Donald Trump, tariffs and the strategy for shippers
Donald Trump returned to the White House last week and took no time in threatening tariffs of 25% on imports from Mexico and Canada on 1 February. He also ordered a probe into ‘trade deficits and unfair trade practices and alleged currency manipulation by other countries’ – likely a pre-cursor for tariffs against China.
In Part 1 of this blog, Xeneta Chief Analyst Peter Sand shared advice on how shippers can mitigate geopolitical risks in their ocean freight tender strategy. In Part 2 here, he will look at whether the geopolitical threats will see a shift in global trade patterns – and what it means for shippers, as per a Xeneta communique.
How does geopolitics cause supply chains to shift?
Global supply chains are fluid and constantly evolving to threats and opportunities. We saw this following the escalation of the US-China trade war in 2018 during Trump’s first term as President.
Ramping up of tariffs on US imports from China prompted shippers to consider their options, such as importing goods into the US via Mexico and Canada.
This contributed to extraordinary growth in TEU volumes shipped from China to Mexico – up 76% between 2019 and 2024. Into Canada, TEU volumes increased 54% in the same period.
Geopolitics may put up barriers to trade but, ultimately, goods will always find their way from one place to another if there is a demand for them.
Will shippers shift supply chains during Trump’s term in office?
That is the multi-million-dollar question.
Perhaps the ferocious growth in volumes into Mexico and Canada may taper off if tariffs make it a less attractive back door into the US, but shippers aren’t going to abandon this route after spending years setting it up and investing in infrastructure such as logistics centers.
Additionally, Trump has threatened even harsher tariffs on China at 60% and blanket tariffs of 10-20% from the rest of the world. If shippers are going to shift supply chains to avoid tariffs, it may be a case of identifying the least-worst option.
It should be noted that it is generally easier to shift the import destination than it is to change the export origin. Importing into Mexico for onward transportation into the US adds complexity to supply chains but pales in comparison to the upheaval caused by moving exports away from China and dismantling well-established manufacturing set-ups.
That being said, there have been increasing containers exported out of India in recent years, most likely at the expense of China, while neighbouring South East Asia countries such as Vietnam are also growing in prominence. From India Subcontinent to US East Coast, volumes were up 14.5% year-on-year in 2024.
Perhaps businesses are looking to avoid tariffs by shipping goods from China to a nation such as Vietnam for repackaging/repurposing before onward transport to the US. If tariffs on China ramp up, it could accelerate this approach.
What are the risks and opportunities of shifting global trade patterns?
Assessing supply chain risk and freight tender strategies should be an ongoing and integral part of a shipper’s business-as-usual workstream.
Identifying alternatives and having contingency plans in place requires a clear understanding of ocean container networks across and beyond the trade lanes you currently utilise.
Let’s say you currently ship containers from China to US East Coast but want to understand the implications of shifting some export volumes to India. Do you think average spot rates alone are enough to base such a major strategic decision?
Xeneta data shows current average spot rates from China to US East Coast stand at 6,446 per FEU. From India to the US East Coast, average spot rates are USD 4,827 per FEU.
In the example using actual Xeneta data, a shipper may select Carrier A which offers rates at USD 265 below the market average rather than Carrier B with rates USD 50 above the average.
If the shipper turns attention to the India to US East Coast trade, Carrier A is now the more expensive at USD 2,187 above the market average, with Carrier B now sitting USD 2,648 below the average.
Clearly, without this data, a shipper would not be able fully assess the implications of shifting volumes across these trades – or indeed realise the commercial opportunity if they aren’t able to identify the right service provider.
Carrier spread is just one example of the range of data you must consider in your freight strategy. That means using the Xeneta platform to access long and short term freight rates as well as data on capacity, transit times, schedule reliability, detention and demurrage, surcharges and carbon emissions.
What next?
Keep calm. It can take years for trade patterns to evolve as different geopolitical threats emerge and recede. In four years’ time there may be a new inhabitant of the White House with a different trade policy to Trump.
The smart shippers don’t wait for a threat such as Trump’s tariffs to emerge before they leap into action. They already have a deep understanding of ocean container shipping and an agile freight strategy that keeps options open so they can adjust to these geopolitical forces in the short and long term.
SourceOslo: