100% tariff threat spooks air cargo market

Figure of the week

37% US businesses are currently absorbing a net 51% of tariff costs, while American consumers are only shouldering 37% of the burden, according to new figures from Goldman Sachs. The data revealed that only 9% of the cost was paid by foreign exporters. The remaining 3% was attributed to potential tariff evasion.

Quote of the week

“Tensions could still simmer, especially when it comes to implementing the agreement. With so many contested areas in play, it wouldn’t take much for disagreements to resurface.” Cameron Johnson, a senior partner at Shanghai-based consultancy Tidal Wave Solutions, lays down some of the potential risks facing the fledgling US-China trade deal.

Deja vu as new US-China “framework” is announced

On the face of it, it is just the news that shippers have been waiting for – the US and China have agreed a framework for a trade deal. “I think we’ve reached a substantial framework for the two leaders who will meet next Thursday,” said Treasury Secretary Scott Bessent. Bessent added – in words that will be music to shippers’ ears – that the 100% tariffs previously mooted by Trump are now effectively “off the table”. According to Bessent, under the terms of the framework, the US will get some kind of deferral on the rare earth export controls recently announced by China and will finalize the sale of TikTok in the US. China is also due to make a substantial purchase of American soybeans and to take further steps to halt the flow of fentanyl and its constituent chemicals into the US. What was not so clear is, what, if any, compromises the US is intending to make – apart from holding fire on its most recent tariff threats. Chinese negotiators’ accounts of the conversations between the two sides were noticeably less enthusiastic than the US version. They said talks had covered US port fees on China-built ships and a further extension of the trade truce. Asia markets and US stock futures reacted positively to news of the agreement. Shippers could, however, be forgiven for having a sense of deja vu as they consider all this. Recall that back in June, a similar sounding framework, high on optimism and low on detail, was also unveiled only for the talks to rapidly break down once the fine print started to be addressed. At the very least, shippers will welcome the news that US and Chinese negotiators are still engaged in discussions, even if the recently announced framework hits hurdles. Moving forward, it is preferable to the two sides issuing new threats.

100% tariff threat spooks air cargo market

Trans-Pacific air freight demand was rising sharply following the Trump administration’s threat to impose an additional 100% tariff on Chinese goods . With the announcement of the new framework agreement between China and the US, the tariffs due to go into force on November 1 now appear to have been walked back. However, the sudden rush to front-load shipments underlines the volatility that shippers, and particularly air cargo shippers, are having to deal with. Shippers had suddenly started rushing to get their air freight shipments into the US to beat the potential 100% tariffs. Rates surged by 19% in the week following the tariff announcement, though they have largely stayed flat since then. While many importers would have been convinced that the threat was nothing more than a negotiating tactic, others were taking no chances. Shippers will have also noticed that the widespread availability of capacity on the Trans-Pacific trade prevented rates from spiking. TIACA Director General Glyn Hughes said this had been the third time this kind of front-loading had occurred, and as a result, there were no surprises for carriers. Instead, they were able to rapidly mobilize capacity on the Trans-Pacific trade lane. The week after the tariff announcement, air freight capacity on the China–U.S. routes increased 24% week on week. Shippers will be simultaneously reassured that airlines can react rapidly to any changes, and also alarmed that tariff-related volatility is showing no signs of receding.

Bumpy ride for US shippers - in the short term

Trans Pacific container spot rates have once again risen week on week. The figures likely represent a temporary rally, rather than a longer-term trend – at least US shippers witnessing contract negotiation season in Europe will be hoping so . Drewry data showed week-on-week rises in spot rates on the Asia to the US West Coast trade, as well as Asia-Europe. Transatlantic rates saw a slight decline. However, a new analysis by Sea-Intelligence predicts a longer-term downwards momentum in spot rates, which is likely to place carriers under pressure. “It cannot be said that rate levels are high or elevated anymore,” its report said. For example, rates between Asia and the US East Coast were clearly below pre-pandemic, 2019 levels, the analysis found. Asia to West Coast rates were marginally above. Over time, rates are likely to continue declining, largely because carriers are likely to face a substantial injection of newbuild vessels. Carriers are currently blanking increased numbers of sailings in an attempt to push rates upwards. In October, the number of blanked sailings rose to 93 across the Trans Pacific, Asia, Europe and Trans Atlantic trades. That was up from 58 in September. But longer-term capacity injections suggest this is likely to be a futile strategy. When this combines with an inevitable return to using the Suez Canal route, spot rates will “inexorably” see further receive further downward momentum. What US shippers are having to cope with at the moment is temporary volatility caused by the Trump administration’s rapidly changing tariff position. However, US shippers can consider themselves lucky that, unlike their European counterparts, they still have several months before contract negotiation season begins. There, the temporary rise in rates, has given carriers ammunition to use as they try to leverage higher contract rates from European shippers. US shippers cannot rule out the same thing happening to them. But they are more likely to be in a position of strength when it comes to negotiating their own contract rates in spring. Nevertheless, they should probably brace themselves for more volatility whilst trade negotiations with China remain open .

🤔 Did you know ?

President Donald Trump is to increase the tariff on Canada by 10% over current levels, after what Trump called the “misrepresentation” of an anti-tariff Ronald Reagan speech in an ad placed by the Ontario government.

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