Image: Port of LA
In his most recent announcement on tariffs president elect Donald Trump said he would impose 10% tariff increases on all Chinese goods and 25% on Mexican and Canadian imports, further ramping up fears of a trade war.
Shippers are expected to pre-empt these extra costs by stockpiling ahead of Trump’s inauguration on 20 January, and pre-empt any “curveball” that Xeneta said could come their way after Trump takes office.
If shippers are stockpiling, then it is yet to be reflected in the rates, with Linerlytica saying this week: “Carriers’ efforts to push ahead with various rate hikes in November and December have stemmed the rate reductions of the previous three months, giving the carriers an improved bargaining position ahead of the new contract negotiations for 2025.”
In an apparent contradiction, Linerlytica also pointed out that “initial gains on the Asia-Europe, Middle East and Intra-Asia routes have been tempered by continued weakness on the transpacific and Oceania routes.”
Drewry Shipping Consultants’ most recent WCI rate index showed its composite index had declined 2%, as had Shanghai to Rotterdam rates, while Pacific eastbound rates had declined 5%, and Mediterranean and US East Coast costs had declined 1% each.
If shippers are to beat Trump’s tariffs, the surge in cargo must happen sooner rather than later, but that is not what Taiwanese freight forwarder Dimerco expects. The S&P Global Composite output indicator increased to 52.3 in October, up 0.4 points on September.
Dimerco, however, said this was, “driven by faster service sector expansion and steady manufacturing output.”
The forwarder pointed out tariff increases “could exacerbate supply chain tensions, increase production costs, and potentially reignite inflationary pressures in the months ahead.”
According to the forwarder, the impact of the US elections could drive a short-lived import drive, but tariffs will also accelerate nearshoring trends, increase exports from southeast Asia and change US market dynamics.
Some of these impacts were already in train, as demonstrated by Huatai Securities which said since 2018 Chinese exports to the US had declined 7%, its exports to ASEAN nations had increased 86% and ASEAN exports to the US had surged by 107% in total.
Moreover, Dimerco pointed out: “Spot rates in the long-haul and intra-Asia markets have moved in opposite directions. Carriers' attempts to impose November GRI schemes for long-haul Europe and Mediterranean Westbound routes, as well as transpacific eastbound, were not very successful. Some carriers are now planning additional GRIs for December, ranging from $1,000 to $1,200 per feu, effective 1 December.”
Nevertheless, core retail sales in the US saw a month-on-month increase in October by 0.74%. Dimerco said, “As of 13 November, Market Intelligence reported that US retailers plan to import 350,000 teu more in November and December than projected a month ago.”
Alvin Fuh, Dimerco Express Group’s VP of ocean freight, argued that Trump’s tariffs and the threat of a USEC dockers strike in January were driving the surge in imports.
“There is an expectation that retailers will bolster inventory ahead of the Lunar New Year on 29 January 2025. In light of this, the Global Port Tracker has raised its full-year 2024 import estimate to 25.3m teu, a 13.6% increase over 2023,” added Fuh.
By way of contrast, intra-Asia carriers have seen space constraints affect nearly all intra-Asia trades, following a sharp rebound after China’s October Golden Week holiday and weather disruptions in the last two months.
As a result, peak season rate hikes ranging from $100 to $1,000 per teu are expected across most intra-Asia lanes, with rates for the Indian-Sub Continent corridor seeing an unusually high three to four times increase over September levels. These elevated rates are expected to persist through mid- December,” said Dimerco in its latest market report.
Even if the projections for a freight demand surge into the US are correct, Linerlytica highlights the carriers’ “appetite for new tonnage”, which has seen the orderbook ratio rebound to 27% from 20% in June, following more than 3.8m teu of new orders placed in the last six months.
Uncertainty is a major headache for supply chains in general, as a result Xeneta analyst Emily Stausbøll warns shippers that Trump will make further pronouncements on tariffs and that shippers should be “ready to move quickly and decisively.”
Stausbøll added that heightened tensions globally risk further, as-yet-unknown, disruptions to supply chains.“Average spot rates will only take you so far in understanding how to manage these threats. You must have visibility at a port-to-port level on the different rates carriers are offering across long- and short-term markets as well transit times, schedule reliability and capacity,” she concluded.
