Weekly highlights
Ocean rates – Freightos Baltic Index:
Asia-US West Coast prices (FBX01 Weekly) increased 3% to $5,078/FEU.
Asia-US East Coast prices (FBX03 Weekly) increased 1% to $6,718/FEU.
Asia-N. Europe prices (FBX11 Weekly) fell 11% to $3,667/FEU.
Asia-Mediterranean prices (FBX13 Weekly) stayed level at $5,069/FEU.
Air rates – Freightos Air index
China – N. America weekly prices fell 9% to $5.09/kg.
China – N. Europe weekly prices fell 1% to $3.24/kg.
N. Europe – N. America weekly prices increased 5% to $2.35/kg.
Analysis
President Trump followed through this weekend on promises to apply tariffs to the America’s North American neighbors. Becoming the first president to use the International Emergency Economic Powers Act (IEEPA) to increase tariffs, Trump pointed to the illegal flow of fentanyl and immigrants from these countries as a national emergency warranting 25% tariffs on all Canadian and Mexican imports to the US and the cancellation of the de minimis exemption for goods from these countries until the situation improved. Trump also signed a 10% tariff increase and de minimis suspension for all Chinese goods, also in response to the illegal flow of fentanyl.
On Monday though, the president determined that Canadian and Mexican government commitments to improving border controls – some of which were apparently already promised last week – were enough of an improvement to suspend the tariffs and restrictions for a month at which point the effectiveness of these steps will be assessed. The suspension also means planned Canadian and Mexican retaliatory tariffs are suspended, though the US tariffs and restrictions on China remain in place.
The sharp tariff increases on two of the US’s three largest trading partners roiled countries, markets and industries, and had many experts projecting price increases for consumers, slowed economic growth and significant disruptions to trade. So, for now, North American businesses and consumers are breathing a sigh of relief including for the fact that the U-turn may signal Trump is sometimes more interested in specific concessions than in protectionism that would keep tariff hikes in place.
But the drama also heightens the concern over how completely unpredictable and disruptive this second Trump administration may prove. And Trump’s pick for Commerce Secretary, Howard Lutnick, said this week’s tariffs were action-oriented tariffs aimed at illegal drugs and immigration and so implemented immediately via the IEEPA. “Ordinary tariffs” – presumably like the 60% proposed tariff on Chinese imports aimed at trade imbalances – will likely only come after the April US Trade Representative recommendations are finalized, as requested in Trump’s day one trade policy memo.
If that’s the case, the big potential hike to 60% could come only in May or later. In the meantime, the 10% tariff increase on Chinese goods remains in place. China announced it will retaliate with a 15% tariff on certain US goods like coal, LNG and some machinery and is also opening an anti-trust probe into Google, alongside reports it will restart negotiations with the US to try and deescalate this round of the trade war.
In terms of the impact on international freight beyond intra-N. America trade, recent events will probably heighten concern over sharp tariffs on China later this year. This development means we could expect frontloading ahead of tariffs – which has been a major factor keeping US ocean import volumes and transpacific container rates elevated since November – to intensify until the new tariffs are introduced or called off.
Given that many shippers have already been pulling forward demand for several months, the degree to which frontloading will intensify is hard to predict. At the moment, as we’re still in the Lunar New Year holiday slowdown period, ocean rates have remained unchanged. But we could expect demand and rates to increase post-LNY.
With transpacific container prices, already elevated on Red Sea diversions and frontloading, at more than $5,000/FEU to the West Coast and $6,700/FEU to the East Coast, enough of an extra boost could push rates up or past last year’s peak season July high of $8,000/FEU to the West Coast, which was also a near record month for volumes.
Trump has announced intent to target the European Union as well. Some carriers have announced transatlantic peak season surcharges for March, possibly in anticipation of frontloading on this lane too. Frontloading on these lanes will likely also mean a drop in rates and volumes once tariffs are introduced or canceled.
An even bigger immediate impact from this week’s action against China could come from the suspension of de minimis eligibility for Chinese imports to the US.
The savings and speed that the de minimis exemption affords low-value imports is a key facilitator of the flood of parcels – more than a billion in 2024 through Q3 – that are entering the US via this exception, mostly from China and mostly by air cargo. E-commerce shipments are accounting for an estimated 50 -60% of China – US air cargo volumes and dozens of full freighters each day. Total capacity out of China increased 25% year on year in 2024, so closing de minimis could drive a sharp drop in volumes and a spike in available capacity which could push rates down significantly.
China – US rates were at about $3.50/kg in mid-2023 – still above the long term norm of about $2.00/kg as capacity was still recovering post-pandemic and the e-commerce surge had yet to begin. But since late 2023 rates have more or less stayed between $5.00/kg – $6.00/kg as e-commerce volumes took up capacity and pushed prices up. Current rates post the peak season bump are back down to $5.09/kg.
The latest China – US rates are unchanged since January 29th, and as we’re still in the Lunar New Year holiday period we may not see rates respond immediately. But with global capacity at an all time high, rates on non-e-commerce lanes like the transatlantic were able to return to pre-pandemic norms of $1.60/kg by mid-2024.
So if de minimis’ disappearance on the transpacific drives a significant exodus of e-commerce from air cargo on this lane we could expect rates to drop sharply, possibly below the $3.00/kg mark, especially as carriers work to shift freighters back to other lanes – which likewise could spread the rate decrease to other lanes.
Transatlantic rates climbed from $1.60/kg in September to more than $3.00/kg in December partly due to freighter capacity moving from this lane to the transpacific to serve e-commerce demand. A shift of capacity back to lanes like these would see current prices of $2.35/kg ease further.
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