Shipping lines braced for change as Trump’s tariffs target the EU


President Trump’s latest trade tariff salvo took aim at the EU, confirming his long-held promise to increase levies on exports to the US, as he seeks to redress trade imbalances and protect domestic markets. In the same breath, he added that a deal between the UK and US ‘could be worked out’, a statement that was as foreboding as it was vague.

While this particular missive was light on detail, there is little doubt that the imposition of tariffs will trigger disruptions in the global shipping market, the ramifications of which will extend far beyond reduced transatlantic trade, and bleed into container imbalances, altered transshipment strategies and shifts in cargo type.

It is unclear to what extent exports from Europe to the US would decrease as result of the tariffs, especially while the size of the tariff is unknown. The most likely scenario is a reasonable downturn, which would leave European ports with a surplus of empty containers, which in turn would increase repositioning costs for carriers.

Without sufficient demand for backhaul cargo, vessels would return to Europe under utilised, reducing profitability for shipping lines and driving up rates for remaining exporters. There is also the likelihood that container shortages would emerge in other regions, especially if capacity is redeployed to higher demand routes between the US and Asia. That would mean that European exporters reliant on container availability would face inefficiencies, further disrupting trade.

A change of tact?

It is conceivable too that UK and European manufacturers will alter their shipping strategies to mitigate tariff exposure. By exporting raw materials or semi-finished components instead of finished goods, they could, in theory, bypass higher tariff categories.

This would increase demand for bulk carriers and break bulk vessels, reducing container shipments, with industries such as steel, metals, machinery and automotive among those affected. Car makers, for example, may ship parts for assembly in the US, while heavy machinery and industrial equipment could be disassembled and shipped as breakbulk cargo.

The most likely outcome is that companies will explore alternative trade routes to reduce tariffs, leveraging transshipments hubs in regions like Turkey and South East Asia. Under current trade agreements, some goods exported from Turkey or Morocco, for example, are cheaper to export.

Similarly, rerouting through Vietnam or Malaysia may be an option, because partial assembly or reclassification allows entry in the US under different tariff codes – though given the hard line this administration has taken that option won’t be on the table for long. Stricter enforcement is likely, leading to longer clearance times and higher compliance costs.

With volumes on the transatlantic route decreasing, major transatlantic ports like Rotterdam, Hamburg and Felixstowe could also see a drop in US-bound cargo, weaking their economies of scale and increasing operational costs in the process. By contrast, Algeciras and Valencia in Spain, and the UK freeports are ideally situated to capitalise on tariff-driven trade fallouts.

Their locations mean that they are a viable option for transshipments, re-routed exports and access to alternative markets. Indeed, if businesses diversify supply chains away from the US, Mediterranean ports could handle more intra-European and Africa-bound trade. They could also serve as major consolidation hubs for exporters shifting focus to Latin America, Africa, and Asian markets.

While the full impact of these tariffs remains to be seen, we can be certain that global trade will have to adapt. Businesses will have to reconfigure supply chains, while ports and carriers will have to adjust to shifting cargo flows. It is clear that we are in an era defined by disruption and protectionist trade policies; to that end success will continue to be defined by resilience, strategic flexibility and the ability to mitigate risk.

Source: Ti Insights

Author: Tom Holmes

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