Is the Red Sea Set to Reopen? Are Supply Chains in the Clear?
Following the Israeli-Palestinian ceasefire, the Houthis have also announced a conditional ceasefire over the Red Sea. However, ocean carriers are approaching these developments with caution, opting to observe how the agreements unfold before making significant route adjustments. If a first mover resumes transit through the Suez Canal, an influx of capacity could rapidly put downward pressure on ocean freight rates.
Should conditions improve, the industry may face new challenges, such as port congestion and limited terminal yard storage capacity, potentially leading to equipment shortages in Asia—similar to the disruptions seen post-COVID.
What Lessons Can the Industry Learn from Past Disruptions?
Historically, major global events have repeatedly shaken the ocean shipping industry. The COVID-19 pandemic triggered a surge in demand for physical goods, overwhelming shipping capacity. The Ever Given incident further strained the market by blocking the Suez Canal, leading to months of congestion, particularly in Europe. More recently, the Red Sea crisis forced widespread rerouting, extending transit times and disrupting supply chains.
With the potential reopening of the Suez Canal, demand has not only stabilized, but may soon outpace available supply. If ocean carriers swiftly resume Suez transits, an oversaturation of shipping capacity could place immense pressure on freight rates. However, industry sentiment suggests that the Red Sea may not be fully reopened until at least the second half of 2025, as carriers remain wary of rate volatility and geopolitical risks.
Tariffs and Trade Tensions: Key Policy Shifts for Importers
North American Tariff Delay: Cooperation on Border Security
The United States has reached agreements with both Canada and Mexico to delay the implementation of a 25% tariff on their steel and aluminum imports for at least one month. This decision follows commitments from both countries to strengthen border security measures, particularly in combating the flow of fentanyl into the U.S. Canadian Prime Minister Justin Trudeau announced several initiatives, including the appointment of a "Fentanyl Czar," increased border surveillance, and a joint task force with the U.S. Meanwhile, Mexican President Claudia Sheinbaum agreed to deploy 10,000 soldiers along the U.S.-Mexico border to curb illegal migration and drug trafficking. These agreements have temporarily averted retaliatory tariffs from Canada and Mexico, with Trudeau previously threatening to impose a 25% tariff on $107 billion worth of U.S. goods.
China's Response: Counter-Tariffs and Trade Restrictions
Despite the delay for North American trade partners, a 10% tariff on Chinese goods took effect on February 4, imposed through the International Emergency Economic Powers Act (IEEPA). The tariff applies only to goods originating from China, not those merely transiting through affected countries. Additionally, the Trump administration has suspended the de minimis exemption for imports from China, citing concerns that it was being exploited to smuggle fentanyl and related chemicals into the U.S. Unlike Canada and Mexico, which received a deferment, Chinese imports are now subject to stricter customs enforcement. There are currently no known exemptions or product exclusions, meaning both businesses and consumers will be directly affected. Furthermore, duty drawback—typically allowing companies to claim refunds on duties paid for re-exported goods—will no longer apply to these new tariffs on Chinese-origin products.
U.S. Policy Changes: De Minimis Exemption and Future Tariffs
On February 7, President Trump issued an executive order delaying the elimination of the de minimis exemption for Chinese imports until the Secretary of Commerce confirms that systems are in place to efficiently process tariff collections. However, no timeline for this delay has been provided. Shortly after, on February 10, Trump announced a sweeping 25% tariff on all steel and aluminum imports, effective March 12. While the full list of affected products is pending publication in the Federal Register, Trump emphasized that these tariffs could increase further and would not be eligible for duty drawback. Despite initially stating there would be no exceptions, he later suggested that Australia might receive an exemption due to its trade surplus with the U.S.
Timeline of Recent Trade Policy Events
- February 7: President Trump issues an executive order delaying the elimination of the de minimis exemption for Chinese imports.
- February 10: Trump announces a 25% tariff on all steel and aluminum imports.
- March 12 (Effective Date): The 25% tariff on steel and aluminum imports goes into effect.
These new steel and aluminum tariffs eliminate previous exemptions for Canada and Mexico while increasing the aluminum tariff from 10% to 25%. Canada, the largest U.S. supplier, accounts for 23% of steel and nearly 60% of aluminum imports, while Mexico contributes 12% of steel imports. The tariffs also aim to curb China's indirect steel exports, which often enter the U.S. through intermediary countries like Mexico. The Trump administration has directed CBP to closely scrutinize steel and aluminum imports, enforcing maximum penalties for any misclassification or attempts to circumvent duties. Additionally, Trump hinted at imminent reciprocal tariffs targeting nations that, in his view, take advantage of U.S. trade policies. These tariffs could be implemented swiftly, with select trading partners potentially exempted.
Watch Out for Short-Term Disruptions
- Higher Import Costs: Rising supply chain expenses from China, Mexico, and Canada may lead to price increases.
- Trade Compliance Hurdles: Duty reclassifications and denied de minimis entries require Customs adjustments.
- Cash Flow Strain: Larger Customs bonds may be needed to cover the higher tariff liabilities
Tariff-Fueled Surge: Why Trans-Pacific Shipping Is Defying the Seasonal Lull
Shifting Seasonal Patterns: The Impact of Trade Tensions
The ongoing trade tensions between the U.S. and China are disrupting typical seasonal patterns in trans-Pacific shipping, with importers frontloading cargo ahead of potential tariff increases. While container rates from Asia to the U.S. have eased slightly since early January, analysts predict that continued pull-forward activity may prevent the usual post-Lunar New Year dip in demand. Instead, rates could remain elevated or even climb as shippers rush to bring goods into the country before additional trade restrictions take effect. This could lead to an unusual market dynamic where demand and rates weaken later in the year during the traditional peak season.
Tariff Policies Fuel Shipping Surges
Despite temporary pauses on tariffs for imports from Mexico and Canada, the U.S. has maintained a 10% tariff on Chinese goods, fueling ongoing shipment surges through key container gateways. Meanwhile, Chinese e-commerce platforms such as Temu have been adjusting their strategies by shifting their reliance away from air freight and de minimis exemptions. Many sellers have already started increasing their use of ocean freight. They are stockpiling inventory in the U.S. and Mexico, with reports suggesting that American consumers are already seeing more products advertised as available from domestic warehouses.
Regional Disparities in Shipping Trends
While trans-Pacific shipping remains strong, ocean freight rates from Asia-to-Europe have dropped significantly, with prices falling by 40% since early January. This decline is attributed to shippers frontloading volumes ahead of Lunar New Year to navigate Red Sea disruptions. With no immediate demand rebound in sight, carriers are expected to implement blank sailings to stabilize rates. Meanwhile, the U.S. National Retail Federation reports that American importers have been ramping up shipments since November in anticipation of a potential 60% tariff on Chinese goods—a policy proposal set in motion by Trump’s trade strategy, which could take effect as early as May.
Global Trade Adjustments: Policy Shifts and Supply Chain Impact
Additionally, recent changes in U.S. de minimis policies have prompted a shift from airfreight to ocean shipping, further impacting global trade flows. Previously, platforms like Temu and Shein leveraged duty-free entry to rapidly expand their U.S. market presence, but as the Trump administration reassesses long-term tariff structures, both Mexico and the EU have implemented their own de minimis restrictions. These shifts highlight the broader global response to changing trade policies and their impact on supply chain dynamics.
