- The potential shift toward ocean shipping changes in North American trade dynamics.
- The ripple effect of tariffs on crude oil imports and tanker tonne miles.
- The mixed impact of tariffs on shipping demand and potential rate changes.
US President Donald Trump has launched a new trade war that could have mixed implications for the ocean shipping industry. While trade disruptions typically lead to increased spot rates, the longer-term effects of tariffs might reduce overall cargo demand. Here’s an analysis of the potential impacts, reports Lloyd’s List.
Tariffs and Their Immediate Effect on Shipping
As of Tuesday, the US will impose a 25% tariff on non-energy imports from Canada, a 10% tariff on Canadian energy imports, and a further 10% on goods imported from China. Additionally, Trump has signed an executive order for a 25% tariff on imports from Mexico, although its implementation has been delayed by a month. These new steps may temporarily affect the global trade, which, in turn, increases shipping cost because of the diversion of trade and replacement cargoes.
The second step Trump took in the trade war was eliminating the duty drawback for imports from Mexico, Canada, and China. US firms that used to recover duties paid on re-exported goods are no longer going to be able to do this, further making international trade difficult.
The Long-Term Effects on Shipping Demand
While most imports from Canada and Mexico to the US arrive by truck, rail, or pipeline, there could be a shift toward ocean shipping. As Canadian and Mexican exporters may seek to diversify sales to other markets due to tariff threats, there might be a gradual increase in ocean shipping volumes. This is reminiscent of China’s shift toward Southeast Asia and South America during the previous round of tariffs.
The future of North American trade could become less integrated within the continent and more reliant on global shipping, especially if the tariffs prompt US importers to anticipate further trade restrictions. This could lead to a rise in container shipping spot rates as businesses pull forward orders in expectation of even higher tariffs.
Potential for Increased Cargo Frontloading
Importers may repeat the behavior seen in 2024 by pulling forward cargo in preparation for tariffs expected in 2025. This trend could offer support for historically high but recently declining spot rates. For transatlantic rates, US businesses still have the opportunity to pull forward cargo from Europe, helping to stabilize prices.
Trump has also hinted at potential tariffs on the European Union, which could lead to large-scale cargo frontloading across all container trade lanes. The predictable escalation of a universal tariff structure, as suggested by the Financial Times, could drive further preemptive shipping actions. “The Financial Times reported that US treasury secretary Scott Bessent favours a universal tariff that starts at 2.5% and rises in 2.5% increments over time to 20%, in a way that is scheduled and predictable to US importers.”
Impact on Tanker Shipping
Tariffs could also have significant consequences for tanker shipping, especially with respect to crude oil imports. In 2024, the US imported 4.1 million barrels per day of Canadian crude oil, accounting for 62% of total imports. With tariffs on Canadian crude, some of this oil could be replaced by imports from other regions like the Middle East, increasing tanker tonne-miles.
Canadian crude exports to the US are primarily transported via pipeline. However, the imposition of tariffs could push Canadian exports toward Asia, particularly China, which would affect the tanker market. “All Canadian export cargoes now at sea are en route to Asia aboard aframaxes.” A shift in export destinations could lead to more long-haul tanker routes, contributing to increased demand for shipping services.
Infrastructure Constraints and Market Shifts
Despite the potential for more shipments to Asia, Canada’s pipeline infrastructure is limited, constraining the volume of crude it can export. Canada’s new pipeline capacity may not be able to accommodate the full shift of exports that would occur due to the tariffs. As Alberta’s Premier Danielle Smith noted, “We can no longer afford to be so heavily reliant on one primary customer.” She called on the federal government to “immediately commence a national effort to fast-track and build oil and gas pipelines to the east and west coasts of Canada” and construct liquefied natural gas export terminals.
For US refiners in the Midwest who rely on heavy Canadian crude, tariffs will likely result in shared costs between Canadian sellers and US refiners. The overall impact on US Gulf Coast refineries and the East Coast market, however, could be more positive for tanker shipping as crude flows shift to different regions.
Disruption Upside vs. Demand Downside
The overall effect of tariffs on ocean shipping is a combination of disruption upside and demand downside. Geopolitical events or government policies that force cargoes to travel longer distances typically benefit shipping by increasing tonne-miles. However, the reduced economic growth that comes with tariffs can also negatively impact shipping demand, ultimately reducing the tonnes in the tonne-mile equation.
“Shipping stock prices are forward-looking and have reacted negatively to tariffs, even if there is potential for short-term rate upside.” Frontloading of cargoes may offer a temporary boost to shipping rates but could shift demand away from the long term, causing a drop in future shipping volumes.
Shipping Stock Sentiment
The impact of tariffs on shipping stocks reflects this complex balance. While there is potential for short-term rate increases due to trade disruptions, shipping stock sentiment has generally been negative. This is driven by concerns about the future demand destruction caused by tariffs and other trade restrictions, which could reduce overall cargo volumes in the long term.
Some shipping industry observers note that the effects of tariffs may not be immediate, as tariff costs are often offset by currency depreciation or margin reductions. However, if tariffs lead to high pass-through costs, consumers may reduce their purchases, and shipping rates could decline.
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Source: Lloyd’s List
