A lot has happened over the past week. We’ve seen a US-Houthi ceasefire deal re-spark the debate around safe access to the Red Sea. A UK-US trade deal has been struck – the first of its kind since the ‘Liberation Day’ tariffs. And, perhaps most significantly for container shipping, the pausing of the 145% China-US tariffs.
In the latest episode of The Freight Debate podcast, Phil Hennessey, Director of Commercial Partners and External Communications, and Emily Stausbøll, Senior Shipping Analyst, discuss it all. Listen now for a detailed update on the world of shipping, or read on for the highlights.
US tariffs get a small reprieve, but uncertainty is still front and center
The tariff pauses are separated into two parts: a 90-day for imports from countries other than China (announced on 9 April), and a more recent 90-day pause for imports from China into the US (announced on 12 May). This latest tariff pause sees tariffs on goods imported from China into the US reduced from 145% down to 30%. It’s good news, but it still represents a substantial cost increase for shippers – and it’s important not to lose sight of that.
Despite the 30% tariff being a significant cost, it’s likely there will be higher exports from China over the next 90 days – mostly because the 30% remains more attractive than the uncertainty that will come after it.
“There's two windows. There's the window of ~60 days for everybody other than China, and then there's still 90 days for China. So, you've got the first window now for two months where, in theory, you have higher exports from everywhere, and then that ends, and you still have 30 days with higher imports from China. And that will drive up spot rates.”
Emily Stausbøll, Senior Shipping Analyst at Xeneta
Timing will become a major challenge as the tariff picture changes. One way shippers can use data to make sure they keep costs as low as possible is to look at transit times in light of tariff announcements.
For example, let’s say you usually make port on the US East Coast, adding days to your journey. If you know tariffs are due to be implemented during those days, you could make port on the US West Coast and avoid those costs. Or perhaps, there are even smaller changes you can make that deliver the same big impact.
“Days and sometimes hours count when you're trying to beat these tariffs. You could drop off your boxes in New York rather than waiting for that string of port calls further down the east coast. That could save you a day, and actually, that one day could save you hundreds of thousands of dollars.”
Phil Hennessey, Director of Commercial Partners and External Communications at Xeneta
Could a UK-US deal be the first of many?
The UK-US trade deal, the first since the ‘Liberation Day’ tariffs were introduced, may inspire hope of further deals to come. However, the relationship between the US and UK is very different to many of the US’ relationships with other countries around the world.
The UK is one of the few nations with which the U.S. maintains a trade surplus. And if a country’s goal is to reduce its trade deficit, it doesn’t make a lot of sense to levy significant tariffs on countries you have a trade surplus with.
As of today, the UK has a 10% tariff with reduced rates on some specific products like steel and aluminium. Car export tariffs will also reduce from 27.5% to 10% – saving hundreds of millions a year for brands such as Jaguar Land Rover.
A ceasefire is positive news for the Red Sea area, but it’s unlikely to reopen imminently
The ceasefire deal between the US and the Houthi rebels in Yemen has reopened conversations around safety in the Red Sea. However, although it is a positive step forward, currently it seems to be an isolated deal between the US and Houthi ministers, and doesn’t cover any other ships.
As a carrier, there are a large number of reasons that make a return to the Red Sea incredibly complicated. Shifting their networks causes a significant amount of disruption that might need to be undone if the decision is reversed. Each carrier will also likely have different strategies in place when it comes to the Red Sea, with different risk tolerances and new alliances to consider. Until broader agreements are reached and the situation stabilizes, the Red Sea remains a highly uncertain and risky region for global shipping.
“From a carrier's perspective, they need something more to be able to make that return, and I don't really see where that's meant to be coming from, if you consider the environment we're working in these days.”
Emily Stausbøll, Senior Shipping Analyst at Xeneta
Building flexibility into your strategy will help you stay on top of market movements
Having a tried and tested manufacturing setup and supply chain route feels like a thing of the past. In today’s rapidly shifting landscape, the ability to remain flexible and agile is paramount. By building diversification into your supply chain, you’ll not only safeguard against disruptions but also position yourself to thrive amid the unpredictable challenges of tomorrow’s global events.
For example, one Xeneta customer, a manufacturer of leisure equipment, had production facilities in both China and Vietnam. When the US tariffs were introduced, they could adapt their supply chain to send goods manufactured in China to Europe and Australia, and goods manufactured in Vietnam to the US – mitigating some of the tariffs’ impact.
Another area to consider is how market volatility impacts the signing of new contracts. Indexing deals could be a great option, as could adding renegotiation clauses to longer contracts in case you need to react to another global shift during your contracts’ term.
“We've been conditioned to expect bad news over the past 18 months. So, when we talk about index linked contracts, we talk about the index tracking an upward market. But it’s absolutely right that from a shipper’s point of view, if you lock into a rate now – in the absence of another black swan event – your rates are going to track downwards. So, for a lot of shippers, that's going to be really attractive.”
Phil Hennessey, Director of Commercial Partners and External Communications at Xeneta
Stay up to date with The Freight Debate
Tune in to the full conversation with Phil and Emily for an in-depth look at how the tariff and Red Sea situations are unfolding and what it means for the future of global trade.
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