The imposition of sweeping tariffs by President Donald Trump in early 2025 has significantly disrupted global commodity freight markets, leading to immediate volatility and long-term shifts in international trade flows.
These tariffs have raised the average U.S. import duty to 15.4%, the highest since 1938, contributing to declining investment, disrupted supply chains, and rising inflation.
Immediate Impact on Freight Rates
In the short term, the announcement of new tariffs prompted a surge in shipping activity as importers rushed to move goods before the tariffs took effect.
This “front-loading” led to increased demand for freight services, particularly on transpacific routes, causing freight rates to spike.
However, as the tariffs took hold, trade volumes began to decline, especially between the U.S. and China, leading to reduced cargo volumes on these routes and a subsequent drop in freight rates.
Shifts in Trade Routes and Supply Chains
The tariffs have accelerated the diversification of supply chains, with companies seeking alternative manufacturing hubs to avoid high tariffs on Chinese goods.
Countries like Vietnam, India, and Mexico have seen increased demand as companies relocate production.
This shift has led to changes in shipping routes, with increased cargo volumes on routes from these countries to the U.S., while traditional routes from China have seen declines.
Impact on International Commodity Trade Flows
The reconfiguration of supply chains has also affected international commodity trade flows. For instance, Australia’s beef exports to China have surged as U.S. beef faced high tariffs, effectively removing it from the Chinese market.
Similarly, U.S. agricultural exports have suffered due to retaliatory tariffs from trading partners, leading to a reorientation of trade flows towards countries not subject to these tariffs.
Long-Term Outlook for Freight Rates
In the medium term, freight rates are expected to remain volatile as the market adjusts to the new trade environment. The decline in trade volumes on certain routes may lead to overcapacity and lower rates, while increased demand on alternative routes could drive rates up.
Additionally, the increased complexity of supply chains and the need for compliance with varying tariff regimes may lead to higher operational costs for logistics providers, potentially impacting freight rates.
Countries Benefiting or Suffering from Changes
Countries that have become alternative manufacturing hubs, such as Vietnam and Mexico, are benefiting from increased trade volumes and investment.
Conversely, countries heavily reliant on exports to the U.S., like China, are experiencing declines in trade volumes and economic growth.
The U.S. itself faces mixed outcomes, with some domestic industries protected by tariffs, while others suffer from higher input costs and retaliatory tariffs.