Port Report: Trans-Pacific Outlook Worsens On U.S.-China Trade Tiff

The U.S.-China trade talks throw another curveball at shippers and leave no time to move containers ahead of new tariffs. Market experts see no quick relief at hand, and the weak rates are the set-up for service cuts by the ocean carriers in the coming weeks.

As reported in FreightWaves, the Freightos Baltic Index for container shipping into North America has been under pressure since May 5, when President Donald Trump said he would immediately impose 25 percent tariffs on $200 billion of Chinese exports to the U.S., up from the 10 percent tariffs imposed last year.

Soon after, the U.S. Trade Representative also started the process for adding the same duty level to another $300 billion in goods from China.

SInce President Trump's early May tariff moves, the daily index for China-North America West spot voyages (SONAR: FBXD.CNAW) dropped 14 percent to $1,326 per forty-foot equivalent unit (FEU).

The downward move is a reversal from April when inbound container volumes to North America reached their best levels since January 2019. Major North American West Coast ports reported a 4 percent year-on-year rise in total import volume, reaching just over 1 million twenty-foot equivalent units (TEU).

Monthly import statistics from Ports of Los Angeles, Long Beach, Oakland, Seattle, and Vancouver.

The higher inbound volumes also helped one of the leading trans-Pacific carriers, Ocean Network Express. The Japanese container ship alliance reported eastbound trans-Pacific liftings of 211,000 TEU for April, up 9 percent from March.

But the latest round of tariff hikes and new tariffs have thrown yet another spanner in the ocean freight market. According to the Ningbo Shipping Exchange, container volume between China's second busiest port and North America took a hit in May "due to the uncertainty of the trade environment."

According to a report from the exchange, "Some orders were delayed, and the market cargo volume decreased slightly."  

The newest round of the trade war means U.S. importers are "reluctant to book any new product into the U.S. as their profit margins have been slashed by new tariffs," said George Griffiths, Editor of Platts Weekly Container Commentary.

He added that a prolonged period of low rates is "likely to cause significant attrition on trans-Pacific routes over the coming weeks, with carriers fighting to maintain market share."

Shipping consultancy Maritime Strategies International also gave a downbeat outlook for spot freight rates from Asia-to-North America due to the latest trade tiff.

"While frontloading to avoid potential new tariffs and some success in relocating production will offset the negative impact to a degree, we expect the Transpacific is heading for a period of pronounced negative growth," it said in its last weekly commentary.

The fallout of low rates could hit post-Panamax container ships, which are generally under 10,000 TEU in capacity. Those vessels "will be exposed to a likely slowdown in demand and service withdrawals from liners," MSI added.

One commodity group hit by both the tariff increase and proposed new tariffs is clothing and apparel. The U.S. imported $33.8 billion in clothing and apparel items from China last year, according to trade data from the U.S. Census Bureau.

Ken O'Brien, Chief Operating Officer of Gemini Shippers Group, which represents apparel shippers in ocean freight negotiations, said "a 25 percent tariff is significant. It is not something that any one part of the supply chain can endure."

But with a June 1 deadline before the imposition of the first 25 percent tariffs and an uncertain start on when the other round of tariffs will go into effect, "the clear action plan to deal with it is not apparent just yet," he added.

Front loading may not be an option this time due to the suddenness of those tariffs. One trade expert who spoke on background said some apparel shippers turned to air freight because ocean freight would take too long.

The ability to shift overseas manufacturing sites on such short notice is "pretty much non-existent," O'Brien said.   

One tailwind for apparel shippers was the decision to front-load imports last year, O'Brien said. While first quarter sales were strong for apparel, "there's still a lot of inventory in distribution centers," O'Brien said.

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