Justices take aim at Trump tariffs

Figure of the week

32% U.S.-bound billed weight fell 32% year on year in Q3, according to DHL Express’s latest quarterly results. The company attributes the drop to the scrapping of the de minimis exemption on small packages.

Quote of the week

“(This) will continue to give China a free pass on its predatory behavior and will have far-reaching negative consequences as we attempt to restore America’s maritime sector.” Four unions have criticized the US-China trade deal for suspending the port fees on each other’s vessels, underlining the conflicted interests at play when it comes to tariff and trade policy. Shippers will have broadly welcomed the deal.

Justices take aim at Trump tariffs

The Trump administration’s tariff policies appear to be hitting a major obstacle as they face hard questions in the U.S. Supreme Court . So far, both conservative and liberal justices have questioned the legality of the tariffs imposed by the administration against most nations. Solicitor General D. John Sauer argued that the tariffs were a regulatory measure rather than a revenue-raising measure and therefore within the president’s authority. However, his arguments faced significant pushback. Sauer’s claim that the fact that the tariffs raised revenue was only incidental was strongly questioned by Justice Sonia Sotomayor. ‘You say the tariffs are not taxes, but that’s exactly what they are. They’re generating money from American citizens — revenue,’ she said. The question of whether the tariff measures are actually tax collection measures in disguise goes to the heart of many of the Trump administration’s tariffs. It is not clear when the Supreme Court will make its final ruling, even though the Trump administration has asked for it to be as speedy as possible. But if the court rules against the administration’s tariff policy, the federal government will potentially have to refund up to $750 billion, according to Treasury Secretary Scott Bessent. It became clear that the tariff policy would go to the Supreme Court, after key elements of it were overturned by lower courts. Initially, it was believed that justices were likely to side with the administration. While the Supreme Court is not believed to be ideologically aligned with the Trump administration, it has consistently ruled in favor of policies which appear to infringe upon the power of Congress to make legislation. However, on this occasion, justices appear to be swinging in the other direction. Justice Neil Gorsuch, a conservative judge, said he worried that Congress would not be able to get power back following this executive overreach. ‘It’s a one-way ratchet toward gradual but continual accretion of power in the executive branch and away from the people’s elected representatives,’ he said. Another four conservative justices also appeared skeptical of the administration’s arguments. The Committee for a Responsible Federal Budget has said that tariffs could raise an additional $3 trillion in revenue for the U.S. by 2035. However, they have thrown the sourcing policies of many shippers into disarray, forcing them to diversify supply chains to other countries. So far, American businesses have been reluctant to pass the cost on to consumers. If Supreme Court justices rule against the policy, that decision will appear to have been vindicated. If the decision goes the other way, many retailers are likely to start increasing prices .

Air freight narrowly escapes shutdown squeeze

Feuding U.S. political parties appear to be on the brink of resolving the federal government funding shutdown, just as air cargo begins to feel the squeeze . The impasse was set to be potentially resolved this Wednesday by President Donald Trump signing off a deal between the Republicans and Democrats to resume funding. This came after Transportation Secretary Sean Duffy announced a 10% flight reduction at 40 of the largest U.S. airports. The U.S. government shutdown has become the longest in history, lasting more than 40 days. Several ancillary federal services related to traffic, transport, and imports had started to experience delays. Fortunately for shippers, the market was largely shielded by existing overcapacity. However, Duffy had already warned of mass flight delays, cancellations, and the potential closure of parts of U.S. airspace because of a lack of air traffic controllers. Oxford Economics said that an oversupply of carrier capacity would likely prevent inflationary pressure in the short term as a result of supply chain bottlenecks. For now overcapacity is shielding American shippers from some of the volatility in the air freight market but with winter airline schedules approaching the question is, for how much longer?

Carriers hope and pray for GRIs to prop up market

Ocean carriers’ attempts to shore up flat rates through GRIs appear to have met with some success, though the jury is still out on how much . Initial feedback on the Nov. 1 rate increases suggested that carriers were shooting blanks in their attempts to defend their market position. However, Drewry data indicated that the Shanghai–Los Angeles component of its WCI had this week risen 9% week on week. The Shanghai–New York leg gained 8% week on week. Industry insiders, however, suggested that several carriers had already begun discounting rates out of China as they sought to fill half-empty ships. Drewry added that attempts by carriers so far would prove to be only a temporary fix at best. Going forward, they would need to introduce further GRIs and more capacity cuts. MSC has already announced that it will blank two trans-Pacific voyages in the next week. Meanwhile, the trade deal between the U.S. and China seems unlikely to lead to any sudden demand was that there had already been significant front-loading. Retailers are also reported to have filled inventories in the run-up to Christmas. Now carriers are facing the two typically slow months. All this indicates that shippers will be able to expect a strong market position. Robert Khachatryan, founder and CEO of Freight Right, said that several Asian carriers were convinced that demand would strengthen again in early January. ‘However, it’s going to get a lot worse before then,’ he said. Shippers, then, are likely to be able to look forward to favorable rates but can expect increases in blanking as carriers seek to manage capacity .

🤔 Did you know ?

Anecdotal evidence of falling inventories is reflected in the October release of the Logistics Managers Index (LMI), which showed that for the first time since July, 2024 shippers reduced inventories rather than expanding them. According to the LMI, tariff concerns and service disruptions have pushed shippers towards just in case ordering strategies.

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