With the United States and China planning to escalate their trade war this month, ocean and air carriers have enjoyed a summer boom in volumes as exporters shipped early to avoid the punitive tariffs earmarked for US$200 billion worth of Chinese products.
On 5 September, public consultation comes to an end regarding the US plan to impose a range of tariffs on Chinese products, with full implementation expected later in the same month.
The trade spat has provided an unexpected fillip for container carriers and airlines lifting freight rates and load factors and increasing utilisation levels.
Paul Tsui, a council member of the Chartered Institute of Logistics and Transport in Hong Kong, said a space crunch is affecting exporters who are being forced to pay a premium to guarantee cargo space. “Cargo owners had problems getting space from ocean carriers. We are talking about US$500-US$600 per container as a premium,” he told Forward with Toll.
Rates from Shanghai to the US west coast are around US$2100 per FEU, according to the Shanghai Containerised Freight Index (SCFI), which is at its highest level since July 2017. “Most carriers foresee the space issue being resolved in the second week of September after tariffs are implemented,” Tsui explained.
While cargo carriers are hoping the current surge will continue to the end of the traditional peak season – pre-Christmas and New Year rush, shipping experts have speculated about the longer-term impact.
“I believe that we have not yet witnessed any negative impact of the trade war and additional tariffs. In fact, we might have observed the reverse where advance shipment and stock-piling has taken place,” said Andy Lane, a partner in maritime firm CTI Consultancy in Singapore.
“We might see the impact of the tariffs in the first quarter 2019 and onwards; and it looks, currently, like they will be around for a while. This will likely result in some switch of origins from China to southeast Asia, which does not help US manufacturing although it does put a slight dent in China’s growth,” Lane told Forward with Toll.
“If they remain in force, we could easily experience some re-shoring and less head-haul demand on the transpacific. It will not be 5-10%, maybe just 1-3%, however that is still enough to reduce growth to virtually zero, as the new tonnage keeps on coming,” Lane added.
The US invited the public to comment by 5 September on proposals to increase tariffs from 10% to 25% on US$200 billion worth of products including consumer products such as furniture, computer parts, processed food and leather goods. That followed a move by the US to impose 25% tariffs on US$16 billion worth of Chinese products in August.
Shipping experts are expecting the new duties to take effect in September.
China has already retaliated against the US tariffs with 25% duties on soybeans and vehicles, and has threatened to match any further US levies.
The threat of additional tariffs has led exporters to seek out airlines for speedy deliveries. “For airfreight, space is also very tight as tariffs are affecting high-value products, and most people are trying to get their shipments to the US before they take effect,” Tsui added.
Echoing Tsui’s comments, Willy Lin, chairman of the Hong Kong Shippers’ Council said, “Many exporters are eyeing to airfreight their product to their US customers if their products are slapped with a 25% tariff. They want to ensure their cargoes arrive in US earlier than the deadline.”
Singapore Airlines told Forward with Toll that it continued to receive enquiries for charters to the US from the end of August through September and October. “Some customers are locking in charter capacity for the traditional peak season in October to December,” the airline said.
Hong Kong’s Cathay Pacific Airways also saw a 2.9% increase in cargo volumes in July, a traditional slack period, while cargo load factors rose 1.6 points to 70.3% and revenue freight tonne kilometres increased by 2.1%.
Despite rising revenues, Lane said financial pressure, at least on ocean carriers, remains, with only Maersk and CMA CGM possibly heading into the black. “For the others, however, it looks like another red-ink year. When we get to the fourth quarter 2019, we will see a huge spike in fuel costs, which traditionally have not been well compensated. So 2020 is likely another bad year,” he opined.