Donald Trump returned to the White House this week and, perhaps unsurprisingly, raised more questions than answers regarding his America First policy towards trade and import tariffs.
Below, Xeneta Chief Analyst Peter Sand shares his advice on how shippers can mitigate geo-political risks through an ocean freight tender strategy that keeps supply chains moving while also managing spend.
What has Trump said?
On the day of Trump’s inauguration on Monday, he stated he is ‘thinking about’ introducing a 25% tariff on imports from Mexico and Canada on 1 February.
He did not immediately go ahead with vows made during the election campaign of 60% tariffs on goods from China and 10-20% from the rest of the world, instead ordering a probe into ‘trade deficits and unfair trade practices and alleged currency manipulation by other countries.
How serious is the risk?
Xeneta data shows the last time Trump ramped up tariffs on China imports during the trade war in 2018, average spot rates spiked more than 70% on the critical trade from China to the US West Coast.
Current spot rates from China to US West Coast stand at USD 5 104 per FEU. This is 24% higher than 12 months ago, primarily due to the impact of conflict in the Red Sea. If rates increase by the same magnitude as they did back in 2018, the market would hit an all-time high, surpassing the previous record set during Covid-19.
On the other hand, the tariff regime may not turn out as harsh as feared, while the potential for a full scale return of container ships to the Red Sea would see overcapacity flood the market and rates to collapse.
This demonstrates the extreme ends of the scale of uncertainty shippers are facing in 2025. Previous rules on freight procurement no longer apply.
You need to think differently.
How can shippers tender against this backdrop of uncertainty?
Keep calm and do not do anything that limits your options down the line.
You cannot base your freight procurement strategy on political rhetoric. We know tariffs on US imports are going to come, but we don’t know when, where, or what goods will be impacted.
More and more shippers are using index-linked contracts to manage this unpredictability, whereby the rate paid tracks the market at agreed thresholds.
For example, if freight rates rise due to Trump announcing tariffs against China, the rate the shipper pays increases at a pre-agreed threshold. On the other hand, if the recent ceasefire agreement in the Middle East sees a largescale return of ships to the Red Sea and the market collapses, the rate the shipper pays will fall.
In both scenarios the shipper can benefit. In a falling market they don’t want to be stuck in a long term contract paying over the odds. Even in a rising market, if their contract rates are too low, they risk having cargo rolled – as we saw during 2024 in the wake of the Red Sea crisis.
This strategy is aimed at retaining as much control as you can in a world of chaos. It also helps procurement professionals to explain internally to the CFO and wider executive team why freight spend is fluctuating by millions of dollars (up or down) against budget.
What if my business isn’t ready for an index-linked contract?
You can insert a clause into your new long term agreement, linked to Xeneta data, that will trigger a renegotiation if the market rises or falls by an agreed percentage or USD amount.
While requiring manual renegotiation rather than the automatic adjustments in a full index-linked contract, this is still a sensible option that offers peace of mind that the service provider must return to the table if the circumstances demand it.
What else can shippers do?
In the short term you could frontload imports ahead of tariffs – as we know some shippers have done in 2024, initially in response to Red Sea disruption and more latterly to deal with the tariff threat. But this costs money in terms of shipping goods on elevated freight rates, warehousing costs and bloated inventories tying up working capital – and we still don’t even know if the goods you are frontloading will be in scope of the tariffs you are guarding against.
You could also decide to reduce the Minimum Quantity Commitment (MQC) in your new long term contract and move more boxes on spot rates until you have better visibility of how the market will develop.
However, will you have any more certainty on these geo-political factors in a few months’ time? Probably not.
Geo-political risks, both known and those yet to emerge, will continue to cause carnage. You need a procurement strategy that is anchored by data and market intelligence so you can effectively manage supply chain risk and freight spend today, tomorrow, next month, next year and beyond.
In Part 2 of this blog, Peter Sand will look at whether Donald Trump’s tariff regime will see a shift in global trade patterns and how shippers are using data to re-imagine their supply chains.
How does geo-politics cause supply chains to shift?
Global supply chains are fluid and constantly evolving to threats and opportunities. We saw this following the escalation of the US-China trade war in 2018 during Trump’s first term as President.
Ramping up of tariffs on US imports from China prompted shippers to consider their options, such as importing goods into the US via Mexico and Canada.
This contributed to extraordinary growth in TEU (20ft equivalent container) volumes shipped from China to Mexico – up 76% between 2019 and 2024. Into Canada, TEU volumes increased 54% in the same period.
Geo-politics may put up barriers to trade but, ultimately, goods will always find their way from one place to another if there is a demand for them.
Will shippers shift supply chains during Trump’s next term in office?
That is the multi-million-dollar question.
Perhaps the ferocious growth in volumes into Mexico and Canada may taper off if tariffs make it a less attractive back door into the US, but shippers aren’t going to abandon this route after spending years setting it up and investing in infrastructure such as logistics centers.
Additionally, Trump has threatened even harsher tariffs on China at 60% and blanket tariffs of 10-20% from the rest of the world. If shippers are going to shift supply chains to avoid tariffs, it may be a case of identifying the least-worst option.
It should be noted that it is generally easier to shift the import destination than it is to change the export origin. Importing into Mexico for onward transportation into the US adds complexity to supply chains but pales in comparison to the upheaval caused by moving exports away from China and dismantling well-established manufacturing set-ups.
That being said, there have been increasing containers exported out of India in recent years, most likely at the expense of China, while neighboring South East Asia countries such as Vietnam are also growing in prominence. From India Sub-Continent to US East Coast, volumes were up 14.5% year-on-year in 2024.
Perhaps businesses are looking to avoid tariffs by shipping goods from China to a nation such as Vietnam for repackaging/repurposing before onward transport to the US. If tariffs on China ramp up, it could accelerate this approach.
What are the risks and opportunities of shifting global trade patterns?
Assessing supply chain risk and freight tender strategies should be an ongoing and integral part of a shipper’s business-as-usual workstream.
Identifying alternatives and having contingency plans in place requires a clear understanding of ocean container networks across and beyond the trade lanes you currently utilize.
Let’s say you currently ship containers from China to US East Coast but want to understand the implications of shifting some export volumes to India. Do you think average spot rates alone are enough to base such a major strategic decision?
Xeneta data shows current average spot rates from China to US East Coast stand at 6446 per FEU (40ft container). From India to the US East Coast average spot rates are USD 4827 per FEU.
In the example below using actual Xeneta data, a shipper may select Carrier A which offers rates at USD 265 below the market average rather than Carrier B with rates USD 50 above the average.
If the shipper turns attention to the India to US East Coast trade, Carrier A is now the more expensive at USD 2187 above the market average, with Carrier B now sitting USD 2648 below the average.
Clearly, without this data, a shipper would not be able fully assess the implications of shifting volumes across these trades – or indeed realise the commercial opportunity if they aren’t able to identify the right service provider.
Carrier spread is just one example of the range of data you must consider in your freight strategy. That means using the Xeneta platform to access long and short term freight rates as well as data on capacity, transit times, schedule reliability, detention and demurrage, surcharges and carbon emissions.
What next?
Keep calm. It can take years for trade patterns to evolve as different geo-political threats emerge and recede. In four years’ time there may be a new inhabitant of the White House with a different trade policy to Trump.
The smart shippers don’t wait for a threat such as Trump’s tariffs to emerge before they leap into action. They already have a deep understanding of ocean container shipping and an agile freight strategy that keeps options open so they can adjust to these geo-political forces in the short and long term.
Source: Xeneta
