Weekly highlights
Ocean rates – Freightos Baltic Index
Asia-US West Coast prices (FBX01 Weekly) decreased 3%.
Asia-US East Coast prices (FBX03 Weekly) decreased 1%.
Asia-N. Europe prices (FBX11 Weekly) decreased 1%.
Asia-Mediterranean prices(FBX13 Weekly) increased 2%.
Air rates – Freightos Air Index
China – N. America weekly prices decreased 15%.
China – N. Europe weekly prices decreased 9%.
N. Europe – N. America weekly prices stayed level.
Analysis
The much-anticipated US Supreme Court decision arrived on Friday, striking down the Trump administration’s use of the International Emergency Economic Powers Act to enact tariffs. The president relied on IEEPA for most of last year’s tariffs, including all the country-specific tariffs and the fentanyl-related duties imposed on China, Mexico and Canada.
The move triggered a rapid response from the White House, making good on promises to reinstate IEEPA tariffs by other means in the event of a loss. Trump signed an executive order later that day introducing a 10% global tariff based on Section 122 of the Trade Act of 1974, reframing the duty as addressing a balance of payments problem. The president said on social media that he will raise the tariff to 15%, and the administration is reportedly working on an amended order, but the law went into effect Tuesday at 10%, and is valid until late July.
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The ruling keeps de minimis suspended, and leaves Section 232 sectoral tariffs, and Section 301 tariffs on specific trading partners – used in 2018 for duties specific to China – intact too, but along with the long list of previous exemptions to the IEEPA tariffs. The president and other officials stated this week that they will use other means – like 232 and 301 – to restore tariffs before Section 122 expires, though these channels typically take months as they require federal agency investigations before the president can introduce duties.
The White House already has several Section 232 probes underway and is now reportedly considering opening more. And in addition to reviewing China’s compliance to the terms of its deal with the US during Trump’s first administration, it may also have opened additional China-focused 301 investigations.
The US based the many trade agreements it negotiated in the past year largely on IEEPA tariffs, raising questions as to the deals’ validity and how various trade partners will react. The administration says the US intends to honor these agreements and Trump has threatened counterparts who do otherwise. And while some countries have so far said they will stick to the deals, some high profile partners like the European Union see a 15% blanket duty as a breach of agreed tariff levels for some goods, and have paused steps to implement the agreement until they can receive clarity.
All-in-all the shift to a global 15% tariff mostly preserves the IEEPA trade barriers: Yale’s Budget Lab estimates the change reduces the overall effective US tariff rate by only two percentage points, with impacts varying by country – a five percentage point reduction for China and Vietnam, no change for the EU baseline, a five-point increase for the UK, and the most significant reduction for Brazil (down from 40%). Overall effective tariffs on China remain around 40% due to pre-existing Section 301 duties.
So while in terms of tariff levels not too much has changed for the near term – and as of now the US appears intent on restoring and maintaining tariffs after Section 122 expires too – the more significant implication may be geopolitical.
Trump relied on IEEPA during this administration because of its speed — it allowed him to credibly threaten immediate tariffs across a wide range of, often non-trade-related, issues, including the recent Greenland drama. With that leverage gone, though we’re still likely to see Trump threaten tariffs that could ultimately materialize, the pace of US trade policy changes, and the frequency of disruptions Trump has caused for freight markets over the past year, could slow significantly.
For US shippers, the immediate question – in addition to the many questions around potential refunds – is whether or not these developments justify frontloading before the July deadline.
Where the 15% rate represents a meaningful reduction — like for Brazil — we may see a quick increase in volumes. And a five-percentage point reduction for tariffs on goods out of China and Vietnam may be enough to spur frontloading by some shippers, meaning we may see some signs of increased demand as soon as manufacturing restarts post-Lunar New Year in a week or so.
But, for many shippers, the relatively modest tariff reduction for most countries including China and Vietnam may not be enough to trigger a significant pull forward. And with the White House under cost of living political pressure; facing some open Republican opposition to tariffs; and considering expanding its list of tariff exceptions – some importers may suspect that Trump will hesitate to extend tariffs at the end of July as midterm elections loom. These factors could also keep many importers from frontloading in hopes that the tariff landscape shifts in their favor.
So, we’ll probably see somewhat stronger US import volumes in the coming months, and possibly an earlier start to peak season, than we otherwise would have, but we may not see the levels of frontloading that tariff threats spurred last year.
As container rates won’t reflect any, or even a surge of, potential frontloading until after the LNY period, transpacific rates – along with Asia – Europe prices for the same reason – were about stable last week and down from their pre-LNY highs. As rates are likely to rebound on the typical post-LNY backlog bump for all these lanes, it may initially not be possible to attribute rate increases solely to trade war developments.
Carriers have prevented rates from sliding too far over the past weeks by increasing blanked sailings on these lanes, though they will restore capacity if demand materializes post the holiday. With the current demand lull, the stop and start weather disruptions in N. Europe and the resulting congestion has not pushed rates up. This week’s major blizzard in the northeastern US also shut ports, roads and airports temporarily, but may likewise not be felt in rate levels despite likely delays and congestion.
In other ocean news, some ZIM vessels in Israel are facing port labor disruptions from union workers opposed to the planned sale to Hapag-Lloyd. And Maersk and MSC have officially taken over operations at the Panama Canal ports previously run by HK Hutchinson, despite Hutchinson’s opposition.
Finally, for air cargo, the tariff turmoil could, like for ocean freight, be reflected in some increase in US bound volumes in the coming months. But with de minimis still suspended, we’re unlikely to see a big or sudden volume surge for air cargo either. As ex-Asia freight is in its LNY lull, China – US rates dipped by 15% and prices to Europe eased almost 10% last week.
