The True Cost of Tariffs Becomes Clear at U.S. Ports

Many of the questions stemming from the Trump administration's difficult-to-predict trade policies have focused on the larger economic picture. Is a recession on the horizon? Will consumers have to pay more for everyday goods? Can the damage to relationships with long-valued allies such as Canada and Europe be repaired? But, as became all too evident during the pandemic, all roads lead back to ports, where the impacts from U.S. tariffs have been substantial.

Concerns over 145% tariffs against China initially had the Port of Los Angeles predicting a 35% year-over-year drop in import volumes by mid-May, as well as a 60% dip in traffic from China by the end of the summer. According to supply chain data provider Sea Intelligence, scheduled blanked sailings as a percentage of planned capacity for Asia-North America West Coast (NAWC) service loops also rose from 13% for the week of April 28 to 29% for the week of May 12. Combined between all Asia-NAWC sailings scheduled for April and May, blanked sailings accounted for 19% of the total planned capacity.

After China and U.S. agreed to cut their reciprocal tariff rates by 115% for 90 days starting on May 14, Port of LA executive director Gene Seroka praised the move as "welcome news for consumers, American businesses, workers and the supply chain." Even so, Seroka also noted in a statement to The New York Times that "ninety days is not a long runway for people in our business," and that further uncertainty and disruptions can only be fully mitigated by a long-term trade deal.

Ports in Seattle and Tacoma have been staring down the barrel of a similar crisis, with China accounting for half of the import market for the two Northwest shipping hubs. Anecdotally, the Northwest Seaport Alliance (NWSA) has heard from several importers that have paused the majority of their shipments from China, while exporters have canceled orders to Chinese markets altogether. Some goods also recently made it to docks, but were canceled after arriving, and then still had to be picked back up by exporters, "significantly" adding to costs.

Even with the respite provided by China and the U.S. agreeing to temporarily slash their tariffs, "these reductions don't undo the consequences of their implementation," says the NWSA, the operating partnership that manages Seattle and Tacoma's ports.

"The uncertainty, market disruption, cargo fluctuation, and lost business caused by the initial and remaining tariffs is still a significant concern," the NWSA adds. "Both reductions in cargo and surges have consequences that impact the supply chain — consistency is a requirement of a fluid supply chain and the jobs that depend on it." Over the next three months, the NWSA does expect some importers to take advantage of the lowered tariffs to move goods in. But meanwhile, the remaining 10% tariff on U.S. exports to China will likely have major impacts on the exporter community.

It's not just West Coast ports that have been feeling the strain either. Between February and May, shipping data tracker Vizion found that U.S. exports measured in twenty-foot-equivalent units fell by nearly 3% at the Port of Houston, 13% at the Port of Savannah, 12% at the Port of Norfolk, and 24% at the Port of New Orleans. And when volumes slow at ports, the ripple effects are felt everywhere, from longshoremen getting fewer hours working on docks, to truck drivers who suddenly don't have any cargo to move. Many drayage operators are also small businesses that simply aren't built to last if they're not working for weeks at a stretch, says Mark McCullough, the CEO of freight forwarder Gebrüder Weiss North America.

On the other end of the spectrum, a temporary pause on tariffs that leads to a sudden uptick in shipments creates a whole new set of problems, McCullough explains.

"It's then the tail of it that whips you when it comes back, because it's such an overwhelming demand that you're going to have port delays," McCullough says, predicting a "mad rush" over the next 90 days, where businesses will look to get as many products manufactured, shipped and imported as possible.

An abrupt rise in volumes also creates a scenario where an increase in orders outweighs the available vessels, says Agustin Lopez, senior vice president for logistics provider and freight forwarder GEODIS. With increased demand and limited space, businesses should expect a hike in shipping rates, Lopez says, as shippers scramble to snatch up available capacity to restock their dwindling inventories, and U.S. ports grapple with the sudden influx of cargo. In the meantime, Lopez notes that despite a temporary surge in demand, the current situation is still "fragile and tied directly to uncertainty," while many shippers remain reluctant to make long-term plans.

"It’s important to note that this sudden demand is interfering with a massive number of blank sailings across May and June, most of which will not be reinstated," he adds. "This will further tighten capacity during a critical window."

Unless a permanent deal on tariffs gets done, McCullough predicts that eventually "it's absolutely going to look like the pandemic" in the U.S., with empty shelves in stores, and supply shortages across a variety of industries. To avoid that outcome, finding common ground with global trading partners — particularly China — will be critical, McCullough says. Until that happens, though, ports, shippers and carriers alike will remain trapped in a holding pattern with few guarantees for the future.

"When most American CEOs and business owners are just sitting here with their hands in their pockets because they don't know what's next, that's not good for the U.S. economy, and that's not good for the global economy," McCullough warns.

Source: Supply Chain Brain