The Merchant · n°142 · April 17, 2025

Air freight rates soar, but a drop may be looming

🚢 Unreadable rates.
🇨🇳 Are we living the last months of free trade?
🇺🇸 Major systemic risk looming.

Figure of the week

80% This is the reduction in the trade of goods between China and the United States that the tariff war could cause, according to Ngozi Okonjo-Iweala, director general of the WTO.

Quote of the week

“Nobody will get off easy for the unfair trade imbalances and non-tariff barriers that other countries have used against us, especially not China, which, by far, treats us the worst!” Donald Trump, on April 14, on his Truth Social network.

First shockwaves?

Two weeks ago, ocean freight professionals saw a tariff bomb drop, without immediately feeling the shockwave. That is no longer the case today. The customs surcharges imposed by the American administration on Chinese products are causing a clear slowdown in trans-Pacific trade: container bookings between China and the United States fell by 25% year on year according to data from SONAR Container Atlas. This new reality has already claimed a victim: Vasi, a Singaporean container operator, went bankrupt.

For Judah Levine, analyst at Freightos, this “trade war is creating a global logistical shockwave.” This is manifested notably in container bookings on a global scale, which fell by 18.4% between March 30 and April 8. Faced with this climate of tension and uncertainty, carriers are reacting by multiplying blank sailings, which make supply scarce to support prices at a time when demand is weakening. These cancellations can lead to delays and extra costs, forcing some importers to turn to air freight or to fragment their shipments.

The consequences of this strategy are still unclear. Freight rates briefly increased last week: +3% toward the American west coast, +5% toward the east coast. But this rise is fragile: the Shanghai Containerized Freight Index (SCFI) has already declined on trans-Pacific routes. According to Alan Murphy (CEO of Sea-Intelligence), if this dynamic were to continue, the global economy could tip into a new recession, which would weigh even more heavily on the dynamism of world trade.

A race against the clock in the face of tariff instability?

On April 9, a 90-day moratorium was decreed on all surcharges except those targeting China. The duties presented as “reciprocal” on some Southeast Asian countries, which sometimes reached 40%, were suspended twelve hours after they came into force. A few days later, the surcharges on certain electronic products manufactured in China were also lifted (representing nearly 100 billion dollars of imports in 2024). The instability maintained by the American administration fuels the distrust of many players, which weighs on global supply chains. And what if the 90 days of the moratorium were the last of an international trade system founded on free trade?

Indeed, this new about-face had an immediate effect: many Asian exporters that had been targeted by the Trump administration - notably in Taiwan, Malaysia and Vietnam - are trying to ship as many goods as possible to the United States before the July 9 deadline. Words matter, and in Taiwan, industrialists speak for example of a “reprieve” rather than a moratorium. Under these conditions, companies are trying to export a year of production in a few months. To support the most affected sectors, the Taiwanese government has therefore released 88 billion Taiwanese dollars (2.6 billion USD).

At the same time, flows from China have collapsed. Many American importers have simply canceled their orders, requested the withdrawal of containers already in the terminal, or even abandoned cargo at sea to avoid costs that had become prohibitive. Ocean carriers note a drop of 30 to 60% in bookings, with ships leaving Chinese ports half empty. Blank sailings are only a beginning. Some carriers are considering permanently transforming their rotations, by removing China from their port calls.

A systemic risk on the horizon?

The spectacular increase in customs duties could stimulate fraudulent behavior among importers seeking to escape the surcharges. This would not be new: in the early 2000s, some importers had sought to disguise the fact that products had been produced in China, costing the American Treasury nearly 100 million dollars. On a global scale, the current situation will necessarily cause the proliferation of special economic zones, free ports and tax enclaves that offer economic players loopholes from state regulations.

Resorting to these gray areas could be one of the only viable solutions for American importers threatened with suffocation. Because the current situation entails systemic risks. A few months before the announcement of the tariff hikes, specialized firms such as V. Alexander & Co. and Crowe LLP warned of the risks posed by defaults on customs bonds. The latter are a little-known cog of American trade. They are essential for the customs clearance of goods and are calculated according to the customs duties estimated over a 12-month period. With the sudden increase in customs tariffs toward China, many importers now have insufficient bonds, and are receiving notices from the customs authorities requiring them to increase their guarantees. That is easier said than done… To achieve this, they must satisfy new requirements from insurers, by providing additional proof of their financial security…

For many importers, the situation is critical. Dan Schwartz, Principal at Crowe LLP, puts it bluntly: “We are, by my estimates, 14 to 20 days away from a major collapse due to the insufficiency of customs bonds, which will have wide-ranging repercussions on importers, customs brokers, port operators, bond guarantors, etc.” In other words, while companies specialized in importing products manufactured in China are on the front line, it is the entire American logistics chain that is threatened. It remains to be seen whether this risk could make the American administration change course.

👋 See you next week, The Merchant team

Sources

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