Transpacific rates could benefit from trade war

The brief rest in commercial hostilities between the US and China barely lasted a month.

As expected, the truce agreed during the G20 meeting in Japan at the end of June ended on Twitter when US President Donald Trump announced on August 1 that a new 10% tariff would be imposed on another $300 million of Chinese products, effective as of September 1.

Shipping routes.

Shipping routes.

The latest observations indicated that the tariff could increase to at least 25% applied to $250,000 million in Chinese import products already subject to additional tariffs.

From Drewry it was pointed out that the atmosphere from the G20 was not going to be prolonged, since all previous agreements of this type finally broke down. However, the speed of the collapse was somewhat surprising.

It was estimated, first, that President Trump could continue with some “saber rattling” for the show, but that he would resist any real action that could directly damage the US economy before the general elections next year.

Drewry’s analysis shows that the deployment of US tariffs has been progressively aimed at consumer goods along with greater exposure to China’s supply, which means that it will be more difficult to protect Americans from price increases for these products, which in turn could harm the chances of re-election of Trump.

But leaving politics aside, the consultant questions what does the escalation of the commercial war mean for the container market?

For the long term, Drewry maintains the view that increasing protectionism is a negative factor for container growth, potentially mitigated by the replacement of trade routes and further fragmentation of production outside of China.

However, there could be some short-term advantages.

Last year’s tariff wars caused a flood of cargo on the Transpacific route, as the BCOs advanced shipments to avoid higher tariffs on imports by the United States, which led to increased freight rates.

However, the difference on this occasion is that cargo owners have less time to prepare and with transit times between China and the US West Coast taking approximately 14 days, only a small window will occur during the first two weeks of August so shippers can organize the advancement of charges to meet the new deadline.

Therefore, Drewry estimates a brief increase in freight rates on the Transpacific route specifically to USWC as it is the fastest route to the United States, during the first half of August. The threat of further tariff increases could cause the process to extend until after September 1, but freight rates are not expected to repeat the same sharp increase of last year.

According to Drewry, the escalation of the commercial war will raise spot rates in what was outlined as a dying high season, but the shortest time available will probably prevent repeated epic gains caused to last year’s freight rates.

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