How the current trade policy/tariff changes could impact the world’s supply chains

Of keen interest to any shipper that works with overseas trading partners and customers, issues like renegotiated trade agreements, steeper tariffs, and the thought of a full-blown trade war are all giving companies something to think about in 2018.

According to Fitch Ratings’ latest U.S. Transportation Trends special report, recent trade friction between the United States and China and the prospects for higher interest rates are “not likely to affect growth for the major transportation segments for the foreseeable future,” Patrick Burnson writes in Logistics Management.

Senior Director Emma Griffith added that renegotiated trade agreements and steeper tariffs are likely to affect import/export volumes overall, with some U.S. ports possibly feeling the effects more acutely. “Ports that handle large volumes of steel and aluminum are likely to bear the initial brunt of the new tariff policy, though the full effect of these changes will take years to fully materialize,” Griffith told Logistics Management.

Ocean May Feel the First Impacts

On the transportation front, ocean shipping could feel the brunt of the impact of any trade war. Now that China and the US have threatened to swap 25% tariffs on a range of goods worth a total of about $100 billion, the maritime industry is worried that shipping volume will fall along with profits.

“I think the ocean carriers are very nervous; they’re coming out of some lean years,” Drewry’s Simon Heaney told CNN Money. “This is clearly a concern for anyone involved in the shipping industry.” Tariffs could put up to 7% of Asia-to-US shipping at risk and impact 1% of total global shipping. Shipping revenue in 2017 totaled $210 billion.

“It’s going to hurt container lines,” JOC’s Mark Szakonyi told CNN Money, warning that container ships sailing from the U.S. to China could get stuck with partially empty hulls and move air back to Shanghai.

“Last year, for example, the U.S. shipped nearly 57,000 containers worth of soybeans to China,” the publication reports, “but with a 25% tariff looming it’s unclear if as many soybeans will travel a well-worn route down the Mississippi and out the port of Louisiana headed for China.”

What’s Ahead?

In U.S./China Trade Threats Likely to Slow Global Growth, Reuters’ John Kemp wrote about how tensions between the U.S. and China are likely to have an adverse impact on global growth even if the threatened tariffs are never imposed. “Conflict between the world’s two largest economies is creating significant uncertainty for businesses that threaten their global supply chains and future investment plans,” Kemp writes.

For multinational businesses considering the location of a new manufacturing facility, for instance, the threat of tariffs is likely to cause at least an additional pause before the project is given the go-ahead.

“If decisions are delayed, the result will be a slowdown in investment, at least in the short term, with negative implications for growth,” Kemp writes, adding that U.S. officials have indicated it could take six months or more to reach a final decision on tariffs, which implies an “extended period of damaging uncertainty.”

Analysts say that Asian economies engaged in intermediary trading between China and the US will face the brunt of the impact of the trade dispute. South Korea, Taiwan, Vietnam, and Malaysia, all of which export goods – such as machine parts and components for communications equipment – used in the production of items that China then sells to the U.S., are vulnerable, Fitch Ratings’ Steven Schwartz told the South China Morning Post.

Here at Odyssey Logistics, we’re watching the tariff and trade developments closely and will keep you informed of any changes that impact the logistics and transportation industries.