Container shipping market volatility to persist

Container market volatility is expected to persist due to global structural changes, while trade policies are putting pressure on freight rates and supply chains in the short term.

Container-shipping-market-volatility-to-persist

Container shipping market volatility to persist (Photo: Czapp/Phaata)

Expectations of a quick end to the uncertainty gripping the container shipping industry should be set aside in favor of future-oriented analysis of the industry that focuses on structural changes to the global landscape.

According to Baroness Dambisa Moyo, an international economist and Conservative member of the UK House of Lords, changes in capital flows, demographics and political ideologies 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 direction of the Trump administration. Some see the recent changes in US-China trade relations as a fundamental shift in the US approach, while others see them as a temporary pause that will lead to 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,” Moyo wrote.

While Moyo’s point may be valid, there are immediate practical consequences of Mr Trump’s tariffs. This was highlighted by Alvin Fuh, Vice President of Ocean Freight at Dimerco Express Group: "With only a 90-day window to ship, exporters from China are under pressure, dealing with limited equipment, frequent rollovers, and escalating freight costs."

Dimerco said in its latest Asia/Pacific market report that many carriers had delayed the implementation of peak season surcharges (PSS) from mid-May to June 1, but now these surcharges are expected to be implemented quickly this month.

Two separate PSS increases will be added to existing long-term fixed rates, with the first increase of $2,000 per FEU effective June 1 and the second of $4,000 per FEU effective June 15.

" 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," Dimerco said.

In the latest development, Mr. Trump threatened to raise tariffs on the EU to 50% from June 1, after he said that talks with the bloc were "going nowhere."

That threat was postponed until July 9 after European Commission President Ursula von der Leyen reaffirmed the EU's commitment to reaching a deal with the United States.

Freight rates from all regions of China to both coasts of the United States are rising as shippers look to get ahead of the possibility of higher tariffs, which could be as high as 145% if talks between the United States and China fail, boosting export volumes, according to Dimerco. The forwarder also warned shippers to book freight two to three weeks in advance.

The impact of Washington's import tariffs has been widely reported, but China's retaliation has also impacted trade, particularly in the semiconductor sector.

Beijing imposed a 34% tariff on US chips, including a 10% base tariff and a 24% retaliatory tariff. That tariff was removed on May 14, along with a 91% chip surcharge, bringing the total import tariff down to 10% through 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,” Dimerco said.

Meanwhile, the US is considering new tariffs related to chips, which could have a deeper impact on trade, the forwarder added.

The 25% import tariff on iron, steel and cars has been in place since April 2 and has had an immediate impact on the market. According to some reports, British carmaker Jaguar Land Rover has suspended exports in the expectation that tariffs will be reduced in the near future, following a temporary agreement between the UK and US governments, although the details of the deal have not yet been finalized.

Inflation and rising production costs could still drag down the global economy, and that could be the threat that Washington hopes will spur a better trade environment 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."

Mr. El-Erian says the global economy may be on a trajectory that will lead to recession, stagflation and fragmentation of global trade.

Alternatively, he argues, we may well be on the way to a Reagan/Thatcher-style “rewiring,” which would ultimately boost productivity and growth, leading to lower deficits and debt, and thus “a fairer trading order, and a more stable payments system.” However, Mr 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.”

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