European ports are at risk of getting clogged up once a tsunami of goods diverted from the US market because of tariffs begins to arrive in European waters, warns Peter Sand, Chief Analyst at Xeneta, the freight rate benchmarking and market analytics group.
The temperature in the trade war between the world’s two largest economies has just edged lower following the US and China agreeing to lower tariffs for the next 90 days. In the latest development, America has agreed to lower additional tariffs on Chinese goods to 30% from 145% and China has said it will cut duties on US imports to 10% from 125%.
However global shipping is still reeling from President Trump launching a “reciprocal tariff strategy” in early April to re-write what he characterises as decades of unfair trading relationships that have disadvantaged American manufacturers and workers.
Sand warns that European ports may bear the brunt of global, long-established shipping lines being unable to suddenly apply the brakes. In the immediate aftermath of tariffs, container shipments out of China paused and shipping lines filled space on their vessels by diverting to ports in Vietnam, South Korea and Thailand. These ships are now heading for Europe where European ports like Antwerp, Rotterdam and Marseille are already facing severe congestion.
Because ports traditionally face lower trade flows in the summer, many port operators take the opportunity to repair their infrastructure. Another contributor to looming congestion includes rolling strikes in European ports that is already forcing ships to divert to other ports. Elsewhere, low water levels on the Rhine have impacted shipping, impeding the ability of port staff to get container boxes through the ports.
“As exports out of China fell, various shipping lines filled boat capacity out of Thailand, South Korea and Vietnam. Cargo carriers deployed their capacity into different trade links which now threaten to overwhelm European markets with capacity. There is always a ripple effect – global shipping supply chains are so integrated that if something happens somewhere, there is always a knock-on effect to the entire system.”
Corporate trends
Sand also notices corporate trends to ship “whatever is available” and move cargo into free trade zones and bonded warehouses to try and avoid the impact of tariffs. Moreover, goods with a higher value that sell for a higher margin are more likely to be shipped because there is a better chance of importers absorbing the costs or passing on the impact of tariffs, “these importers have not been completely priced out of the market,” he reflects.
He adds that corporates have scrambled to source products from countries other than China but for many it’s not been possible. “Companies can’t just set up new supply chains in a few weeks. They are now trying to predict long-term tariff policy and where they should source in a strategy that could be beneficial to countries with lower tariffs like Brazil. Many goods from countries like Vietnam, long singled out as an alternative to China, will actually be priced out of the market.”
Sand concludes that US consumers are likely to feel the impact of tariffs particularly. “Some products will not be on the shelves,” he predicts. Thirty per cent of all US containerised imports come from China yet China only relies on the US for 20% of its exports. Moreover, he notes that China has other markets to send its production.
Despite the uncertain environment and potential slowdown in global growth and demand, freight rates have remained stable. Sand links this to the costs of rerouting ships around the Cape of Good Hope to avoid instability in the Red Sea.
