Key insights:
1. President Trump signed an executive order extending the reciprocal tariff pause for a long list of US trading partners from July 9th to August 1st, as only one agreement has been signed so far.
2. The short runway until August and the volumes that many importers have already frontloaded out of these countries will likely mute the extent of any rest-of-July bump.
3. And as changes to US tariff policies for China have been the big drivers of volume and rate trends to the US since April – and with China’s August 12th deadline unchanged by this week’s order – the major trends in transpacific ocean freight will likely persist despite this extension.
4. Transpacific spot rates to the West Coast are at $2,390/FEU compared to $6,000/FEU in mid-June and about back to the low for the year level seen from March through mid-May.
5. Prices are dropping as the window to ship goods that will arrive in the US before August 12th is now about closed. But carriers have also increased transpacific capacity to a record level, which is adding to the downward pressure on rates.
6. Start of July GRIs were partially successful on the Asia – N. Europe lane, where rates of $3,560/FEU are 50% higher than at the end of May. Prices are climbing on peak season demand and helped by persistent congestion at European ports, but are still well below the $8,500/FEU peak season high reached this time last year as capacity continues to grow.
7. Similarly in air cargo, as a good share of China-US e-commerce volumes have exited the market, global capacity may now overall be exceeding demand, with the Freightos Air Index global benchmark about 7% lower than it was a year ago.
8. China – Europe prices are down 12% in the last month to $3.35/kg, and may reflect reports of capacity increases on the lane as freighters have been shifted away from the transpacific to other lanes like this one.
9. Backlogs from airspace closures in the Middle East during June’s Israel-Iran war continue to cause problems in the region. Rates out of the Middle East have climbed by 30% to $2.71/kg to N. America and 25% to $2.44/kg to Europe since early June. Prices to N. America have eased by 11% in the last two weeks though, suggesting that carriers are making progress in clearing bottlenecks.
Ocean rates – Freightos Baltic Index:
- Asia-US West Coast prices (FBX01 Weekly) fell 8% to $3,124/FEU.
- Asia-US East Coast prices (FBX03 Weekly) fell 16% to $5,159/FEU.
- Asia-N. Europe prices (FBX11 Weekly) increased 14% to $3,384/FEU.
- Asia-Mediterranean prices (FBX13 Weekly) fell 6% to $3,967/FEU.
Air rates – Freightos Air index
- China – N. America weekly prices increased 5% to $5.57/kg.
- China – N. Europe weekly prices fell 3% to $3.35/kg.
- N. Europe – N. America weekly prices increased 1% to $1.8/kg.
Analysis
President Trump signed an executive order on Monday extending the pause of the White House’s reciprocal tariff roll outs for a long list of US trading partners from July 9th to August 1st. Trump also sent letters to the governments of fourteen countries communicating the extension and specifying the tariff rate that will go into effect in a few weeks. These tariff levels were generally similar to those announced in April, though rates for Cambodia and Laos were significantly lower.
The extensions allow more time for negotiations that could lower or avoid these tariff increases, as so far the White House has only signed an agreement with the UK, announced a tentative trade framework with Vietnam, and is reportedly making progress with several trade partners including the EU, Japan, Cambodia, Indonesia and Thailand.
For ocean freight, this development could mean that importers from the impacted countries will resume shipping activities that they may have been planning to pause if tariff hikes materialized this week. But the short runway until August and the volumes that many of these shippers have already frontloaded will likely mute the extent of any rest-of-July bump.
The executive order makes clear that these changes do not apply to China, for whom current US tariff levels expire on August 11th. The president has said that the US signed a trade deal with China and the Commerce Secretary elaborated that the agreement will see China resuming its rare earth metals trade with the US and the US taking down countermeasures, though other details of the agreement – including tariff levels – remain unclear.
In terms of ocean freight, since the trade war heat up in April, the major swings in US ocean import volumes and container rates have all centered around US policies for trade with China, with a much more limited impact from tariff changes for other countries.
Though the April pause on reciprocal tariffs spurred frontloading of goods from many countries, including several in South East Asia, the concurrent US tariff hike on China to 145% saw US ocean imports slump overall in April and May. Likewise, transpacific container rates remained level – and likely would have decreased without the significant blanked sailings carriers implemented in April and May – in this stretch despite increased volumes out of SEA. But volumes rebounded sharply and container rates spiked by thousands of dollars per FEU following the US reducing its tariff on China to 30% in mid-May.
So this relatively brief tariff pause extension to August 1st for countries besides China is unlikely to significantly alter the current trends in the US-bound container market, which has been facing easing volumes and falling rates since demand and prices peaked in mid-June.
Transpacific spot rates to the West Coast fell 8% last week to $3,124/FEU. Daily rates so far this week are at $2,390/FEU, 60% lower than the $6,000/FEU mark hit just three weeks ago, 70% lower than this time last year and about back to the low for the year rate level seen from March through mid-May.
Daily rates to the East Coast are down to $4,900/FEU for a 30% drop since mid-June. East Coast rates remain about $1,500/FEU above their March to May level, likely a result of fewer capacity additions to this lane, as shippers facing tariff deadlines have preferred the quicker West Coast route.
Prices are dropping as demand eases from the initial post China-US deescalation bump since the window to ship goods that will arrive in the US before August 12th is now about closed. But carriers have also increased transpacific capacity – especially to the West Coast – to a record level, which is now surpassing demand and contributing to the downward pressure on rates as well. With these forces combining to push rates down, carriers have canceled planned July GRIs and are suspending or reducing many PSSs too. Some carriers are already starting to remove capacity in attempts to stop the rate deterioration.
Start of July GRIs were partially successful on the Asia – N. Europe lane, where rates increased 14% to $3,384/FEU last week, have climbed another $200 so far this week and are 50% higher than at the end of May. Prices are climbing on relatively strong peak season demand and are being helped by persistent congestion at several of Europe’s container hubs even as carriers take steps to adjust. But despite reasonable demand, congestion and continued Red Sea diversions – the major driver for elevated rates since early last year – prices are still well below the $8,500/FEU peak season high reached this time last year.
One important factor to lower year on year rate levels is continued fleet growth and the record scheduled capacity on this lane as well. There are reports that carriers will increase blankings on this lane and reduce scheduled capacity in August – an unusual step during peak season. Likewise, overcapacity is being blamed for July GRIs failing on the Asia-Mediterranean lane, and scheduled capacity is set to increase in August. Despite reports of strong demand, Asia – Mediterranean rates have fallen almost 20% since mid-June, though they remain 30% higher than at the end of May.
Similarly in air cargo, as some e-commerce volumes have exited the market capacity may now overall be exceeding demand, with the Freightos Air Index global benchmark about 7% lower than it was a year ago. The US’s suspension of de minimis exemption eligibility for Chinese exports introduced in May was a big driver of easing volumes on the transpacific – and possibly globally – in the last two months. The tax bill that the US congress passed last week includes a law that will cancel the de minimis exemption for all US imports starting in July 2027.
In the meantime FAX China – US rates ticked up to $5.57/kg last week, about on par with last July as capacity on the lane has decreased but stabilized. China – Europe prices are down 12% in the last month to $3.35/kg, and may reflect reports of capacity increases on the lane as freighters have been shifted from the transpacific to other lanes like this one.
Congestion and backlogs that resulted from airspace closures in the Middle East during June’s Israel-Iran war continue to cause problems at hubs in the region. FAX rates out of the Middle East have climbed by 30% to $2.71/kg to N. America and 25% to $2.44/kg to Europe since early June. Prices to N. America have eased by 11% in the last two weeks though, suggesting that carriers are making progress in clearing bottlenecks.
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Source: AJOT
