Navigating Uncertainty in Global Trade
The global ocean shipping industry, which handles 80% of world trade, is facing unprecedented uncertainty as U.S. President Donald Trump’s trade and geopolitical tensions with historical foes and allies continue to escalate.
The Backdrop for Container Shipping
This week’s S&P Global TPM container shipping and supply chain conference in Long Beach, California, marks the start of container shipping contract negotiating season. Attendees include industry heavyweights like container carriers MSC, Maersk, and Hapag-Lloyd, marquee customers including Walmart, and major logistics firms including DSV and DHL.
The Impact of Protectionism
The industry is grappling with the ripple effects of increased protectionism, which could reduce international trade and weaken the negotiating position of massive container ship owners that have drawn robust profits and for years held the upper hand in pricing. Trump has already slapped an additional 10% tariff on goods from China, the world’s largest exporter, and has proposed million-dollar port entry fees for Chinese-built ships.
Tariffs and Trade Tensions
The uncertainty surrounding trade policies has led to concerns about the potential impact on international trade. Trump has threatened to impose 25% tariffs on Chinese goods, and his administration has proposed new or higher tariffs on steel and aluminum and has floated 25% duties on products from the European Union. The U.S. could also impose 25% tariffs on familiar goods like avocados and tequila from Mexico, and beef, lumber, and oil from Canada, as early as Tuesday.
Global Supply Chains Under Pressure
The world’s biggest importer’s shift away from free trade hits as global supply chains are managing higher costs from global warming-fueled severe weather and routing ships away from the Suez Canal to avoid attacks by Iran-backed Houthi militants in support of Palestinians in Gaza. U.S. container imports of everything from plastic toys to machine parts have surged, in part due to early purchases to avoid tariffs. However, trade experts warn that a pullback is likely once new import taxes kick in, targeted nations retaliate, and inflation-weary shoppers absorb the brunt of tariff-related cost increases – something that could pressure shipping demand and prices.
Drewry World Container Index
The Drewry World Container Index’s spot rate for a 40-foot container was $2,629 as of Thursday, 75% below the pandemic peak of $10,377 in September 2021 and lowest since May 2024. "The geopolitical landscape has of course become more complex, which could lead to wild swings for freight rates in either direction, but our base case is for a moderation throughout 2025," Jefferies analysts said in a recent note.
U.S. Shipbuilding Proposal
In another move that has set off alarms around the globe, the U.S. Trade Representative on Feb. 21 proposed hefty fees on Chinese-built vessels entering U.S. ports under a union-supported plan to spur U.S. shipbuilding. Under the proposal, a vessel owned by Chinese maritime transport operators, including state-owned COSCO, would pay a port entrance fee of up to $1 million per vessel. The fee for other operators using Chinese-built ships could top out at $1.5 million.
Conclusion
The global ocean shipping industry is facing unprecedented uncertainty as U.S. trade and geopolitical tensions continue to escalate. The industry must navigate the complexities of protectionism, global supply chain disruptions, and the potential impact on international trade. As the industry looks to the future, it is crucial to consider the potential consequences of these actions and develop strategies to mitigate the effects of these changes.
FAQs
- What is the impact of protectionism on international trade?
Protectionism can reduce international trade and weaken the negotiating position of massive container ship owners. - What is the potential impact of tariffs on global supply chains?
Tariffs can lead to higher costs, potential disruptions, and pressure on shipping demand and prices. - What is the proposal for U.S. shipbuilding?
The U.S. Trade Representative has proposed hefty fees on Chinese-built vessels entering U.S. ports under a union-supported plan to spur U.S. shipbuilding. - What is the current state of the Drewry World Container Index?
The spot rate for a 40-foot container was $2,629 as of Thursday, 75% below the pandemic peak of $10,377 in September 2021 and lowest since May 2024.