Container shipping rates have been all over the place for the past few months. The Shanghai Containerized Freight Index reported China-West Coast rates up 22% since the week before Christmas but freight marketplace Freightos said that China-West Coast rates fell 6% in the week before Christmas, 24% lower than the rates in the same period last year.
Although hard evidence is difficult to produce, the most frequent explanation of the condition of the market, not just for shipping but for most types of internationally traded logistics assets, is the trade-conflict between China and the US. If this is an accurate diagnosis then there might be cause for optimism. Donald Trump has affirmed that he will sign a ‘phase 1’ trade deal on January 15, commenting on his twitter feed on December 12 that he was “Getting VERY close to a BIG DEAL with China. They want it, and so do we!”.
Although it appears that the agreement will be negotiated right up to the point of signing, the broad outline is that the US will withdraw many of the tariffs it imposed on Chinese goods in exchange for greater purchases by China of agricultural products from the US.
Such a deal may relieve the pressure of trade flows in the short term, however the mood music from advisers around the White House suggest trade conflict with China is not over. Indeed, it is unclear if the deal to be signed on January 15 will deal with issues such as Huawei’s access to markets in the West.
In any case, it appears that Donald Trump is preparing for his next trade conflict with Germany and the EU. Already he has threatened to impose heavy tariffs on German car exports and has said that he will retaliate against France over the ‘digital tax’.
There is a wider point here beyond Donald Trump’s politics. The imbalances in the global trade system is creating tensions between economies, highlighting incompatibilities in their politics and approach to markets. This is unlikely to go away anytime soon. The response by supply chain managers is to redesign supply chains to accommodate greater risk, with more flexibility and sourcing locations. This is already seen in the diversification of consumer electronics assembly away from China. The volatility in logistics markets is partly a reflection of uncertainty that these policies create.
Source: Transport Intelligence, January 7, 2020
Author: Thomas Cullen