A couple of briefings this week suggest that while the effect of tariffs being imposed by the United States and China on the container shipping industry will be relatively mild this year, the impact could become more severe if a trade war continues.
“The impact of the U.S.-China trade war is unlikely to be felt this year, but if more tariffs are applied, as appears likely, the outlook for demand next year and beyond would worsen,” said an article in the latest edition of Drewry’s Container Insight Weekly.
Drewry analyzed three potential scenarios for eastbound transpacific container trade, based on the intensity of a trade war, ranging from tariffs of $50 billion to $450 billion being applied to Chinese imports.
In the worst-case scenario, Drewry calculates that “as much as 1.8 million TEU, or approximately 10 percent of the total eastbound transpacific market based on 2017 numbers could be lost to the market over a period of time.” It stressed that its analysis was “a rough guide and won’t happen overnight as tariff policies take months to put together and the impact often lags by a couple of quarters.”
But if U.S. tariffs are only imposed on $50 billion worth of goods (the tariffs that went into effect on Friday on $34 billion of Chinese goods as well as tariffs planned for another $16 billion in goods), Drewry says the impact “would be relatively insignificant at around 200,000 TEU.”
It notes the revised lists for the $50 billion in products are “heavily weighted towards industrial goods, while also being readily available from other trading partners. China only exported about 13 percent of the goods on the first list of products to the U.S. last year and around 8 percent of products on the second list.”
It says the main beneficiaries of any trade diversion from China would be Japan, Germany, South Korea, Malaysia, Mexico and Canada.
Mario Cordero, the executive director of the Port of Long Beach, told the port’s Harbor Commissioners on Monday night that “for right now it is fair to say that the impact at least for the $34 billion is rather nominal, but we are not being dismissive of long-term impact” if tariffs are imposed on an additional $200 billion or even $400 billion in Chinese goods.”
So far Long Beach is having a very good year: The Port of Long Beach moved 752,188 TEUs in June, 14 percent more than in June 2017. That was a record for any single month.
Noel Hacegaba, managing director of commercial operations at the port, said in the first six months of the year, volumes are running about 14.5 percent ahead of the same period in 2017, which “shows the momentum that was starting to build in 2017 carries into 2018.”
The port is now projecting that it will handle more than 7.8 million TEUs in 2018 and nearly 8 million TEUs in its fiscal year, which ends on Sept. 30.
Hacegaba detailed the effect the port expects from the tariffs. As a result of the U.S. tariffs that went into effect on Friday and have been imposed on $34 billion worth of Chinese products, the port expects 195,353s TEUs or about 3.66 percent of its total loaded containers could be exposed to higher tariffs.
Products such as industrial chemicals, rubber tires, machinery, measuring equipment, parts for motor vehicles and aircraft, and all sorts of finished transportation equipment could be subject to higher tariffs.
The second round of tariffs on $16 billion worth of goods could affect 94,142 TEUs and 1.77 percent of the ports loaded containers.
In the westbouond direction, Hacegaba said retaliatory Chinese tariffs on the first $34 billion in U.S. exports could expose 74,322 TEUs or 1.39 percent of the port’s outbound loaded containers to higher tariffs. These include products such as beef, pork, seafood, dairy products, fruits, vegetables, animal feed, cotton, tobacco products and vehicle parts. The tariffs on the second $16 billion could affect 18,456 TEUs or 0.36 percent of the port’s outbound loaded containers.
“Although a cloud hangs over the transpacific in the form of a trade war between China and the U.S., at ground level growth in the eastbound container trade is performing relatively well,” said Drewry. “After a lackluster final quarter last year, the first three months of 2018 saw headhaul volumes race ahead by almost 10 percent before some of the wind was taken from the sails in April and May.”
The London-based consultants noted it “didn’t expect the tearaway pace of growth from early 2018 to last” and forecast annual growth of around 3 percent for the total eastbound transpacific trade in its latest quarterly Container Forecaster report. It said a moving 12-month average growth rate for Asia-WCNA traffic slipped below 2 percent in May.
Drewry said, “Opinions have been expressed that some of the strength of the market in the first quarter can be attributed to importers bringing forward stocks in readiness for the trade war between Washington and Beijing, while some retailers have been purchasing additional stock in order to create more of a buffer as a counter measure to the tight availability of road haulage, which has been delaying the delivery of goods.”