What are the potential shipping fallouts after escalation of trade war
Now that U.S. President Donald Trump has pulled the trigger – raising tariffs on $200 billion of Chinese goods from 10 percent to 25 percent and threatening more – how will this play out for ocean shipping rates?
It depends on the ship type. Some vessel categories are much more heavily exposed to China-U.S. trade than others, and the ultimate rate consequence will be driven by the change in ton-miles (volume times distance), not tons.
Disruptions and disputes ahead after trade war decision.
Disruptions and disputes that cause the same volume of cargo to travel further to alternate destinations, which some analysts describe as ‘open chokepoints,’ are a positive for ocean rates, because more ships are needed to carry the same volume on longer voyages. Disruptions that cause a decrease in cargo volume at sea and consequently lower ton-miles, or ‘closed chokepoints,’ are negative for ocean shipping rates.
Following is a sector-by-sector overview of potential shipping fallout, a mix of open and closed chokepoints, from the escalating trade war between the U.S. and China
US-China trade ware implication for container shipping
Ironically, the U.S.-trade dispute has had a short-term positive effect on container volumes at sea. The initial deadline for the just-triggered tariff increase had first been set for January 1, 2019. This precipitated a rush to beat that deadline, with importers pulling Chinese cargoes forward that they would have otherwise shipped later.
Global Port Tracker, a data platform produced for the National Retail Federation (NRF) by Hackett Associates, estimated that U.S. ports handled an all-time high 21.8 million twenty-foot equivalent units (TEU) of imports in full-year 2018, up 6.2 percent over 2017.
US-China could create artificial peak season for US imports
According to Henry Byers, maritime market expert at FreightWaves, “Last September, when these tariffs were announced, it basically created another peak season for U.S. importers. These importers said, ‘To hell with the contract rates, we just need to move into the spot market and get space however we can.’
“This caused rates to spike during a time when they should have been in decline, and a buildup in inventory that has lasted for months. Many think there are still goods sitting in warehouses today that should have moved around this time this year instead.”
Trumps decision created supply chain issues for retailers
The delay of the tariff deadline from January led to further year-over-year increases in the first quarter of 2019. NRF vice-president for supply chain Jonathan Gold commented that retailers appeared “to be bringing merchandise into the country early in case tariffs go up.”
Trump’s decision to finally go ahead with the tariff increase on May 10 did not leave enough time for further ‘deadline beating’ manoeuvres for the $200 billion in goods that were covered.
However, Trump set in motion plans to implement a tariff on all remaining Chinese imports, valued at around $300 billion. Consequently, U.S. importers are likely to seek to get as many boxes of potentially affected products onto the water as soon as possible, which could cause May volumes and freight rates to spike.
US-China trade ware could impact heavily on freight market and rate fluctuations
“The same thing is happening all over again and U.S. importers are trying to get their goods into the country before any additional escalation,” asserted Byers. “They have no choice because any tariffs beyond what are already announced would be critical to their bottom line.”
“I expect ocean carriers will try to capture everything they can in the spot market as rates are sure to increase and they will likely ‘blank’ a few sailings just to make sure capacity is extra tight,” Byers added.