Domino effects and renewed uncertainty
The geopolitical developments of the past five weeks have set off a chain of domino effects that will impact global supply chains in the coming months.
Some of these domino effects are predictable. At the same time, there is also a risk of unforeseen developments that will exacerbate operational challenges.
In the coming weeks and months, various domino effects are expected to emerge. These expectations are based on insights the market gained during the early stages of the pandemic in 2020.
In early 2020, we were confronted with a sudden and sharp decline in cargo traffic from China. In response, shipping lines quickly cancelled numerous scheduled sailings to better align capacity with demand. Once this process is set in motion, it leads to a knock-on effect for exporters in other parts of the world who, depending on their location, experience cancelled sailings to China with a delay of three to six weeks. This is because such cancellations ripple slowly through the logistics chains.
The next step in the domino effect is that, due to the cancellation of sailings to China, fewer empty containers make their way back to Asia. As a result, a shortage of empty containers emerges, primarily in China, but also in other parts of Asia, typically six to twelve weeks after the initial cancellations.
Familiar challenges in a new situation
This is exactly what we witnessed in early 2020 and the same scenario is now unfolding once again. Exports from China to the US have dropped sharply. Although comprehensive market data is not yet available, several shipping lines and freight forwarders have reported a 30 to 40% decline in cargo volumes from China to the US. This closely mirrors the situation at the start of the pandemic. Just like then, carriers have already cancelled numerous sailings from China to the US.
The next step in this chain reaction is a decline in the number of sailings from the US back to China, something that is already beginning to take shape. As a result, significantly fewer empty containers will return to depots in Asia in June and July.
The announced 90-day pause in the trade war between the US and China will further influence this situation. A similar scenario played out in early 2020, when China reopened after the initial phase of the pandemic. This led to a sudden surge in cargo volumes, causing severe bottlenecks in the US logistics chain. A similar development now threatens to unfold again in the summer of 2025.
However, the current situation differs in several keyways from what we saw during the pandemic. While the pandemic affected all trade routes from China at the time, the impact now is largely confined to the China–US corridor due to the trade war. In addition, we are currently seeing an unusual increase in cargo volumes from other countries to the US. This is because American importers are trying to bring in as many goods as possible before the postponed introduction of the new US import tariffs on 9 July.
We are once again at the beginning of a series of predictable domino effects, like those observed during the pandemic. Following the initial sharp decline in cargo volumes in 2020, there was a rapid surge in the volume of goods needing to be shipped, driven in part by increased consumer spending in the US. This rise coincided with the previously mentioned shortage of empty containers returning to Asia. That combination laid the groundwork for the severe bottlenecks that later emerged in US ports.
This time we will see a sudden and sharp increase in cargo traffic, this time as a direct result of the 90-day pause in the trade war. This development is giving rise to two distinct types of additional cargo volumes.
Firstly, there is a substantial volume of cargo in China that has been ready for shipment for some time. Many of these goods have been sitting idle for up to a month, as importers waited to see whether import tariffs would be reduced. Now that the reduction has been implemented, these containers must be shipped urgently.
In addition, importers are aiming to ship as many goods as possible before mid-August, the end of the 90-day period. As a result, this year’s peak season will start earlier and be much more condensed than usual, leading to higher weekly cargo volumes on the transpacific route.
Supply chains under pressure once again
Shipping lines are expected to respond to the sudden surge in cargo volumes by reinstating previously cancelled sailings to free up additional capacity. In addition, they are likely to cancel some sailings on the Asia–Europe routes and redeploy vessels to the transpacific corridor. Implementing these adjustments will take around one to two weeks and is expected to lead to an increase in spot rates.
If cargo volumes continue to rise, bottlenecks will once again emerge at US ports. This will remove capacity from the market and put further upward pressure on freight rates, exactly as we saw in the summer of 2020.
Moreover, the cancelled sailings from Asia in April and early May will result in fewer return sailings from the US to Asia in the second half of May and in June. As a result, fewer empty containers will make their way back to China in June, just as pressure mounts to ship more cargo. This will lead to a temporary and localized shortage of empty containers, once again closely mirroring the developments seen during the pandemic.
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