Shippers prepare for new round of summer tariffs

Figure of the week

1.26 US Census Department figures help explain one of the mysteries of this year’s freight market, the unexpected early peak season. US retail inventories-to-sales ratio fell to 1.26 in April, the lowest since February 2023, underlining why many retailers needed to replenish inventories.

Quote of the week

“They may be overcommitting or over-ordering … but many companies are thinking I would rather be safe than sorry.” Jonathan Colehower, managing director for global operations and supply chains at technology company UST, explains why many companies have restocked inventories with more zest than forecasters anticipated.

Falling inventory levels hand carriers a bonanza

With container spot rates approaching their highest levels in two years, analysts are split on whether the early peak season will start to ebb in late July or last into fall . The consensus is that the surprise surge in volumes has been driven by front loading, and that the front loading itself comes down to two factors. One is the desire to beat tariffs. As outlined in our story below, the Trump administration is carrying out a series of USTR investigations into major trading partners. These are likely to lead to new tariffs at the end of July. The other is to get ahead of fuel surcharges, particularly the costly July BAF adjustment. However, front loading or not, what is clear is that many retailers’ inventories are in dire need of restocking. In fact, according to the US Census Bureau, inventory-to-sales ratios are at their lowest since February 2023, with retail sales increasing for the fourth straight month. Shippers have little choice but to increase volumes. That is leading to a bonanza for ocean carriers, with Maersk having just raised its annual forecasts. Of course, the longer the spike lasts, the more it begins to call into question whether demand is due to front loading or a represents a more persistent rise. “What front loading means is that it will eventually slow down, or it wouldn’t be called front loading,” one ocean carrier executive told JOC.com . “If it continues for four months or five months, that’s not a front load, it’s something else.” Some retailers are starting to feel cautiously optimistic, believing their strong sales will last into August, though few are prepared to forecast elevated volumes beyond then. For the moment, rates are continuing their surge. Jon Monroe, an industry advisor, has told clients to expect carriers to continue aggressive pricing into July. Many shippers are booking shipments four to five weeks in advance. All in all, shippers should be prepared for long lead times and higher prices at least until the end of July. After that, predicting the market becomes a guessing game .

US air freight rates rise while seeing falls elsewhere

Trans-Pacific air freight rates may finally be starting to slow following the US-Iran peace talks . However, services to the US are bucking the trend. Global average air freight prices fell 5% week on week last week. However, while lanes from Seoul, Taiwan and Bangkok to Europe all saw declines, those to the US recorded higher rates. The major exception was Vietnam, where rates to Europe rose while those to the US fell. One reason the US may be seeing a different pattern from the rest of the world could be the importance of data center infrastructure to freight volumes. US data center-related air cargo import volumes grew 42% last year, according to figures from consultancy Aevean. Almost all of the 11% year-on-year growth in US air imports seen in Q1 came from high-tech cargo. Over the next week, shippers can expect rates to remain stable, but the possibility of cancellations remains relatively high. On the Europe-US trade, it’s a different story. Significant capacity additions mean overall rates are down 10% on March figures. Shippers can also look forward to fuel surcharges starting to fall in the coming weeks .

Shippers prepare for new round of summer tariffs

US tariffs could return to their previous levels when the Section 301 investigations conclude, according to US Treasury Secretary Scott Bessent . Bessent said in an interview with CNBC that USTR Jamieson Greer, was conducting Section 301 investigations that were likely to lead to new tariff increases. When the Supreme Court ruled tariffs imposed under the IEEPA to be illegal, the administration was forced to use Section 122 of the 1974 Trade Act to justify its tariffs in the meantime. Many analysts believe the USTR investigations are a foregone conclusion and will inevitably justify a new round of tariffs. The current 10% temporary Section 122 tariff is set to expire on July 24. Shippers should prepare for rapid-fire tariff changes after that date. However, those wishing to front load as many imports as possible before then face the twin challenges of tight capacity and rising rates. According to Drewry, carriers have announced only four blank sailings on the Trans-Pacific for the next week. This reflects just how tight capacity is. A new GRI and new bunker adjustment factors are scheduled for July 1. Carriers have responded to surging spot rates by introducing significant new Trans-Pacific capacity. Over the last week, according to Xeneta, capacity was up 10.5% week on week, while Asia-US East Coast capacity was up 12.1%. “It has been a long time coming, but carriers have finally responded to spiraling spot rates by deploying significantly more capacity this week,” said Xeneta chief analyst Peter Sand. “This raises an uncomfortable question from shippers: why has it taken until now for carriers to act when they have endured months of triple-digit freight rate increases and delays?” However, Sand added that while the extra capacity would help get supply chains moving more reliably, it was unlikely to translate into falling spot rates, at least until significantly later in the summer .

🤔 Did you know ?

President Donald Trump has threatened to impose a 100% tariff on all products from countries that levy digital services taxes on US companies. The threat mainly applies to EU member states that are considering imposing new taxes on X and other platforms. It is unclear whether Trump has the power to impose tariffs at this level following his Supreme Court setback earlier this year.

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