at U.S. seaports in recent years. In 2003, as Exhibit C shows, the declared weight of containerized new passenger automobile tire imports from Northeast Asia accounted for 65.1% of all containerized tire imports through American seaports. That share peaked in 2007 at 70.4% before plummeting to 33.9% last year. By contrast, imports from Southeast Asia in 2003 represented just 3.3% of all containerized imports. But, by last year, that share had burgeoned to 42.4%.

Between 2003 and 2019, all four of the major Northeast Asia countries exporting passenger tires to the U.S. saw their shares of the U.S. import trade decline. In Japan’s case, a 22.8% share in 2003 fell to 8.3% last year. China’s share plunged from 23.0% to 13.3% in the same period. South Korea sustained a drop from a 12.8% share in 2003 to an 8.3% share last year, while Taiwan’s share slipped from 6.6% to 4.0%. Conversely, Thailand led the rise in Southeast Asia’s role in the U.S. tire import trade with a jump from 1.4% to 28.6%.

So did the swift ascendancy of Southeast Asia tire exporters affect maritime trade flows? Befitting Southern California’s car culture, the San Pedro Bay Ports of Los Angeles and Long Beach have continued to be the leading gateway for imports of HS4011. There has, however, been a marked decline in the two ports’ share of U.S. tire imports since the peak year of 2011, when LA and Long Beach combined to handle 64.5% of all new passenger automobile tires imported through U.S. mainland ports.

Who were the beneficiaries? Certainly not the Northwest Seaport Alliance ports of Tacoma and Seattle. Their share was nearly halved between 2003 and 2019, falling from 8.5% to 4.3%. While Oakland remained steady at 2.3%, the Ports of Los Angeles and Long Beach, nation’s largest maritime gateway, saw their share of the trade slide from 44.1% to 38.9% last year. Elsewhere, the share of tire imports arriving at the Port of New York/New Jersey rose from 6.3% to 13.0%, while the Port of Savannah and Charleston enjoyed a jump in share from 16.3% to 21.5%.

Given the scale of investments in tire manufacturing in Southeast Asia by companies such as Goodyear, Bridgestone, Michelin, and others (combined with the expanding role of the American Southeast in new car production), it would appear that USWC ports will be extremely hard-pressed not to see a continued deterioration in their shares of the nation’s imports of new passenger car tires.

Disclaimer: The views expressed in Jock’s commentaries are his own and may not reflect the positions of the Pacific Merchant Shipping Association.