President’s Letter:  Asia Update – COVID-19, China Shipping & Hong Kong Origin Marking

August 25, 2020 | As toymakers and retailers head into the vital holiday selling season, The Toy Association and our External Affairs team continue to push back against myriad threats and address challenges to our members, including Intellectual Property (IP) theft, unnecessary government regulations around the world, the ongoing pandemic, barriers to trade, and the economic impacts of these issues. In this letter, my focus on Asia includes an update on the swiftly evolving COVID-19 situation in source countries for toys, rising concerns about shipping from China to the U.S., and new mandates on products originating from Hong Kong.

COVID-19 Southeast Asia Update

Still regarded as a model for the region, Vietnam has responded with widespread testing and mandatory quarantine for all arriving passengers and any locals who test positive. Unfortunately, cases in Da Nang and surrounding provinces continue to grow and authorities are aggressively addressing the outbreak (the current case count is slightly over 400). The government has re-imposed social isolation in affected areas. Economic concerns are growing, with the prime minister urging local officials not to let social distancing measures unduly impact economic activity, and most businesses are continuing to operate. Factories are operating, but international business travel is still restricted and is possible only for repatriating nationals or by special arrangement (international tourism is prohibited).

The rate of new cases continues to level off in Thailand, where life has essentially returned to “normal.” Some loosening of restrictions on domestic air travel occurred on May 1 and some categories of international travelers are now allowed to enter the country. On a related note, the lack of international travel has severely impacted national carrier Thai Airways; to preserve funds for relief efforts, the carrier was allowed by the government to enter bankruptcy.

Jakarta, Indonesia continues to experience hospital overcrowding and significant stress on the health care system, but the government has pointed to a declining rate of new cases (likely driven by less testing) to declare the virus to be essentially under control, though it is clearly prioritizing economic factors over health concerns. At the same time, provincial governments distrust official case figures and are maintaining restrictions. The military has been deployed to enforce restrictions and more economic packages are in development after a 5 percent contraction of the economy in Q2. National politics continue to be fractious, slowing some responses and the distribution of aid. The government continues to prohibit its citizens from traveling abroad and is not allowing international travelers to enter until at least the end of the year.

Initially considered a model for the region, Singapore has experienced a surge in cases in foreign worker dormitories. The government seems to have gotten this under control, and restrictions are being slowly and cautiously lifted. Travel to and from Malaysia is now allowed with a shortened quarantine period. Air travel for non-citizens remains essentially nonexistent. The government is looking to implement a “travel bubble” allowing travel between Singapore and China, with the inclusion of other ASEAN nations with low case numbers expected to follow. Singapore is still providing some wage support funding; economic concerns are paramount, as the GDP contracted 13.2 percent in Q2.

Case counts continue to decline in Malaysia, although targeted lockdowns in limited northern areas of peninsular Malaysia continue as hot spots occur. As COVID-19 has receded, political infighting has become more prevalent; the prime minister remains under fire and is attempting to hold his coalition government together.

Economic woes are worsening in the Philippines as the government struggles to control a resurgence of cases. Metro Manila is essentially locked down again, with public transit shut down, and there is still a minimal amount of testing and poor data available. President Duterte appears to be counting on a vaccine to rescue the economy and is negotiating with the U.S., China, and Russia to secure early access. Philippine citizens may return home, but international travel is otherwise still restricted.

Rising Prices and Uncertainty for Seasonal Shippers

Even as many experts say capacity is returning to near normal and total volume was forecasted to be down, uncertainty and price pressure dog the shipping sector. As we enter peak season for holiday shipping and with bookings on the rebound, China's Ministry of Transport has sent a letter to the world's six largest container lines after rates between China and the U.S. West Coast reached record heights. Substantial customers with contracts in place appear to be secure, while smaller and seasonal shippers are experiencing pricing pressure and longer waits of up to four weeks with carriers able to charge premiums to prevent shipments from being rolled. Ongoing PPE consignments, upcoming consumer electronics launches, and a general attitude by the sector to price up more aggressively appear to combine for a downside to customers. While less essential to the toy community, air cargo rates are also climbing while capacity continues to be somewhat limited due to a decrease in traffic. The tech sector is anticipated by some to further accelerate air cargo rates in the coming weeks.

Country of Origin Marking for Products of Hong Kong Origin 

U.S. Customs and Border protection (CBP) has issued a Federal Register notice mandating that any goods of Hong Kong origin imported into the U.S. or withdrawn from a warehouse for consumption on or after September 25, 2020 must now be marked to indicate “China” as the country of origin. CBP today extended the transition period for an additional 45 days, through November 9, 2020. During this period, CBP personnel will not take any enforcement actions on goods produced in Hong Kong. This is to implement President Trump’s Executive Order on Hong Kong Normalization, issued July 14. Members with questions may direct them to The Toy Association’s Alan Kaufman or Rebecca Mond.

The toy and play community is presented with a world of wonderful opportunities to sell products in more and more markets around the globe. Likewise, the web of issues, regulations, barriers, and political developments may often appear daunting. The Toy Association’s External Affairs professionals, a range of key committees populated by volunteer executives from member companies, and a number of outside experts all come together each day under The Toy Association banner to protect and promote your business. This unending work on your behalf is an essential part of our reason for being. We’ll do whatever it takes to help all those we serve get through this period of unprecedented disruption. Next week we will provide a running summary of additional international issues in Mexico, Brazil, the EU, and elsewhere that we are battling on your behalf.

All good wishes for your continued health, safety, and prosperity.

Steve Pasierb
Follow me on Twitter @StevePasierb