Episode Transcript
[00:00:03] Speaker A: You are listening to the Freight Buyers Club, a home for those interested in international trade, shipping procurement, logistics and air freight. In fact, all things supply chain in the Americas, Asia and beyond. This podcast is brought to you by your host, Mike King and produced in partnership with Demurco Express Group, a global 3 PL that specializes in managing logistics to from and within the Asia Pacific region.
[00:00:30] Speaker B: Hello everyone. Welcome to the Freight Buyers Club. I'm Mike King. This episode is produced with the kind support of Demerco Express Group. Today we have got insight from thought leaders, analysts and operators as we unpack the chaos hitting Trans Pacific trades between Asia and the US or rather the shifting sands of tariff policy that are stirring up turbulence. We'll also dive into what lies ahead for container shipping markets and there are some big shifts coming. But first, let's set the scene. Here's what we're talking about.
[00:01:08] Speaker C: This is one of the most important days, in my opinion, American history.
It's our declaration of economic independence.
My fellow Americans, this is Liberation Day, April 2, 2025.
[00:01:27] Speaker D: We have a system that is predicated on volumes. Those volumes are very, very price sensitive.
And so what we've seen is nearly a shutdown of that trade from China.
And that is being reflected now in the amount of cargo that we're moving.
[00:01:44] Speaker C: It's in addition, yesterday we achieved a total reset with China after productive talks in Geneva. Both sides now agree to reduce the tariffs imposed after April 2 to 10% for 90 days as negotiators continue in the larger structural issues.
[00:02:03] Speaker B: In between those two Donald Trump clips, you had Mike Jacob, president of the Pacific Merchant Shipping Association. He was laying out how damaging the tariff war has been for US Container imports. And he was speaking before this tariff truce was announced.
That's right. A tariff truce respite is finally here. We have got a 90 day window. The US is scaling back tariffs on Chinese goods from 145% to 30%.
China meanwhile, drops duties on US imports from honor 125% to just 10%.
So let's get some reactions to the deal. Then we'll break down what carriers have actually been doing on the Trans Pacific lanes these past two months and what those moves might reveal about the next three months. But first, those headline numbers. Good news, right?
Well, yes and no. No, because the numbers don't tell the whole story. I'll get back to that. But yes, because global trade was slowing fast and worse was coming.
In fact, manufacturers were already reporting an almost unprecedented export slowdown. Tariffs were effectively acting as a trade embargo. This month, carriers had blanked sailings at historic levels. At the start Of May, almost 6060 scheduled services were canceled or blanked. Shippers had paused the movements of goods, hoping for a breakthrough. And with 80% of toys sourced from China, widespread order cancellation sparked fears of holiday shortages and which President Wants to Be the Grinch that Stole Christmas? Indeed, the situation was looking pretty disastrous for US Ports and the ecosystems built around them. Noel Hachigaba from the Port of Long beach summed it up.
[00:03:55] Speaker E: It was looking pretty dire prior to this weekend's announcement. For the month of May, we were looking at a 30% drop year over year just for the month of May. That's about 400,000 TEU. And just to put that in perspective, Mike, in the month of April we held 865,000 tu.
So that's about 46% of what we handled in the month of April that we thought we would be down in May. And that was directly a result of the blank sailings.
[00:04:26] Speaker B: So now a surge is coming, but let's not get carried away. The headline Tariff cuts don't tell the full story. The devil is in the details. Let's go back to Trump and I.
[00:04:39] Speaker C: Want to tell you that a couple of things. First of all, that doesn't include the tariffs that are already on that are our tariffs. And it doesn't include tariffs on cars, steel, aluminum, things such as that, or tariffs that may be imposed on pharmaceuticals because we want to bring the pharmaceutical businesses back to the United States.
[00:05:00] Speaker B: And that's just a taste of what's not included. For those who are only listening, I'll put in the notes for this podcast a link to A post on LinkedIn from Keith Schwartz, CEO of Nicole Braden Gifts. It's a must read if you're shipping from China. And for those watching, here's what to look out for because because that 30% tariff it stacks, depending on origin classification and material real costs can hit 40%, 70%, even 90% for some products moving from China to the U.S. according to Keith. And that's before you even look at rising freight rates. Still, major shippers are now preparing to move serious volumes over to Mark Chadwick, president of the Global Shippers association, which is a major freight buying NGO representing an array of leading brand members.
[00:05:51] Speaker F: So with the Chilk Global Super Ships Associates, 22 members, Big Global companies, everything from appliances to wind turbines.
So very diverse mix of products. But I mean the general theme, a lot of the shippers have been holding back volume, waiting to see what would happen.
You know, we know we need to bring stuff in, but there's, there's definitely some pent up demand which is now going to hit like a tidal wave, you know, for, for all kinds of shippers. But I think if this had gone on another month, that would be much worse. We're going to see a lot of disruption, we're going to see trouble, empty containers, being in the wrong places, we're going to see congestion at the ports, that kind of thing. But had this gone another four weeks or five weeks, it would have been much worse. So hopefully we can weather this storm like we've weathered the others and we'll get through it.
[00:06:47] Speaker B: Now let's zoom in on how container markets, carriers and shippers have been reacting since the start of April tariff Liberation Day, April 2. Essentially, this split the Asia US trade in two.
On April 2, most countries were hit by substantial tariffs. But while US and China tariffs were subsequently ramped up further, shippers fortunate enough to have supplies outside China were able to capitalize on a 90 day moratorium on tariffs announced for many of those countries. This came in on April 8. It created a temporary window to ship goods before new restrictions kick in later this year.
As you can see if you're watching, rates from China to Long beach went south.
By contrast, those from Vietnam to the US rose rather quickly. Freighter CEO Zvi Sreiber says they only equalize because carriers slashed capacity. Carriers haven't sat idle. They've been shifting vessels to Asia, Europe and Mediterranean routes. This caused spot rates to decline.
But while ships were waiting out tariff chaos in China, this is not a return to normal. Networks are out of position, so are ships, so is equipment. Tariffs for most products are still very, very steep. So if shippers pounce now, expect bottlenecks and expect rates to increase.
Indeed, Drury's World Container index reported an 8% week on week surge. On the 15th of May, freight rates from Shanghai to New York were up 19%. That's $704 per 40 foot container to $4350. Those from Shanghai to LA shot up 16%. And if tariffs and shipping rates go up, expect inflation. Certainly Zvi thinks volumes are going to spike partly from pent up demand and partly from fear because what happens after the 90 days?
[00:08:48] Speaker G: So I think you'll see a trade a going back more or less to normal, but probably more than normal for two reasons, because there's some, some stuff that was canceled for various reasons, even stuff that was sort of all ready to ship. And then Suddenly there was 145%.
So there's some pent up demand for sure, number one. The other reason you'll see a sudden spike in demand is that this is only for 90 days. So people don't know what's going to happen in 90 days time. So they're going to want to ship goods from China and front load ahead of the 90 days just in case. You know, obviously they're hoping to extend this, but just in case they don't, people might want to ship extra from China. So you might, you might essentially have an early peak season. You know, peak season often, sometimes it's sort of August, September, but you might see peak season coming forward to June, July, just because nobody wants to risk what happens after August.
[00:09:37] Speaker B: So this relief is welcome but temporary. No one knows what comes next. Still, the mood causes optimism.
[00:09:46] Speaker E: We are cautiously optimistic that this is the first in a series of steps that will bring some stability between the world's two largest economies and our largest trade partner by volume. What we're hearing from the trade community is a lot of relief that the de escalation is in our midst. A lot of relief that there's a framework and a path forward for the two largest economies to hash things out and reach a resolution as quickly as possible.
And we're also seeing a glimmer of hope as our dock workers who were most vocal about the impacts of jobs, I mean just in the last couple of weeks they were already sustaining job losses to the tune of 200.
That is something that has an immediate impact not just to our port Mike, but to our communities. You know, almost half of the workforce that supports port operations lives within 10 miles of the port complex. So you can imagine the cascading effect, that knock on effect when folks don't go to work, when they don't earn that paycheck, it has that trickle down effect. And that was, that's what we were most concerned about. On the trucking side, truck drivers that were used to calling four or five containers a day were reduced to two or three, in some, in some cases zero. And they make their living based on the load.
So you can imagine again the dire consequences for those workers whose prospects of pulling out containers out of our port complex were greatly diminished. So we do see this announcement coming out of the weekend as an encouraging sign. And we're hopeful that China and the United States will reach a resolution and provide the stability that we're all clamoring for so that we can continue to support our local, regional and national economy.
[00:11:32] Speaker B: There is another game changer for container shipping out there, and that is the possible return of vessels to the Red Sea and Suez Canal.
[00:11:40] Speaker C: We also, as you know, created a situation where the Houthis, for the first time ever have ceased firing and they've let it be known that they're not going to be firing at American ships anymore.
[00:11:56] Speaker B: But again, the devil is in the detail. What do the Houthis mean by American ships? Because the US flagged fleet is tiny, until safety is guaranteed, don't expect a full return to the sewers. Still, the Suez Canal Authority is trying to lure lines back with a 15% discount. But container lines are unlikely to return until they can guarantee ships, crew and cargo are safe. It's also worth noting that detours via Southern Africa are currently removing around 10% of global box shipping capacity. Of course, that's helping to prop up rates, but if Suez reopens, the balance shifts again. V. Schreiber from freightos explains why carriers aren't rushing back and how overcapacity could trigger another rate collapse.
[00:12:43] Speaker G: And I think that's why they're not in a hurry to return to the Suez Canal. A, there are safety concerns, but B, they've got no incentive to return the Suez Canal because so long as they're all going around Africa, that's a, that's an artificial way to suppress capacity as well.
Last time, you know, before the Suez Canal closed, if you look at post pandemic before the suez Canal in 2023, we saw our sort of bellwether FBX01 index, which is China to US west coast, one of the biggest, probably the busiest trade lane. We saw that dip below $1,000, which is obviously a rate at which the carriers are losing a lot of money and so they don't want to see that again. And there's even more ships have hit the water since then and there are more ships on the order books, so there's more and more supply.
So I think the carriers are going to try very hard to control the capacity either by continuing to avoid the Suez Canal, whether that's strictly necessary or not, and by blanking sailings.
But if one of them breaks ranks and you know, and decides to give the most competitive price they can, then we could certainly see rates crashing. That fundamentally there's overcapacity.
[00:14:00] Speaker B: So change is the only constant. Keep your eyes on every moving part. And to help you navigate tariff turbulence, here's advice from John McCauley, cargo logistics veteran and BCO consultant.
[00:14:14] Speaker H: Yeah, I think first of all it's good News that the US And China have been able to get to a provisional agreement on a level of tariffs that may be workable for both sides. So that's encouraging. And you would expect that China may well, and the US would then be looking to influence other Asian countries that have also been subject to significant tariffs to have trade discussions and bring those down as well. So if we talk Asia more widely with countries like Vietnam and Cambodia and India, where there's a significant amount of sourcing also for the US that could be a good thing as well to bring those numbers down. But the issue that people are facing is how do I manage my near and medium term demand?
And the first thing is that we've seen a surge in imports over the last six months, even up until the most recent month. So it's very clear that many importers have boosted their stock levels, which is fine, in anticipation of of tariff increases. And that's a good thing from the point of view of managing cost. We'll see what happens on the demand side. But the first thing is run down that stock. If you're an SME, that's the thing you want to do. Until these tariffs really start to level out and you're very confident that you actually understand what your playing field is, then best bet is keep your stock levels down. The other thing that's working in your favor and we will come on to that possibly is on the air freight side. So if you do need urgent shipments, if rate seems to be softening somewhat, so that can be helpful as well. The second thing that people need to be looking at is looking at their exposure in terms of risk for the cost of their goods. And by that I mean if you're an importer where you're importing fully produced product and then you're selling it, you're going to have a significant impact. No matter what the tariff level is. If it's a part or a piece or part of your production, then clearly you're going to have an impact. The question is, how critical is that item for your production process? Is it readily available elsewhere? Could you source it elsewhere? So that's another way in which you can avoid some of the more punitive tariffs, assuming you can get it cheaper elsewhere. And also you want to look at it from the point of view of how much is that going to add to your cost of goods and therefore have an impact on your overall profitability.
So the key thing here is you can think about, well, I'll pay the tariff, I'll know that my costs have gone up. Then the other side will be what is the appetite of your organization to accept increases so an increasing cost. Let's just assume that the SME in the US is absorbing all of the cost.
You could then look at it and say, okay, we'll absorb that. We can pass it on. Depends on the price elasticity of the item that you produce, the competitive nature of it. Or you could decide to go further back upstream and ask your supplier to absorb part all of that cost increase relative to the amount of the tariffs.
The one thing that could well work in your favor and I see that the US dollar is up again. So that could work that the US dollar regains a bit of its strength.
But equally you might decide to source in local currency. So you might say, well I'll source in renminbibi or in dong or whatever the currency is of the country that you are purchasing from. So there's a number of different options as to how you could mitigate. But one thing for sure is somewhere along the supply chain somebody's going to take a hit and it'll depend on how much you're able to pass on at the consumer end and then how much. If you're in the B2B business, your customer who then is answerable also to their consumers, is able to absorb in their supply chains.
[00:18:12] Speaker B: That's all from the Freight Buyers Club. Thanks again to demarco Express Group for supporting independent journalism. If you found this useful like follow subscribe it keeps us going big. Thanks to Karen Ball and Tom Matthews for all their production help and massive gratitude to you all for listening and watching. We'll be back soon.
