Expectations of a rapid end to the uncertainty gripping container shipping and its shipper customers should be shelved with industry analysis of the future focusing on structural changes to the global landscape.
According to Baroness Dambisa Moyo, an international economist and Conservative member of the UK’s House of Lords, shifts in capital flows, demographics, and political ideology will alter the long-term outlook for manufacturing and trade.
Writing in the US-based Project Syndicate Moyo argues that economists are divided on the Trump administration’s trajectory, with some claiming recent shifts in US-China trade relations mark a fundamental shift in the US approach, while others see it as a temporary pause that will be followed by more challenges.
“The latest twists and turns could imply that US policymakers’ primary motive is to achieve a fairer trading system through the “escalate to de-escalate” approach. If so, this goal should eventually sideline some of the other stated (contradictory) priorities: generating large revenues and significant reshoring of manufacturing,” wrote Moyo.
While Moyo’s view may be valid there are immediate, real-world, consequences of Trump’s tariffs that are highlighted by Alvin Fuh, VP – Ocean Freight Dimerco Express Group, who said: “With only a 90-day window to ship, exporters from China are under pressure, dealing with limited equipment, frequent rollovers, and escalating freight costs.”
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Dimerco said in its latest Asia/Pacific market report that many carriers had postponed peak season surcharges (PSS) from mid-May to 1 June, but these surcharges are now expected to be applied rapidly over the course of this month.
Two separate PSS increases will be imposed in addition to existing long-term fixed rates, with the first $2,000 per feu effective from 1 June and a $4,000 per feu increase effective from 15 June.
“Spot FAK rates are expected to be even more volatile, potentially rising to $6,000 per feu in the first half of June and up to $8,000 per feu in the second half,” said Dimerco.
In the latest twist Trump had threatened to increase tariffs on the EU to 50% from 1 June, after he said that negotiations with the bloc were “going nowhere”.
That threat was delayed until 9 July after European Commission president Ursula von der Leyen reiterated the EU’s commitment to reaching an agreement with the US.
Rates out of all regions of China to both US coasts are rising according to Dimerco as shippers look to beat the possible reimposition of higher tariffs, of up to 145% should negotiations between the US and China fail, boosting export volumes, with the forwarder warning shippers should book freight two to three weeks in advance.
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Much has been made of the impact of Washington’s import duties, but China’s retaliation has also impacted trade, particularly in the area of semiconductors.
A 34% tariff was imposed by Beijing on US chips, composed of a 10% base rate and 24% retaliatory tax, which was removed on 14 May, as was the 91% extra charge on chips, reducing import duties to 10% in total until August.
“The temporary tariff cut makes US chips more competitive in China and gives businesses 90 days to adjust or reach new deals. If no agreement is made by 10 August, the higher tariffs may return,” said Dimerco.
Meanwhile, the US is considering new chip-related tariffs, which could affect trade further, added the forwarder.
Import taxes of 25% on Iron, steel and cars, have been a constant since 2 April, and have had an immediate impact on the market according to some reports with the UK car manufacturer Jaguar Land Rover suspending exports in the expectation that taxes will be reduced in the near future, following a provisional agreement between the UK and US governments. Though the detail of this deal has yet to be finalised.
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Rising inflation and production costs could yet see the global economy decline, and that may be the threat that Washington is hoping will drive a better trading climate for US businesses.
Economist Mohamed El-Erian, President of Queens’ College at the University of Cambridge, argues: “The latest twists and turns could imply that US policymakers’ primary motive is to achieve a fairer trading system through the “escalate to de-escalate” approach. If so, this goal should eventually sideline some of the other stated (contradictory) priorities: generating large revenues and significant reshoring of manufacturing.”
El-Erian said that the global economy could be on a trajectory that will lead to recession, stagflation and the fragmentation of global commerce.
Alternatively, he said we could be enroute to a Ronald Reagan/Thatcherite “rewiring” that will eventually increase productivity and growth and to declining deficits and debt, that in turn leads to “a fairer trading order, and a more stable payments system”.
However, El-Erian concludes: “Even optimists should acknowledge that this is a 50-50 proposition at best. In the meantime, we will all need to muster the resilience to endure prolonged uncertainty, and with it the flexibility to prepare for vastly different future scenarios.”
