Expert: Volatility and uncertainty is the only certainty in international shipping today
 It is no comfort for shippers to learn that the terrain of international shipping today is like a mountain range in the fog - only to discover at the next glance that it is worse than that - more like ocean waves in a mist.
Invited to survey today's situation one was more in need of seamanship than mountaineering skills, as London's Port Technology International discovered when it sat down with shipping veteran Michael Starr, vice president of growth and expansion at digital London forwarder Zencargo.
Mr Starr shared insights on how new tariffs were impacting shipping volumes, supply chain strategies and global logistics. He also explored Chinese retaliatory measures and their ripple effects across global logistics world and how best to navigate them.
Regarding the Trump tariffs, he said: "Importers front-loaded goods between the US election and early February, leading to a temporary spike in container traffic in Q4. Now we’re seeing the start of reduced demand as businesses adjust."
Asked what he expected in terms of retaliatory measures from China, Mr Starr said: "China has already imposed new tariffs on US agriculture, coal, LNG, crude oil and agricultural machinery.
"More retaliation could follow – agriculture will continue to be targeted, along with individual US companies that may be considered sensitive, which will further increase global shipping costs and disrupt freight capacity.
"We would also expect raw materials, especially rare earth metals, to continue to be a lever in China’s pushback," Mr Starr said.
Asked if he has noticed any increase in alternative sourcing strategies, such as shifting imports to countries with free trade agreements, Mr Starr said:
"Since the first administration, most large retailers and manufacturers have adopted a ‘China+1’ strategy, which involves maintaining production in China while expanding operations to secondary hubs to minimise tariff exposure.
"Now, smaller importers have no choice but to institute a similar strategy, while larger companies are stepping up by going so far as to implement a China +3 or even +4 strategy to stay ahead, he said.
Mr Starr noted a shift towards Vietnam, Malaysia and India. "But supply chain relocation isn’t instant. China’s world-class infrastructure and integrated supply chains mean complete relocation isn’t always viable, particularly for electronics and consumer goods industries."
Asked how businesses can leverage the ‘First Sale’ rule to mitigate the impact of these tariffs, and what challenges do they face in implementing it.
Said Mr Starr: "The ‘First Sale’ provision allows businesses to value their goods at the manufacturer’s price rather than the marked-up middleman price. This is a helpful strategy to reduce duty exposure, but it can be risky if not implemented correctly, because customs security will be high.
"Compliance requires robust documentation, and businesses must ensure transactions are legitimate, especially in related-party sales where transfer pricing rules add complexity, said Mr Starr.
But how can shipping companies adjust freight rates to account for the new tariffs on Chinese imports?
Mr Starr said: "Demand is falling, which means rates likely will continue to fall, despite the carriers’ aims and initiatives to prop the rates up."
What about transshipment strategies or tariff engineering to minimise costs?
Said Mr Starr: "Some brands are getting creative by exploring ‘tariff engineering’, which involves adjusting product specifications to fit a different customs category. But watch out as customs scrutiny will be high.
"Most companies," he said, "are tightening their belts through initiatives such as layoffs, eliminating new CAPEX, reducing OPEX and finding new efficiency gains. They’re reducing expenditures wherever possible because it’s impossible to plan when the geopolitical situation constantly changes. And moving supply chains isn’t a quick fix," he said.
What are the biggest operational challenges shipping lines and freight forwarders face due to these tariff changes?
"There is considerable uncertainty amidst falling global demand and trade. If the situation persists, the “rules” of global trade will be rewritten. Will today’s trade routes still be the core trade routes in the future?"
Asked what are the biggest operational challenges shipping lines and freight forwarders face due to these tariff changes, he said: "There is considerable uncertainty amidst falling global demand and trade. If the situation persists, the 'rules' of global trade will be rewritten. Will today’s trade routes still be the core trade routes in the future?"
What long-term effects do you foresee these tariffs having on the global maritime industry, particularly in terms of supply chain resilience and investment in alternative logistics hubs?
Said Mr Starr: "Global trade is being rewritten in real-time. Southeast Asia is rapidly becoming home to major logistics hubs, with ports expanding to handle new trade flows. The longer these tariffs stay in place, the more permanent these supply chain shifts will become.
"Businesses are also rapidly finding new markets and customers for their products, pivoting away from America. If this trend continues, will those shifts ever come back?" he said.
Assessing Mr Starr views, one is left with to conclude that much depends on whether US President Donald Trump's restoration of America's industrial strength is successful and to the degree it is.
If those factories reshoring to America to escape tariffs wish to remain internationally competitive, they will have to automate to cut expenses to keep retail prices affordable in non-OECD markets.
If such becomes widespread, then Mr Trump's primary objective, that is providing employment for the working class long displaced by offshore producers, will have been frustrated. To function in terms of Plan A would require his high-wage labour-intensive economy having to permanently shelter behind tariff walls. This is a strategy better suited to Abe Lincoln's time, a man who believed in tariffs.
Such an outcome would undermine the Trump administration's stated objective of reciprocity in trade. But if that were truly desirable, as it is increasingly said to be,
then cheap foreign goods would flood in as trading partners used their comparative advantage to their advantage against America. |
