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CNBC
an hour ago
- Business
- CNBC
How big drop in trade deficit as tariffs hit imports looks inside U.S. supply chain and economy
The U.S. trade deficit fell by the largest amount on record in April as imports fell by over 16% after a surge in orders to beat President Trump's tariffs, but there's a worrying flip side for the consumer. As the trade war whipsaws global economic activity, supply chain data shows that the retail inventory crunch could be next. From freight orders to inventory and warehousing, the latest logistics data shows the inability of importers to make decisions on adding to inventory levels. One closely watched data point is the widening gap between inventory levels and inventory costs. These metrics generally track together, according to the Logistics Managers' Index. In 2024, the average space between these metrics was 12.1 points. But in May 2025, the gap has expanded to 26.8 points, the third-highest in the history of the index, said Zachary Rogers, associate professor of supply chain management and Colorado State University Supply Chain Management Forum director. When inventories are high and quickly expand, warehouses cost more. Traditionally, when warehouse inventories decrease, warehouse costs slow down as well. But because of the front-loading of products ahead of the tariffs in the January-March period, inventory is flat, with replenishment orders not coming in. But costs are still up because the inventory is being held longer. "The situation we're in now, inventories are up, and they're sitting there," said Rogers. "Essentially, imports in January, February, and early March looked a lot like what we would normally see in August, September, and early October." Normally in mid-October, holiday sales kick into gear, which would move inventory out of the warehouse. But given the uncertainty in tariffs and concerns about the financial health of the consumer, retailers have told CNBC they are not placing full orders. "Warehousing capacity is tight, which means there is no inventory movement, and the associated costs (e.g., warehousing prices and inventory costs) are much higher than what we would normally see at this time of the year," Rogers said. "This means the inventory is getting more expensive to hold." Ocean freight orders from around the world to the U.S. show the pause button in product orders continues. As President Trump and Chinese President Xi Jinping held their first call since a raft of new tariffs on China in an initial attempt to de-escalate the trade war, data on Chinese ocean freight bookings to the U.S. shows a picture similar to the softness in global orders after the surge. A recent drop in freight vessel sailings from China drove up the cost for imports as there has been less capacity available on ships. Peter Sand, Xeneta chief shipping analyst, said the recent 88% increase in ocean freight spot rates on the China to U.S. trade route indicates demand of some shippers willing to pay to pull forward their freight during the 90-day tariff pause. "However, this will not last because [vessel] capacity is heading back to the Transpacific and the desperation of shippers to get supply chains moving again will ease once boxes are on the water and inventories begin to build up," said Sand. "Spot rates are expected to peak in June before downward pressure returns." The conditions in the freight market resulted in an advantage for larger firms over small businesses, according to Rogers. "Smaller firms were boxed out during the big rush of imports in Q1, so they have had to bring inventories over later, resulting in higher costs," he said. But since the larger companies aren't continuing to stock up, as the surge ends it is impacting smaller supply chain companies directly too. The smaller firms in the Logistics Managers' Index survey sample are representative of the "middle mile" in supply chains, wholesalers and logistics service providers as the points in the supply chain where freight is transported between a supplier's warehouse, distribution center and the final point of delivery, which could be a retail store or a customer's doorstep. They get hit when large manufacturers and retailers avoid inventory as much as possible — unlike Covid, they are running leaner inventory overall, which further squeezes the "middle mile." "Essentially, it is the small businesses of America that are bearing the brunt of the tariffs right now," Rogers said. "This could change as inventories move downstream to retailers if costs could be passed down to the consumer," he added. Recent Federal Reserve survey data shows many firms planning to pass on price increases resulting from tariffs to customers. But the ability to pass on price increases to customers varies business to business, and based on end customer. Helen Torkos, president and owner of Regent Tek Industries, which manufactures pavement markings, tells CNBC the global trade war has greatly impacted the cost of importing the raw components needed to manufacture the highest grade of thermoplastic road markings, the product that is on state, city, and local roads and highways. "The majority of our components are now being tariffed," said Torkos. "Our cost has gone up tenfold. We cannot pass on these costs to some of our customers because they cannot afford the increases. We also cannot source these products domestically." Torkos said the uncertainty of future tariff costs has also led to the cancellation of key projects. "The recent removal from several bid processes due to the tariffs causing rising material prices further underscores the impact of these tariffs on our operations," Torkos said. To address the swings in tariffs, and in an effort to offer more certainty on possible freight costs, logistics firms are launching tariff analysis tools. C.H. Robinson and Flexport are among companies to roll out technology that allows businesses and consumers to model tariff impact on price. Wine for Europe is one example that can impact both the business and consumer. The EU was threatened by President Trump in a social media post of a 50% tariff, only to have that threat walked back by the president, delaying that increase from June 1 to July 9. According to the Flexport Tariff Simulator, if a container with bottles of Chianti from Italy was processed by U.S. Customs on June 2, the wine would be under a 10.24% tariff rate. The duties for one 20-foot container filled with 0.75L bottles of Chianti would be $27,024. If the tariff were increased by another 50%, the tariff bill would soar from $27,024 to $132,624. The tariff rate was based on a wholesale value of $264,000 ($20 a bottle w/13,200 bottles in a container.) Then, there is the stacking of multiple tariff layers already implemented during the trade war. These duties have pushed up costs to import retail goods much higher than the 30% associated with the tentative agreement. Using an example of a common summer retail purchase, Flexport data shows a 20-foot container storing 60 fully assembled aluminum chaise lounge chairs with a wholesale value of $60,000, departing from China on June 2 and arriving on July 15, would face a 70% tariff — that includes Section 301 tariffs at 25% under the 1974 Trade Act's unfair practices policy; Section 232 tariffs on steel and aluminum at 25%; and the national emergency powers fentanyl tariffs at 20%. The total amount in tariffs for that single container would be $42,000. "It's not that simple to calculate," said Ryan Petersen, Flexport CEO. "There's still a lot of uncertainty about what's going to happen. For example, it may not be on the tip of everyone's tongue right now, but July 8 is the end of the reciprocal tariffs pause. That could end, and tariffs may not be 10% everywhere. Commerce Secretary [Howard] Lutnick has made comments he is committed to making the tariffs higher." A women's top imported from India faced a tariff rate on June 2 of 42%. After the reciprocal tariff deadline is lifted, the same top will be taxed at 58%. Mike Short, president of global forwarding at C.H. Robinson, said for companies to save on tariff costs, they need to have the ability to search their SKUs and identify the product's point of origin so they can tabulate tariff costs. "Based on that information, they could then quickly compare their total duty spending versus various alternative sources," said Short. "Knowing the spending scenarios can provide businesses with clarity on where to focus their efforts to achieve savings and diversification, down to the individual product level."
Yahoo
3 days ago
- Business
- Yahoo
Trans-Pacific Ocean Freight Rates Continue Their Ascent on More Front-Loading
Trans-Pacific ocean spot freight rates have kept their foot on the gas in the wake of a rush of imports from China into the U.S. as trade and tariff uncertainty pervades between the countries. On Friday, the Shanghai Containerized Freight Index (SCFI) calculated a surge of nearly 31 percent from the week prior out of the Chinese city across all markets, with West Coast-bound spot rates skyrocketing 58 percent to $6,243 per 40-foot equivalent unit (FEU). Rates soared 46 percent to $5,172 per container headed to the East Coast. More from Sourcing Journal How Should Brands Think About Cross-Border E-Commerce Amidst Uncertainty? As CMA CGM Flirts with Red Sea Comeback, Will Others Follow Suit? Can Tech Plug the Gaps Between Immigration Policies and Reshoring Aspirations? The weekly 30.6 level gain to 2,072.71 points represents the second-largest individual gain tracked by the index, following the final week of December 2023 as ocean carriers began avoiding the Red Sea en masse. Abercrombie & Fitch is one apparel retailer that has already baked in higher freight costs for their second quarter, chief financial officer Robert Ball said in a Wednesday earnings call. All the major indices that monitor ocean freight rates have indicated significant jumps to close out May, with the SCFI showing the highest increases. According to Drewry's World Container Index (WCI) posted Thursday, freight rates from Shanghai to Los Angeles leapt 17 percent to $3,738 per FEU in the past week and 38 percent since May 8. Spot rates to New York have risen 14 percent in the past week to $5,172 per container, and have accelerated 42 percent in the past three weeks. These numbers buoyed the overall WCI to 10 percent growth to $2,508 per container, marking the first double-digit rise in the composite index since last July. For Freightos, Asia-to-U.S. West Coast prices increased 13 percent to $2,788 per FEU, according to data revealed on Wednesday. The Freightos Baltic Index (FBX) bucked the trend of the other benchmarks, with Asia-to-U.S. East Coast prices seeing a bigger jump than their West Coast counterpart. Spot freight rates per container increased 20 percent to $4,223. 'Surging demand and these restrictions on capacity from out of place vessels and port congestion [at Chinese ports] are putting significant upward pressure on container rates,' said Judah Levine, head of research at Freightos, in Wednesday's weekly update. 'Rates are at their highest level since late February, and GRIs announced through mid-June could push prices up thousands of dollars more if demand stays elevated and congestion remains an issue.' Ongoing front-loading of imports will lead to big increases in spot rates on June 1, according to data from Xeneta. 'Average spot rates will rise at least 18 percent from the Far East to U.S. West Coast and 14 percent into the U.S. East Coast,' said Emily Stausbøll, senior shipping analyst at Xeneta. 'Data is being received from shippers paying far higher rates than this, so the market has the potential to increase even more dramatically in early June.' While a June spike could be in order, the combination of importers' front-loading and ocean carriers moving more shipping capacity to the trans-Pacific trade lane could be what slows rates down in the second half of 2025. Drewry's Container Forecaster expects the supply-demand balance to weaken again in the latter six months, which would cause spot rates to decline again for the back half. But the volatility and timing of rate changes will depend on the outcome of the ongoing legal challenges to President Donald Trump's tariffs and on possible capacity changes related to the introduction of the U.S. port docking fees on Chinese ships, which are uncertain. Xeneta's Stausbøll projects a longer-term decline in the third quarter as well, particularly when the expected period of front-loading ends. 'While tariffs are lower, they are still higher than they were previously, so there is every likelihood this will subdue consumer demand,' Stausbøll said in a May 21 blog post. 'Once shippers have built up inventories, they will not continue to front-load imports. Demand will therefore ease and carriers will once again be struggling to fill their ships. This means the traditional Q3 peak season will arrive earlier in 2025, but it should not take too long for spot rates to soften and continue the downward trend seen during Q1.' Currently, the base tariff rate on the majority of Chinese products is 30 percent after the U.S. and China entered into a 90-day tariff rollback. The agreement lowered the tariff rate from 145 percent for U.S. importers until Aug. 14. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
28-05-2025
- Business
- Yahoo
‘Fear and uncertainty' driving up China-US container rates
If Hunter S. Thompson had written about supply chain, we might have 'Fear and Uncertainty in Ocean Shipping.' He didn't, but we do. And the supply chain is trying to cope. Container rates on the Asia-U.S. trade are surging during the pause in the China-U.S. tariff tiff as carriers press for higher prices and gauge shippers' desperation. 'Fear and uncertainty is a powerful force in global supply chains and we are seeing this clearly as shippers fight to get their goods moving after the temporary lowering of U.S.-China tariffs – and they are willing to pay higher rates to do so,' said Peter Sand, Xeneta chief analyst, in a note. For the week that ended on Friday, Xeneta data showed market average spot rates from the Far East to U.S. West Coast at $3,000 per forty-foot equivalent unit from $2,722 the previous week, and $4,069 per FEU for Far East to U.S. East Coast, up from $3,883 for the week of May 16.'Carriers are pushing for big spot rate increases on trades from China to the U.S. on June 1 and shippers are once again being offered 'Diamond Tier' services to guarantee space on ships,' Sand said. 'How successful carriers are in getting these rates will be determined by how much shippers are willing to push back.' For what Xeneta terms mid-high spot rates as paid by shippers in the 75th percentile of the market, Far East to U.S. West Coast was $3,200 per FEU, up from $3,012 the previous week; Far East to U.S. East Coast came in a $4,250 per FEU, from $4,050. Sand noted a squeeze after carriers reduced capacity amid falling demand during the period of 145% tariffs, but he urged shippers to question the severity when negotiating rates. 'Are these rate increases being driven by a squeeze in capacity or fear in the market? Likely a combination of both,' he said. 'In the defense of carriers, it does take time to shift capacity back to the China-U.S. trades, so spot rates will peak in the first half of June before softening later in the month.'Find more articles by Stuart Chirls CGM developing $600M Vietnam container terminals Maersk, Hapag-Lloyd partner on new Asia-Long Beach service Maersk more than halfway through $1B stock buyback Drewry: China-US container rates up by double digits The post 'Fear and uncertainty' driving up China-US container rates appeared first on FreightWaves. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Fibre2Fashion
25-05-2025
- Business
- Fibre2Fashion
Uncertainty, fear can heavily affect global freight rates: Xeneta
Uncertainty and fear can have a major impact on freight rates, even in the absence of more tangible factors like a squeeze on available capacity or port congestion, according to Xeneta. Freight rates spiralled during the COVID-19 pandemic and then again following the escalation of conflict in the Red Sea. Unlike these previous global supply chain shocks, the spike in spot rates resulting from the lowering of tariffs will have a shorter expiration date, the Norway-based ocean and air freight market intelligence firm said. Following a drop in demand during the early months of the pandemic, there was an explosion in consumer demand. This time around, the increase in demand is to allow shippers to build up inventories in case tariffs increase again when the 90-day window closes. Uncertainty and fear can heavily affect freight rates, even in the absence of factors like capacity squeeze or port congestion, Xeneta said. The spot rate spike resulting from the lowering of tariffs will have a shorter expiration date, it noted. The traditional Q3 peak season will arrive earlier in 2025, but it should not take too long for spot rates to soften and continue Q1's downward trend. There will not be a major increase in consumer demand in 2025 either. While tariffs are lower, they are still higher than they were previously, so there is every likelihood this will subdue consumer demand, Xeneta noted in a blog post. Once shippers have built up inventories, they will not continue to frontload imports. Demand will, therefore, ease and carriers will once again be struggling to fill their ships. This means the traditional third-quarter (Q3) peak season will arrive earlier in 2025, but it should not take too long for spot rates to soften and continue the downward trend seen during Q1. Carriers may start removing capacity in response, just as they did while the 145-per cent tariffs were in place, but it will probably not be enough to stop rates falling to levels not seen since Q4 2023, the company observed. Spot market developments in the coming weeks are also hugely significant in determining the best time to market for any shippers who delayed negotiations over new long term contracts, it added. Fibre2Fashion News Desk (DS)
Yahoo
21-05-2025
- Business
- Yahoo
Trans-Pacific Freight Rates Soar as China Cargo Bookings Rebound
The 90-day reduction in tariffs on Chinese imports have sent bookings out of the country soaring almost immediately—and ocean spot freight rates are following suit. Numerous indices tracking rates on the trans-Pacific trade lane are seeing abrupt spikes in the cost to move cargo out of China toward to the U.S. More from Sourcing Journal US Footwear Manufacturers Tell Trump Tariffs Should Fund Onshoring Resurgence Trump Says US Will Set Tariff Rates For Trade Partners Canada Cools US Trade Tensions By Drawing Down Retaliatory Duties The Shanghai Containerized Freight Index (SCFI) released Friday said deliveries from Shanghai to U.S. West Coast ports soared 32 percent from the week prior to an index rate of $3,091 per 40-foot container. The Shanghai-to-U.S. East Coast route saw a healthy 22 percent week-over-week jump to $4,069. Drewry's World Container Index (WCI) saw weekly Shanghai-to-New York sailings take the highest growth rate at 19 percent to $4,350 per 40-foot container (FEU), while trans-Pacific routes reaching Los Angeles shot up 16 percent to $3,136 on average. For Drewry, both routes buoyed the total WCI composite across eight major East-West trade lanes, which increased 8 percent from the week prior, to $2,233 per container. Xeneta's newest data released Friday had Far East-to-U.S. West Coast average rates reaching $2,722 per FEU, with average East Coast-bound rates at $3,883. 'There is no time to waste for these shippers and the rush of cargo will put upward pressure on spot rates on trans-Pacific trades,' said Peter Sand, chief analyst at Xeneta, in a weekly update. 'Spot rates will peak and then flatten as carriers redeploy capacity to match demand, then rates will begin to slide again just as we saw in Q1. This is expected to happen over the next two to four weeks.' With rates naturally increasing due to the quick turnaround in ocean freight demand, container shipping liners no longer have to resort to artificially propping yields up by cutting capacity via methods like blank sailings or vessel swapping. According to Drewry's container capacity insight online tool, blank sailings from Asia to the West Coast of North America will decrease 28 percent month-on-month from 33 in May to 24 in June. The number of blank sailings from Asia to the East Coast of North America will decrease from 23 in May to 17 in June, a 23 percent drop. This will result in double-digit increases (or returns) of ship capacity to these trades, after the recent cuts. 'It is a feature of the current volatile macro-environment that ocean carriers are 'cancelling cancellations' of sailings,' Drewry said in a post on LinkedIn. 'We notice that the container shipping market is reacting to trade policy announcements with swings in trade volumes, capacity volumes and spot prices, similarly to the stock market.' CMA CGM, which saw freight bookings for China exports to the U.S. get cut by 50 percent after President Donald Trump began his escalation of tariffs on April 3, is another ocean carrier seeing the quick rebound in bookings. 'Trade will restart on this route very, very vigorously in the coming weeks and months,' said CMA CGM chief financial officer Ramon Fernandez during a first-quarter earnings call, calling the duty rollback an 'indisputably positive signal for maritime transport.' 'Everyone is expecting trade in June to be much more active than was feared just a few days ago,' said Fernandez. The carrier, which plans to invest $20 billion into the U.S. throughout Trump's presidency, posted a 12.1 percent increase in revenue to $13.3 billion in the first quarter on net income of $1.1 billion. Volumes carried ticked up 4.2 percent to 5.85 million 20-foot equivalent units (TEUs). Additionally, the French shipping conglomerate gave more color on the anticipated U.S. port docking fees on Chinese ships, with Fernandez indicating 'we will organize ourselves in order not to have to pay these fees.' He added that less than half of the company's 670 vessels were built in China. Fernandez said Ocean Alliance partners including China's Cosco Shipping and would adapt to the fees, although he did not say what the wider impact would be to the vessel-sharing agreement. CMA CGM has added peak season surcharges on trans-Atlantic trips to the U.S. as the tariff situation remains at an impasse. From June 1, all cargo headed for the U.S. from northern Europe will carry an extra fee of $400 per TEU or $800 per FEU. And from June 15, cargo from Mediterranean ports to the East and Gulf Coast will get a $500 surcharge. Maersk is slapping peak charges on China- and east Asia-originated cargo to U.S. and Canada as well, hitting them with an extra $1,000 per TEU and $2,000 per FEU. 'Given the tighter capacity on the trans-Pacific, ocean carriers are in the driver's seat to push freight rates meaningfully higher,' said Jefferies analysts in a research note Tuesday.
