A Trade Deal… or Just a Press Release?

Figure of the week

$42 million

With one of the major planks of the US-China trade deal being the mutual abolition of tit for tat port fees, one big question remaining is what will happen to the fees that have already been paid. This is particularly important for Cosco and its subsidiary OOCL, which paid over $42 million in the first week the fees were in place, according to vessel tracking data.

Quote of the week

“It’ll be a disaster in aviation. October is a slower air travel month… we have great weather in October, and so you’ve seen minimal disruption because of good weather and slower travel.” Transport Secretary Sean Duffy warns that the federal shutdown could begin to severely impact US aviation in November, while blaming the Democrats for the impasse.

Shippers wary despite trade deal fanfare

China-US trade volumes are likely to jump in the wake of the trade deal framework announced between the two countries last week, but many questions remain. Shippers are likely to welcome the broad agreement between Presidents Donald Trump and Xi Jinping – within limits. In particular, the elimination of the 10% fentanyl tariff on imports from China is likely to lead to an uptick in volumes, though to what degree is unclear. The deal will bring the overall tariffs on most imports from China to around 47%. At least that is the figure provided by the Trump administration. Some analysts are starting to query if the real figure may be significantly lower. In any case the immediate impact on freight volumes is likely to be relatively muted. Some retailers have already announced that they will switch from shipping by air to ocean mode in the wake of the deal. However, the overall tariff rates on imports from China appear to be higher than tariffs on most other Asian sourcing destinations. At the same time, the provisional nature of the deal — it stands only for a year — will give many importers pause for thought. More worryingly, it appears that much of the detail behind the broad announcements needs to be worked out. Some analysts have cautioned that despite the apparent willingness of Trump and Xi to reach a deal, this could prove a sticking point in reaching a formal arrangement. Many shippers therefore, are likely to adopt a wait-and-see approach. A logistics manager for an unnamed national furniture retailer told JOC.com that it had been “unnerved by the fact that major decisions are being made in such a knee-jerk fashion.” Others stressed that they have already made logistics plans and sourcing patterns for 2025 and that the relatively minor reduction in tariffs is not enough to justify any switch. NRF vice president of supply chain and customs policy, Jonathan Gold, underlined what many shippers will be thinking. “The challenge for retailers is there’s still so much uncertainty about what’s going to come out and when it’s going to come out,” he said. Gold nevertheless predicted a short-term rise in imports among retailers who are free to switch their short-term sourcing plans. Of course, given the spontaneous nature of many US foreign policy announcements in recent months, it is also possible the deal could evolve as the detail is fleshed out. This could give rise to potential breakthroughs and possibly even tariff reductions, but also new obstacles. What happens, for example, if the Supreme Court nullifies the main elements of Trump’s tariff policy, as it could potentially do later this year? If it does, will the US administration seek to renegotiate the terms of the deal with Beijing to account for the new tariff situation? And if so, will the Chinese accept such a move? The consensus among U.S. shippers and logistics managers is that the deal is largely rhetoric and that it does not change the substance of the disagreements on trade between the two nations. Many questions remain unresolved amid the diplomatic maneuvering, and shippers may need to be agile to respond to sudden changes .

Late air freight peak season or frontloading blip?

Trans-Pacific air cargo rates are seeing their second weekly rise, leading some analysts to query whether we are witnessing a late, albeit muted, peak season . The TAC Index said that aluminum and AI servers were largely responsible for the uptick in rates. Worldwide capacity cuts on the Trans-Pacific, as airlines look to the growing China-Europe market, have also played a role. “This second successive strong weekly gain is starting to look like the beginnings of a typical peak season rise, which usually gathers pace into the US ahead of Thanksgiving and into Europe in the run-up to Christmas,” said TAC. That said, some sources cautioned other factors may also be at play, including less capacity on certain lanes, notably the Trans-Pacific, plus front-loading of goods ahead of potential changes to tariffs and trade rules. There were already signs that some shippers were beginning to shift away from air toward sea freight as news emerged of the US-China trade deal. For now, many shippers are saying that while rates have been rising post–Golden Week, the gains are not enough to represent a peak season. Crucially, no peak season surcharges have been introduced. In recent weeks, analysts have warned of significant volatility on key air freight routes. Even if Trans-Pacific rates are generally trending downwards, any potential developments in the US-China trade deal could have a big effect in coming weeks and months .

Carriers brace for transatlantic “car crash”

Ocean carriers are facing a “car crash” of low rates that could last for the rest of the decade as they run out of tools to prop them up . Several trends are converging to create long-term overcapacity - particularly on the transatlantic trade, new analysis from Sea-Intelligence has warned. Demand is already weakening, repeated GRIs have done little to stem falls in spot rates, and the trade faces a massive injection of capacity. For the third year running, newly built vessels will greatly exceed demand expectations. Ocean carriers appear to have got carried away by the post-COVID boom and are now having to prepare themselves for what Drewry has described as a “car crash.” Transatlantic capacity currently stands at around 160,000 TEU per week but is due to rise to nearly 190,000 within six months. Current vessel utilization on the westbound transatlantic stands at around 60%. Even a 5% growth in demand will fail to stop utilization levels falling to 50% or below. This could technically lead to negative freight rates – a nightmare scenario that will force carriers to take more drastic steps to reduce capacity. Sea-Intelligence has predicted that the low rates could last until 2030. Shippers can expect to hold the upper hand but should prepare for increasing numbers of blankings, slower steaming, and ship scrapping .

🤔 Did you know ?

For a while, French liner CMA CGM has been dipping its toe into resuming Red Sea routings, but now it appears to have sunk its whole foot into the venture. The carrier has listed two vessels to pass through the Suez Canal to offset congestion-related delays in Europe. However, analysts believe that even if successful, the move will not herald a wider return to Red Sea routings.

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