But the short lead time until implementation of new 10% tariffs ‘will probably prevent a repeat of last year’s epic price gains’, says Drewry.
Last week’s sudden resumption of US-China trade hostilities is expected to lead to a spike in transpacific demand and raise ocean freight spot rates, although the shorter lead time will probably prevent a repeat of last year’s big price gains, according to container shipping analyst Drewry.
Following the announcement by US President Donald Trump that the US will impose a further 10% tariff on another $300 billion of Chinese goods from 1 September – and that tariffs could be lifted further in stages to more than 25% – Drewry said that the rise, although sudden, was not unexpected. It noted: “The recent cessation of trade hostilities between the US and China barely lasted a month. Predictably, the truce that was agreed during the G20 meeting in Japan at the end of June was ended via Twitter, when President Trump announced on 1 August that a new tariff of 10% will be imposed on another $300 billion of Chinese goods, effective 1 September.
“Latter remarks indicated that the rate could rise to at least match the 25% duties placed on the remaining $250 billion of Chinese goods already subjected to extra tariffs.
“Drewry did not think the G20 accord would last, as all previous such agreements eventually unravelled amid a flurry of social media output. However, the speed of the collapse is surprising. We had thought that President Trump might continue with some sabre-rattling for show, but resist any actual action that could directly damage the US economy before next year’s general election.”
Drewry research shows that the rollout of US tariffs “have progressively targeted consumer goods, along with greater exposure to China sourcing, meaning that it will be harder to shield Americans from related price increases, which in turn could harm Trump’s re-election chances.” Its analysis estimates that the first tranche of tariffs on US$50 billion of US imports from China affected around 640,000 teu of China-US goods, primarily intermediate and capital goods, with tariffs on the second $200 billion tranche estimated to have impacted about 6 million teu, mainly consumer, intermediate and capital goods.
This latest round of tariffs on another $300 billion of Chinese imports to the US is estimated to affect a further 4 million teu of Chinese export shipments – primary consumer goods, but with a small proportion of intermediate and capital goods.
Putting politics aside and looking more broadly at what the escalation of the trade war means for the container market, Drewry noted: “In the long-term, we retain the view that rising protectionism is a negative development for container growth, potentially mitigated by trade substitution and greater production fragmentation away from China, but there could be some short-term upside.
“Last year’s tariff wars instigated a cargo rush in the transpacific as BCOs (beneficial cargo owners) brought shipments forward to beat the threatened imposition of higher US import tariffs, leading to a surge in freight rates. The difference this time around is that cargo owners have less time to prepare, and with transit times between China and the US West Coast taking approximately 14 days, there is only a small window during the first two weeks of August for shippers to arrange front-loading to beat the new deadline.
“Therefore, we expect to see a brief spike in transpacific freight rates – specifically to USWC (US west coast) as the quickest route to market – in the first half of August. The threat of further increases to the new tariff rate could see that process continue beyond 1 September, but we do not expect freight rates to replicate the same steep incline as last year.”
In summary, Drewry concluded: “The escalation of the trade war will elevate spot rates in what was shaping up to be a moribund peak season, but the shorter lead time will probably prevent a repeat of last year’s epic price gains.”
Source: Lloyd´s
