Tension between the U.S. and China surrounding trade disputes has caused some uncertainty in the shipping industry. The U.S. continues to threaten sweeping tariffs on Chinese imports, which could end up ranging from $50 billion to $450 billion.
Although some are more optimistic than others about the severity of the trade war’s impact, it is undeniable that the shipping industry will be affected in multiple ways. Here are some of the top changes we can expect for ocean freight in the coming future:
Slowing volume and rising freight rates
A predictable effect of the trade war is reduced volume of cargo being shipped. For instance, according to recent data from Container Trades Statistics, volume on the Asia-Europe trade rose only 0.7 percent in the first five months of 2018 – a significant drop from the 4.4 percent and 2.9 percent growth in the same period of 2017 and 2016.
Global shipping consultancy Drewry predicts that as much as 1.8 million teu, or nearly 1% of global container traffic, could be affected by the trade war. The rise in tariffs will also undoubtedly affect container shipping rates, which will increase in response.
In anticipation of this decrease in volume, many carriers are reducing their capacity as a precaution. The three largest ocean freight groupings, THE Alliance, Ocean Alliance, and 2M, have already announced cuts on their transpacific routes. According to Alphaliner, these cuts represent 6.7% of total trade capacity, which amounts to about 21,300 teu per week.
Many ports are concerned about the effect that the changing traffic could have on their local economy. For instance, a majority of traffic for a number of shipping gateways includes cargo coming from or going to China. John Wolfe, CEO of Northwest Seaport Alliance (NWSA), stated “Our success as an airport and seaport gateway is inextricably linked to China.”
In order to reduce the harm caused by diminishing Chinese traffic, ports may need to come up with new incentives to attract cargo from other trades. These might include better infrastructure or lower vessel landing costs.
Adjustments for importers and freight forwarders
Importers are directly affected by the new tariffs, and as such, they will need to adapt their strategies. For one, they will need to make sure they are staying up-to-date on the changes in duties. Furthermore, they may choose to change their product line as commodities such as steel and soybeans are hit the hardest by the new tariffs. They could also switch suppliers – for instance, choosing South American suppliers in favor of Chinese suppliers.