Tariffs and geopolitical uncertainty impact ocean container shipping

1. CONTAINER RATES

Falling global spot rates

The first months of 2025 have brought global average spot rates back to levels last seen in 2023 before the Red Sea Crisis. Average global spot rates have fallen to USD 2 260 per FEU as of early April, a 35% decrease compared to 1 January.

In fact, the decline in global average spot rates in Q1 2025 has been bigger than in any quarter since Q4 2022. It highlights, once again, the high volatility that container shipping has been dealing with since the pandemic, and which doesn’t appear to be easing any time soon.

Lunar New Year and frontloading impact on demand

One reason for the split in fortunes at the start of the year is an early Lunar New Year. As ever, shippers rushed cargo out of the Far East before the holiday in late January, with fewer goods therefore left for February.

However, this is also an indication of slowing demand in February after the results of the US election pushed volumes up in January.

Some shippers responded to the election result and began frontloading goods in November, many of which were only placed on a container ship in late December and January. The period we are in now is the flipside to this earlier frontloading with lower demand.

March volumes should be slightly up from February, but this would only be a temporary reprieve for carriers. April volumes will reflect the tariff developments. Many shippers put their US bound goods on hold following ‘Liberation day’, but 90 day pause likely means a rush of cargo within that period from most of the world, whereas volumes from China will be very low.

Tariffs put South East Asia demand in the limelight

As it stands, in the first two months of the year, US inbound volumes have outperformed global volumes, growing 5.8% to 4.5m TEU. In these turbulent times where timing becomes increasingly important, it should be noted that this volume data, provided by Container Trades Statistics (CTS), measures volumes from the export port, and not at the time of arrival.

US imports from the Far East are up 6.1% to 3.7m TEU in January and February, driven largely by 12.4% growth in imports from South East Asia. Imports from China are up 4.3% and those from North Asia down 1.5%.

While shippers may have already been moving away from China given it already had additional tariffs imposed pre Liberation Day, South East Asia was seen as a safer option, with many shippers increasing their presence here in the aftermath of Trump’s first trade war.

With these countries now among those facing the highest additional tariffs, this South East Asia trade and those massive investments to diversify supply chains are now in the limelight.

Mixed fortunes for Canada and Mexico

Looking to the rest of North America; Canada and Mexico have started the year on very different paths. Total imports to Mexico are down 7.0%, while those into Canada have grown an impressive 15.9%. We will be keeping a close eye on these trades and how they are impacted not only by shifting tariff policy, but also potential effects from the proposal on US port fees for Chinese ships.

US exporters will be hit by retaliatory tariffs

The trade war will also affect US exporters, as certain countries start announcing retaliatory tariffs, led by China with a 34% tariff on all its imports from the US. This is different to the first trade war when China put tariffs on specific products, specifically targeting US agriculture exports as they sourced their imports of soya beans (among other products) from other countries.

Volumes on backhaul trades are already stagnating, leaving carriers to sail even emptier ships back to the Far East. In 2024 there was 7.5 laden TEU moved from China to the US for every one laden container heading from the US to China.

While this is particularly high, fronthaul/backhaul ratios on a global level have increased. Last year, fronthaul volumes grew 16.3%, compared to a 2.5% drop in backhaul volumes, with a further deterioration this year given growth rates of 6.1% to -4.7%.

US exports will suffer a blow from the Chinese, and any other retaliatory measures, as well as the rising input costs needed to manufacture what they export.

European exports down

The US to Far East backhaul is not the only one to be deteriorating. European imports from the Far East have risen 7.2% in the first two months of the year while exports are down 8.4% to 0.9m TEU. The second biggest region for European exports is the US, to which it sent 0.6m TEU in the first two months of the year – volumes that will also now be under severe threat from US tariffs.

Intra-Asia slowdown could be sign of things to come

The world’s highest volume trade, intra-Asia, is very much underperforming compared to global growth, up by 2.9% in January. This trade is highly dependent on manufacturing in the region, and a slowdown here shouldn’t be seen in isolation. If fewer goods are being moved around Asia, fewer goods will leave the region in the following months.

3. SUPPLY

Slowing demand in February had little impact on the idle fleet, which at 0.6% as of end March has now been under 1% for well over a year. At the start of the Red Sea crisis this made perfect sense, but as demand starts to slow and rates come down, we should expect the idle fleet to start rising.

One reason idle fleet isn’t rising is the stronger growth in fronthaul volumes, as these are the capacity-setting trades, while falling backhaul volumes have no effect on the amount of capacity carriers are offering.

Another factor still keeping the idle fleet low is the new alliances and schedules which carriers are still adjusting their fleets to, as old services finish their last trips and new ones are ramped up.

Demolition remains low

Carriers are also still willing to pay high charter rates to acquire extra tonnage and demolitions remain few and far between. In the first three months of the year, just three ships with an average capacity of 512 TEU have been scrapped. Two of them were 30 years old, the last one 40.

At some stage the barrier will open and carriers will once again have to face overcapacity. This would naturally happen after a full return to the Red Sea would stop longer transit times around Africa from absorbing capacity. But, with a full blown trade war, falling demand is also likely to lower carriers’ demand for tonnage.

Deliveries in Q1 add to global fleet

Out of the total 1.3m TEU of capacity expected to be delivered this year, 562 300 has already arrived, with almost a quarter being delivered to MSC. It has added 126 900 TEU to its fleet, all LNG-capable, with the majority also ammonia-ready (which are easier to retrofit to allow them to sail on ammonia).

The new Gemini partners are in second and third place, Maersk with 78 500 TEU and Hapag-Lloyd with 56 000 TEU.

Deliveries in Q1 mean the fleet has grown 2.0% year to date, around half of the approximate 4% expected for the full year. The exact rate will also depend on how much tonnage is demolished. It should rise for the rest of the year, once new services are in place and drops in demand start to take hold.

Charter rates remain high

However, even as the market drops, demolition rises with a delay, in part due to carriers agreeing longer charter lengths. Just as carriers have been offering lower rates to shippers willing to sign longer deals, carriers have also extended contract lengths to ensure they could get hold of the tonnage they need here and now.

As of early April, charter rates remain high with average earnings per day of just under USD 45 000 per day (source: Clarksons).

Port fee proposal hits appetite for new Chinese tonnage

Carriers’ appetite for new tonnage extends into the longer term as they continue to add ships to their orderbooks. Almost one million TEU was ordered in Q1 2025, down from the previous three quarters, but still the second highest Q1 on record and up more than 230% compared to Q1 2025.

Ordering activity in March was thrown a curveball with the proposal to impose fees on Chinese ships at US ports. One of the determining factors for how much each ship would have to pay was the share of the operator’s orderbook in China.

This seems to have slowed carriers’ appetite for ordering new Chinese tonnage, with just three ships added to the Chinese yards’ orderbook in March, all three orders coming from non-operating owners. The other ships ordered in March were all for Evergreen and in South Korean yards.

In January and February, far more ships were being ordered in China, with 53% of total capacity ordered in Q1 coming from Chinese yards. CMA CGM has ordered 12 ships, all with a capacity of 18 000 TEU, at Chinese yards in the first two months of the year. MSC also ordered four 21 700 TEU ships in China in January and February. Both CMA CGM and MSC already had more than 50% of their orderbook in China, which would already place them in the highest category for fees related to operators’ orderbook.

With the pace of developments in the US, who knows what the implications will be for ships ordered today when they are delivered, which for most is in late 2027/2028 with a few first scheduled for 2019.

4. MACRO

Separating geopolitical risks from economic risk is not easy, now more so than ever. Forecasts for global GDP growth have been cut in the face of headwinds to globalization, souring relationships and increased protectionism, driven by the US.

The seemingly ever moving target of US tariffs leaves most facing huge uncertainty, and struggling to take critical decisions. The rollout of tariffs has led Goldman Sachs, the US investment bank, to downgrade its GDP forecast for the US economy to 1.3%, as well as increasing the chance of a recession in the next 12 months to 45%. Back in November 2024, the forecast was for 2.5% growth.

Estimates made by the Budget Lab at Yale put the increase of average effective tariff on US imports at around 20%, leaving tariffs at the highest they have been since 1909. This makes the increased tariffs during Trump’s first term in office seem negligeable. Budget Lab models suggest this would lead to a purchasing power loss of USD 3 800 (in 2024 dollars).

The 90 day pause means many shippers will be looking at importing Chinese goods through these alternative countries, such as South East Asia, just as we saw following the tariffs implemented in Trump’s first term.

At the time of publication of this report, other tariffs already in place are the general 10% rate on the vast majority of US imports, with some exceptions for certain countries and certain goods. Also in place are 25% on all US steel, aluminum and auto imports. Canada and Mexico also face 25% tariffs on all non USMCA compliant goods.

US recession risk

Former Treasury Secretary Lawrence Summers warned that the US is now likely headed toward a recession, with potentially 2 million Americans put out of work, thanks to the tariff increases now in train.

All current risks related to trade and economics will negatively impact demand for container shipping for the rest of 2025 and beyond.

The unknown end goal of the Trump Administration means huge uncertainty persists, with every likelihood for tariffs to increase further, whether according to the reciprocal tariffs currently on pause, or in some new form.

New US tariffs could also lead to more retaliatory tariffs, with most now paused in response to the 90 day delay. China is a clear exception, having imposed an 84% tariff on its imports from the US, which will hit US agricultural exporters particularly hard.

The effect of these trade-related risks impacts economic activity and inflation across the globe. Mostly in North America, but also across the Pacific and the Atlantic.

Manufacturing PMIs

Looking at some of the underlying macro-economic data from before the latest tariff rounds, March manufacturing sector PMIs in the US, Eurozone and China show some interesting developments.

In the US, March brought a strong start to 2025 to an end with a PMI of 50.2, down from 52.7 in February. A score of 50 reflects no month-on-month change, while anything above indicates an increase and anything below a drop in manufacturing activity. Uncertainty was the clear drag, with many companies freezing in the face of the tariff threat.

Tariffs were the most cited cause of factory input costs rising in March at a rate not seen since the peaks of pandemic disruption in 2022.

Across the Atlantic, industrial stalwarts France and Germany saw their headline manufacturing PMIs jump to multi-year highs. Though still below 50, this indicates a continued contraction, but at a slower pace than in the past two years. Overall Eurozone manufacturing PMI hit 48.6, up 1 point from Feb.

Finally in China, the indicator came in at 51.2 (+0.4), with both supply and demand conditions improving in March. Input prices fell for the first time in six months - cost savings that help Chinese producers of goods to lower their sales price again.