Shipping industry braces for demand collapse

The shipping market is reeling from the threat of a demand collapse due to the impact of new US tariffs, with data showing a sharp drop in shipping orders and ocean freight facing massive cancellations.

container-shipping

Until recently, despite the turmoil in trade policy and financial markets, SONAR data had not shown much change in shipping demand – measured by tender volume. However, that has changed. In recent days, the number of electronic orders from shippers to carriers has dropped sharply, no longer maintaining the same level as two years ago (2023 volume is shown in red in the chart). Currently, order volume is down 14.9% compared to the same period last year and down 7.6% compared to the same period two years ago. A closer look by trailer type shows that the dry van segment was hit the hardest, down 17.6% year-over-year, while the reefer segment – which is less cyclical – was down just 2%.

Outbound Tender Volume Index - USA

Tender volumes, a measure of how often carriers request carriers to move cargo, have been trending lower in recent days. (Chart: SONAR)

Ocean Shipping Markets in Flux

Over the past week, ocean shipping market data has been in the spotlight in industry media and SONAR customers. It is clear that bookings from China to the US are down, although different data sources have recorded declines at different thresholds. SONAR shows a 25% drop in bookings, while another data source recorded a drop of more than 60% in just one week – from the last week of March to the first week of April. A Wall Street research report quoted the Port of Los Angeles as saying it expects cargo volumes in May to fall 9% year-on-year, largely due to 20% of blank sailings.

The overall trend in ocean freight rates this year has been downward. However, SONAR data shows that spot rates are rising again on some routes. For example, rates from Vietnam to the Port of Los Angeles have increased by about 18% month-on-month. Rates have also increased on the Far East-North Europe trade, which could exacerbate congestion at ports in the Netherlands. After the US announced a 90-day extension of tariffs on countries outside China, ocean freight bookings from other Asian countries have rebounded – arguably the main driver of the recent surge in spot rates. This trend could last until July, after which demand could collapse and rates could plummet.

Ocean booking volume Index

SONAR Container Atlas shows that ocean freight bookings from China to the US never recovered after the Lunar New Year. In response, carriers have been rationalizing capacity and canceling sailings. (Graph: SONAR)

Syracuse University Supply Chain Expert on The Stockout

On Monday’s episode of The Stockout, Grace Sharkey and I discuss the impact of tariffs on the shipping market and interview Patrick Penfield, a supply chain professor at Syracuse University. Penfield points out that changing product design can help shippers reclassify their goods to avoid tariffs. Who would have thought that simply changing the location of a pocket on a garment could save a business a significant amount of tax?

A prominent theme in recent tax news has been the greater adaptability of large exporters compared to small businesses. E-commerce giants such as Shein and Temu have begun shifting from made-to-order to domestic fulfillment models to accommodate the May 2 repeal of the de minimis exemption for goods from China. Gene Seroka, executive director of the Port of Los Angeles, said it is the large retailers who are most likely to proactively import goods early to avoid tariffs. Ryan Petersen, CEO of Flexport, believes that shifting production from China to Vietnam is only feasible for exporters large enough to ensure adequate output. Because of their lack of flexibility, small businesses are likely to be the most negatively impacted by sudden and severe tariffs. It can therefore be argued that the Trump administration’s current trade policy is counterproductive to the goal of protecting domestic jobs.

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