With the 90-day pause on super-high China tariffs, volumes will begin to increase from China to the US. Many importers held cargo for the last 6 weeks, waiting for a reprieve, and they will take advantage of this relatively low-duty environment to bring in inventory. We can expect a surge of demand and freight rate increases in response. Ocean carriers pulled a significant amount of capacity out of the China-US trade when demand collapsed, and it will take time for capacity to recover. Further, the carriers must try to predict what demand may look like after the 90-day postponement period as they determine which services to bring back and which to keep on pause.
Demand will exceed supply at least in the short term, and we are likely to see a scenario similar to the May-July 2024 period play out. Demand surged around the same time last year as importers front-loaded inventory, and rates spiked to the highest levels since the pandemic. The extreme capacity reductions the carriers just implemented may create an even more challenging situation for shippers compared to last year. With annual contracts still freshly finalized, and some allocations not yet in place, contract space is likely to be extremely tight in the short term. We can also expect carriers to implement peak season surcharges.
Other challenges are likely, including equipment imbalances and potential strain on US terminal and rail infrastructure. If the import surge is particularly strong, we could see congestion and delays grow in the coming months.
The constantly changing tariff environment creates immense challenges for planning, but it is still critical to forecast to the extent possible. Planning ahead will help maintain more contracted/fixed space during these extreme market swings.
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Rachel Shames
VP, Pricing & Procurement
CV International, Inc.