Shortly following his inauguration on 20 January, Trump stated he is ‘thinking about’ introducing his proposed 25% tariffs on imports from Mexico and Canada on 1 February. He did not immediately go-ahead with previous threats of 60% tariffs on goods from China and 10-20% from the rest of the world, instead ordering a probe into ‘trade deficits and unfair trade practices and alleged currency manipulation by other countries’.
We know tariffs are on the way – we just don’t know when, where or the category of goods impacted. This uncertainty makes managing supply chain risk an almost impossible task.
…said Peter Sand, Chief Analyst, Xeneta.
Peter Sand continued by commenting that the worst case scenario is Trump announcing blanket tariffs against China and the rest of world simultaneously. The rush to import goods into the US ahead of tariffs coming into effect could cause carnage across global supply chains and put upward pressure on already-elevated freight rates.
Data released by Xeneta shows the last time Trump ramped up tariffs on China imports during the trade war in 2018, the ocean container shipping markets spiked more than 70%.
Furthermore, on the critical trade from China to the US West Coast, average spot freight rates increased from USD 1 503 per FEU (40ft container) on 1 January 2018 to USD 2 604 per FEU on 1 November 2018.
Current spot rates from the Far East to US West Coast stand at USD 5 234 per FEU. This is 29% higher than 12 months ago, primarily due to the impact of conflict in the Red Sea. If rates increase from today’s level by 70%, as they did back in 2018, the market would hit an all-time high, surpassing the previous record set during Covid-19.
Shippers want to take decisive action against these geo-political threats. In the short term that may mean building up stock inventories if they know when tariffs are coming into effect and the goods within scope.
…said Sand.
