US-China tradewar just got much worse for container carriers

Yesterday morning, news out of China is for state-owned companies to suspend imports of US agricultural products. I.e. not a tarriff but an outright suspension of imports. 

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Whilst the majority of these exports move in bulk, substantial volumes are also containerized. Should this go ahead, it will create a problem for the carriers, and if the situation prevails will likely result in an upwards pressure on freight rates for US importers.

When demand drops on the US imports, the carriers’ response has been to blank sailings to better match supply and demand – with some modicum of success.

But this announcement from China will lower demand on the backhaul – and using blank sailings as a capacity-mitigation tool is not workable on the backhaul. Given the round-trip nature of liner shipping, capacity has to be tailored to the headhaul irrespective of developments on the backhaul.

The impact of China’s retaliation will therefore be that utilization simply drops on the backhaul leading to an increased imbalance between full and empty containers, and carriers will incur even higher costs for shipping empty containers back to China.

If this situation prevails, the carriers will therefore have no choice but to shift the burden of increased empty container repatriation onto the headhaul Pacific rates.

 

Source: Lars Jensen/LinkedIn

Source Source: Lars Jensen/LinkedIn

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