Market Update Q2 2025: No.17
Hi All,
Today is "Liberation Day" AKA the day all the tariffs go into effect, even though it's a Wednesday, it is an appropriate day for a market update:
Attached is the current tariff announcement in terms of amount by country - any country not mentioned is now a 10% increase, but it is an ever-changing landscape, and we don't have information yet on tariff stacking which is the real question for China and a few others.....
Reciprocal tariffs and calculations:
The U.S. Treasury Secretary has stated that each impacted country will be assigned a single tariff rate based on its trade practices. This rate will account for not only existing tariff levels but also non-tariff barriers such as taxes, currency policies, and labor standards. The exact rates have not been fully disclosed, but they will play a key role in determining the duties imposed on imports from these countries. Businesses should monitor updates closely to understand how these tariffs will affect their specific goods.
Tariff stacking:
Secretary Bessent has not clarified whether tariff stacking - where multiple tariffs could be applied to the same goods, effectively increasing the duty rate- would apply in these scenarios. If that ends up happening, this could significantly increase duty rates on certain imports by layering reciprocal tariffs on top of existing trade restrictions. It remains unclear how these tariffs will interact with current U.S. duties.
Section 301 Investigation, AKA The China Ship Tariff of $1.5M:
Hearings this week held by the US Trade Representative (USTR) over the potential levying of fees on Chinese-built and -operated ships calling at US ports certainly struck a nerve in the maritime industry.
The Section 301 investigation, officially known as “China’s Targeting of the Maritime, Logistics, and Shipbuilding Sectors for Dominance,” prompted 520 comments submitted to the USTR by the March 24 deadline. More than 60 individuals gave testimony over two days of hearings.
The outcome was more of a brainstorming session on how to facilitate the current administration's vision to bring shipbuilding back to the USA, so we don't expect any applications or decisions anytime soon, but there were several proposals/ideas tabled as a result of the session.
New Tariff Applications:
US tariff changes continued with the newest addition being a 25% tariff on cars and car parts. For cars, this applies from April 3rd and for car parts at a not yet specified time between April 3rd and May 3rd.
For cars qualifying under the US-Mexico-Canada trade agreement, importers may – after submitting documentation – be able to only pay the tariff on the non-US content of the cars imported. If CBP finds that the value of US content has been misrepresented by the importer, then the full 25% tariff will apply to the whole shipment regardless.
Auto tariffs:
If the 25% auto tariffs are completely borne by consumers, average vehicle prices would rise by ~11.4% over time. Interestingly, BMW raised US prices by 4% last week and has decided to absorb the rest.
Carriers pulling space and increasing rates:
Data from Drewry shows carriers are now blanking 68 sailings on the Pacific, Asia-Europe and Atlantic services in week 14-18 and data from Sea-Intelligence show a blanking of 47 sailings in the same period. It should be noted there can be methodological differences related to how a “blank sailing” is captured in a situation where the major alliances are phasing out of the old services and into the new services, but it is clear that the carriers are now beginning to take action.
Also, it is not clear that this is necessarily due to weak demand. A recent analysis published by Sea-Intelligence shows very significant capacity injection into Asia-USWC and Asia-Europe compared to last year when taking the seasonality around Chinese New Year into account. Removing some sailings could, therefore, be a sign of too much capacity rather than weak demand, but more likely, it is a combination of both...
Mediterranean Shipping Co. last week said it would blank six voyages between Asia and the US, with most of the cancellations for sailings originally scheduled for the second half of April. MSC said it would cancel late-April voyages scheduled to the US West Coast on both its Orient service from northern China and its Pearl service from Vietnam and southern China. MSC will also cancel a weekly sailing on its Empire and America services to the US East Coast and another sailing on its Lone Star Express service to the US Gulf Coast.
Schedules from other carriers also show more capacity being withdrawn in the coming weeks. Ocean Network Express (ONE’s) export schedule for Shanghai shows the Premier Alliance will have no vessels for mid-April sailings on both its EC1 service to the US East Coast and the EC2 service calling the Port of Manzanillo in Mexico and the US Southeast.
ONE also canceled a mid-April sailing on its MS2 service between Asia and the US West Coast and a sailing originally scheduled this week on its PN3 service to the ports of Vancouver and Tacoma.
Cosco Shipping also appears to be removing trans-Pacific capacity in the short term. It has no weekly voyage scheduled in the second week of April for its Manhattan Bridge service to the US East Coast. The carrier’s Bohai and Hibiscus Express services to the US West Coast also do not have vessels scheduled for the same week.
The blanked sailings also come amid expectations of more ships hitting the water in the coming months. Trans-Pacific container capacity to the US West Coast is expected to increase 19% from March to April, according to data provider eeSea, going from 1.159 million TEUs to 1.379 million TEUs. By May, trans-Pacific capacity is expected to hit 1.426 million TEUs.
Maersk advised that 75% of the new Gemini network – which Maersk is calling the Maersk East-West Network – has been implemented with 250 out of 340 vessels having transitioned.
Hapag-Lloyd is introducing a 500 USD/container GRI from the Indian Subcontinent and Middle East to North America from May 1st.
Economic Outlook and Recent Revisions:
Goldman Sachs adjusted their outlook for US GDP growth in 2025 downwards to just 1% from their previous outlook of 1.5%. This is based on their expected impact from the anticipated reciprocal tariffs to be announced on April 2nd. They now also assign a 35% likelihood of a recession within the next 12 months, up from their previous assessment of 20%.
Should we see such a slow-down, this will harm container volumes into the US, and hence also downward pressure on freight rates.
Recession? Most of the ‘hard data’ is still aligned with a resilient growth backdrop, but sell-side firms have reduced their US GDP estimates for ’25 based on bleak consumer sentiment and downbeat purchasing manager surveys. Most sell-side firms have their 12-month recession probability in the 30-40% range currently. Credit spreads have widened over the past week with Investment grade spreads aligned with ~19% and high yield spreads showing a ~15% probability of a recession in the next 12 months. Fed rate cut expectations over the last week have also shifted to a total of three 25bp cuts from two. Today brings the March ISM manufacturing (purchasing managers) Index, which is more about the direction of travel than absolute levels. Consensus is looking for the index to slip into contraction at 49.5, down from 50.3 in February. Thursday’s ISM services report will also provide color, while Friday’s Jobs Report will close out the week and establish the macro narrative into Q1 earnings season which kicks off with large-cap banks on April 11.
PORTS and their position in the current trade war :
2 Interesting articles are linked below - key takeaways are:
Ports, assets, and infrastructure are the next big battleground and I'd expect quite a battle and protectionism only to increase moving forward for the foreseeable future
China is pressuring Hutchison to kill the ports deal and has at least delayed it indefinitely- anyone who watched the Jack Ma and Ali Baba saga play out several years ago, this is a scary comment in terms of how "investigations" in China are done.
"China has also reportedly told state-owned companies to halt new deals with CK Hutchison and other businesses linked to its founder, Hong Kong billionaire Li Ka-Shing and his family, pending a review of their China operations, Bloomberg News reported Thursday
https://www.joc.com/article/hutchison-to-delay-pan...
https://www.freightwaves.com/news/as-china-blocks-...