Importers face "pay to play bloodbath"

Figure of the week

12.8% The amount by which South Korea’s exports of non-IT products to the United States has fallen following Washington’s imposition of new tariffs over the last 12 months.

Quote of the week

“We are entering a period where we are going to see more air freight conversions (to ocean freight). The air freight markets have been significantly dislocated.” Matson chief executive Matt Cox argued in an earnings call that rising fuel prices, Middle East disruption, and tighter air cargo capacity would push freight away from air services towards expedited ocean services.

Importers face “pay to play bloodbath”

The trans-Pacific trade continues to show signs of an early peak season, as high demand and tight capacity start to give carriers the upper hand . The Loadstar even went as far as warning that carriers were now able to push through peak season surcharges in some cases and that shippers might have little option but to pay. “Pay to play is back,” was the colourful assessment of one industry insider. “The carriers smell blood and are lapping it up like a ravenous Count Dracula at the abattoir on slaughter day.” Not everyone was quite so excited. The JOC.com took a different tack, suggesting that demand might even be on the point of fizzling out. However, it also quoted a Hapag-Lloyd spokesman expressing confidence that demand would hold up throughout June. In fact, gains over the last week have been fairly modest. What is bringing about predictions of a bloodbath comes down to two factors. One has been competent capacity management by carriers, which have largely played a weak hand well over the last few months. This has allowed them to hold up spot rates and sign annual service contracts at higher rates than might have been expected. Another is what we might call the July 1 effect, the day when carriers will set new BAFs for the next quarter. Many shippers have so far been operating under long-term contracts, which have protected them from emergency fuel surcharges introduced because of the closure of Hormuz. That protection will end on July 1 when they become fully exposed. A degree of front-loading has already been occurring before that date, as shippers move as much volume as they can before the bunker factor in their contracts “goes through the roof”. Effectively, shippers can look at it this way: instead of a weak June, they can expect a busy June, with the market beginning to slacken in July once the new bunker rates kick in. Some analysts even believe increases could stick well into the summer, but at this stage the market is simply too volatile to call .

Airport CBP threat rattles shippers’ nerves

Shippers have been warned that a US government plan to reduce customs operations at certain major airports could lead to widespread supply chain disruption . The US Department of Homeland Security has discussed reducing or halting CBP processing of international flights at certain cities that have banned or limited local police cooperation with federal immigration authorities. Major ports of entry that could be affected by CBP cuts include New York, Newark, Los Angeles, Chicago and San Francisco . Homeland Security Secretary Markwayne Mullin floated the plan during an appearance on Fox News, although he did not make clear when, or if, the action would take place. The Airforwarders Association (AfA) is among the organizations to have criticized the proposal. “Any significant reduction in cargo processing capacity at major gateway airports would create immediate disruption throughout time-sensitive supply chains,” said Brandon Fried, executive director of the association. “CBP cargo operations are not merely an administrative processing function, they are a critical part of our national security and economic resilience.” The AfA said reducing or withdrawing CBP clearance at key gateways would especially affect the movement of pharmaceuticals, medical devices, manufacturing components, e-commerce shipments, perishables and other goods that rely on expedited delivery. It also warned that shippers would find it very difficult to reconfigure cargo networks at short notice. Airline schedules, warehouse capacity, trucking links and customs compliance processes are generally built around specific gateway airports. Shippers should be aware of the potential for disruption at key airports and monitor developments closely.

Tariff refunds move to new phase

The US CBP has so far refunded more than $20 billion in IEEPA-related tariff payments - giving hope to shippers who have not yet sought refunds but are considering doing so . CBP had initially reported that it had processed more than $35 billion in refunds. But Brandon Lord, executive director of trade programs for the agency said the actual amount refunded had been overstated by about $10 billion. “This was not a reflection of any error in CAPE processing or refunds, but rather was the result of an inadvertent error in the data query used to calculate the figure,” he said. So far, around $85 billion of potential and certified refunds have been accepted for processing, and $20.6 billion is in the process of being disbursed to shippers. Lord said that figure also included interest, but did not specify how much of the $20.6 billion was made up of interest payments. Many shippers’ eyes will currently be on USMCA negotiations as the US negotiates bilateral trade agreements with Mexico and, later, Canada. Negotiations with Mexico are expected to be significantly smoother than those with Canada. Unlike Mexico, Canada retaliated against President Donald Trump’s Liberation Day tariffs. Canada has also taken steps to diversify its economy away from reliance on the US. Shippers should pay close attention to the negotiations, which are likely to take place between now and the end of July. Many shippers - and their legal advisors - will also be keeping a close eye on the tariff refunds process. Once CBP finishes processing the simplest and most clear-cut cases it will become more obvious how it plans to deal with the more complex ones .

🤔 Did you know ?

Shippers importing from China are experiencing delays due to dense fog at key Chinese container ports. The ports of Shanghai and Ningbo have been especially affected, with delay times rising to as much as seven days in some cases. Linerlytica estimated this week that up to 1.5 million TEU of shipping capacity is being held up as a result.

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