The trade war between the U.S. and China had a significant impact on international shipping in 2018 and should continue to do so in at least the early part of 2019.
This article covers what is happening right now in the trade war and then gives 3 effects U.S. shippers are likely to see from it in the early part of 2019.
Status of Trade War
On Saturday December 1st, President Donald Trump and President Xi Jinping called a ceasefire on the trade war between their respective countries.
While this ceasefire did not end the U.S.-China trade war, it did mean agreement between the countries not to implement any further tariff escalations against each other until the completion of a 90-day period for trade negotiations.
Since the U.S. planned an increase on tariffs from 10% to 25% on approximately $200 billion worth of Chinese goods to go into effect on January 1st, the ceasefire was very timely. However, if a trade agreement cannot be reached by the ceasefire’s March 1st deadline, those tariff hikes are scheduled to go into effect at that time.
Trade negotiations are underway between the U.S. and China. Despite doubts that an agreement can be reached within the 90-day timeline, some optimism arose when China’s Vice-Premier Liu He made a surprise appearance at the first day of new talks on Monday, January 7th in Beijing, as reported by Sarah Zheng and Catherine Wong in the South China Morning Post, writing that analysts see this as “goodwill and Beijing’s commitment to reaching a deal with Washington.”
Still, the complexity of reaching a deal involving the resolution of contention over the trade gap, intellectual property practices, tariff measures, agricultural purchases, and other trade practices has analysts expecting no deal to be reached before the deadline passes. That likely means tariff increases in March.
3 Effects of the Trade War on Shipping
(1) Increased Imports from China
It seems counterintuitive to think the trade war with China would mean more imported goods from China. However, that’s exactly what it’s likely to mean in the first couple months of 2019.
We already saw this happen in the second half of 2018. Shippers moved their imports from China up to beat tariff increases, creating a much inflated and prolonged peak season for 2018.
As most believe negotiations between the U.S. and China are unlikely to reach a satisfying conclusion before the deadline, shippers are likely to continue this trend of trying to beat the tariff increases with goods shipped from China.
While the early part of the year usually sees decreased international shipping, volumes of goods imported from China should be up significantly from their average in January and February. February could even see a very big surge as the March deadline approaches.
Steven Chiu of Seamaster Global even told Universal Cargo that there will be a cargo rush, as “it is expected that 2019-20 contract rates will increase as compared to 2018; thus, importers will move forward their shipments to enjoy the low 2018 contract rates.”
Speaking of freight rates, that brings us to…
(2) Carriers Should Maintain Higher Freight Rates