Any purchaser or provider of logistics services could be forgiven for being a little confused over the direction of markets over the past few months. Sea and air freight prices and volumes have been volatile, and there seems to be little indication that this will end any time soon.
Such volatility is being driven by the difficult trade relationship between China and the US. The most recent development in this relationship has been the statement on June 2nd by the US President, Donald Trump, that he is increasing tariffs on steel imports from China once again, accusing the Chinese of violating an interim agreement the two governments had agreed in May. Longer-term trade talks continue between China and the US, although the negotiators in these talks, such as Scott Bessant, the US Treasury Secretary, and Howard Lutnick the Commerce Secretary, have both asserted that the US is committed to a policy of tariffs.
The result is gyrations in logistics markets, especially trans-Pacific markets. For example, the Port of Long Beach saw a 15.6% increase year-on-year in container volumes in April, the strongest April on record, but said that it was expecting a “double-digit decline for shipments in May”. These fears seem to have been fulfilled, with preliminary statistics from the US Commerce Department describing a 20% fall in merchandise imports over April following a 5.8% increase in March.
Unsurprisingly, prices in logistics markets have reflected this volatility. Over the past month, despite container lines increasing the intensity of services, freight rates increased, with Freightos reporting a 13% rise on the Asia-West Coast route in the last week of May. In contrast, Freightos said that airfreight prices fell by 7% on the China-US route, possibly reflecting shippers succeeding in building higher inventories.
From an operational viewpoint, some have expressed concern over the impact all of this may have on the functioning of ports and airports. The senior management of the Port of Long Beach compared the situation with that of the impact of measures taken in 2021-2022 against COVID-19, raising the possibility of congestion driven by the ‘bullwhip’ effects of container demand volatility. However, so far, even the US West Coast ports seem not to be over-taxed by the volumes.
In terms of the larger picture, the trade conflict between China and the US shows little sign of resolution. Indeed, if the statements from Washington on the US’ underlying position are to be believed, there is little prospect of a return to the status quo ante in trade relations, at least with the US. The implication is that inter-continental logistics markets will remain volatile, with container shipping in particular highly unpredictable.
Author: Thomas Cullen
Source: Ti Insight
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