ASIA: The Asia-United States trade corridor is experiencing a period of uncertainty, affected by fluctuating ocean freight rates and renewed tariff threats reminiscent of the Trump administration’s earlier trade policies. These factors are forcing businesses to reassess their supply chains and financial strategies to adapt to the changing economic climate.
Volatile shipping rates
Recent trends indicate a downward trajectory in container shipping rates from Asia to the US. According to FreightWaves, the Freightos Baltic Index recorded a 10% drop in rates to the US West Coast, settling at $5,321 per forty-foot equivalent unit (FEU) for the week ending 17 January 2025. This decline is largely attributed to the seasonal slowdown associated with the Lunar New Year, during which manufacturing production in Asia diminishes, leading to reduced cargo demand
However, a few months ago, ocean freight costs were surging. Data from Cello Square highlighted that Asia-US West Coast spot rates spiked from $2,500 per FEU to the mid-$4,000 range by late November 2024, driven by general rate increases imposed by shipping carriers. Similarly, East Coast rates surged from $4,367 to $5,000-$6,000 per FEU over the same period. This volatility has left many importers and exporters scrambling to adjust their budgets and logistics plans.
Impact of renewed tariff threats
Besides fluctuating shipping costs, businesses are facing the prospect of heightened trade restrictions. During the recent World Economic Forum in Davos, US President Donald Trump reiterated his stance on tariffs, indicating that he would impose new levies on foreign-made products. This has raised concerns among global manufacturers and traders, who fear that fresh tariffs could be implemented as soon as next month, adding another layer of uncertainty
Chinese exporters, in particular, are feeling the heat. Kam Pin Industrial, a Hong Kong-based supplier, has already reported a decline in US orders due to weakening demand in the construction sector and fears of additional tariffs. Mr Danny Lau, the owner of the company, warned that higher tariffs could push American buyers to shift towards domestic suppliers, reducing China’s share in the US market
Beyond China, other major exporters are also bracing for impact. In Mexico, the automotive sector is expected to take a hit if the US follows through with its proposed 25% tariffs on imported vehicles. Canadian businesses, heavily reliant on US trade, are also monitoring the situation closely and preparing contingency plans to mitigate the risk of further economic disruption.
How businesses are adapting
To counteract the volatility in shipping rates and tariffs, many businesses are diversifying their supply chains. Some are seeking alternative production hubs in Southeast Asia, while others are considering shifting a portion of their logistics operations to Europe and the Middle East. Additionally, companies are adopting flexible shipping strategies, such as securing long-term freight contracts instead of relying on fluctuating spot rates.
For smaller exporters, these uncertainties pose significant challenges, as they lack the financial cushion of larger corporations. Many are closely monitoring trade policies and adjusting their pricing models to accommodate potential cost increases.
With ocean freight rates fluctuating and the prospect of renewed tariffs looming, Asia-US trade is at a critical juncture. Businesses must remain agile, adjusting their supply chains and financial strategies to navigate the evolving landscape.
Featured image by Depositphotos (for illustration purposes only)