Freight Capacity for Imports Could Face Potential Stress Amid Tariff, Labor Strike Unknowns

"Less than 24 hours from the announcement, we’ve been pulled into countless customer meetings to run risk scenarios for if Canada and Mexico tariffs were implemented," Sri Laxmana, vice president of the Americas for C.H. Robinson, told ITT.

"Many of our customers -- especially in the automotive space -- treat North America as one integrated supply chain with some of their freight actually crossing both the Mexico and Canada borders," Laxmana said. "We move the most truckload freight in North America and handle 1.4 million customs transactions a year, so we are helping customers across numerous industries lay out different scenarios and contingency plans to help them navigate the uncertainty."

Trump said in a Truth Social post Monday that the tariffs aim to compel Mexico and Canada to curb fentanyl distribution and illegal immigration. He said he would sign an executive order for the tariffs as early as Jan. 20. Whether lawsuits would follow on the order's legality remains to be seen (see 2411260050).

"We're already seeing companies trying to get as much inventory as possible. The deadline, if it is the 21st of January, is not that far away," said Pete Mento, commercial director of customs and international trade at DSV. "[They might be] trying to find a way to get it on ships, get it on planes, and get it here before then, because the tariffs will be applied on the first day. It's not when it leaves the exporting countries [that the tariff applies, but] when it arrives in the importing country. There's a very good chance there could be a run on capacity."

Prior to Trump's announcement earlier this week, one of the reasons ocean freight rates appeared to be holding steady is that importers have been front-loading cargo throughout the year in response to other events, such as the attacks on ocean vessels in the Red Sea by Houthi rebels, according to sources.

Complicating matters now is this new tariff announcement against the backdrop of a potential strike at East Coast and Gulf Coast ports that could occur in January. The International Longshoremen's Association and the U.S. Maritime Alliance reached an agreement in October over pay, ending three days of strikes (see 2411080044). The parties extended the existing contract to give more time to negotiate outstanding issues, including automation at the ports, but that negotiation has since stalled.

That breakdown in negotiations is making trade associations, such as the National Retail Federation, nervous that another strike could occur at the East and Gulf ports.

"Front-loading has been taking place throughout 2024, primarily due to conflict in the Red Sea, but shippers will also have had one eye on threats including strike action on the U.S. East Coast and potential return of Donald Trump to the White House and higher tariffs," said Emily Stausboll, senior shipping analyst for Xeneta, an ocean and air freight rate benchmarking platform headquartered in Oslo, Norway. Front-loading could be a factor in why volumes coming into the U.S. West Coast reached an all-time high in August of 1.26 million 20-foot equivalent units.

With the proposed tariffs against Mexico and Canada in sight, there could be a renewed push to front-load, sources said.

"We expect companies to massively front-load shipments from Mexico in the next two months to build up inventory, especially in sectors where Chinese components account for a large share of the finished goods, such as high-tech products," said Diego Rodriguez, a Latin America market analyst for Florida-based Americas Market Intelligence Research.

However, several factors could stymie the ability to front-load: potentially tightened capacity at the East and Gulf ports should the strike happen, the timing of when the tariffs would be implemented, and the ability to front-load certain cargo, like automotive parts.

Different regions globally may also engage in front-loading, depending on whether the region is under tariff pressure.

"The No. 1 question from shippers right now is around timing. It typically takes months for full implementation of tariffs using administrative action, with some potential for acceleration given President-elect Trump’s previous experience. Technical processes like collecting payment and updating paperwork need to be implemented, so a January launch would be rare from a historical lens," Laxmana said.

He continued: "Front-loading doesn’t happen overnight though, and largely depends on the supplier and production’s ability to ramp up. Specific to Mexico, as it’s a hotspot for automotive freight, most of what comes across the border is just-in-time inventory so there is not much opportunity to pull inventory forward."

Said Mike Short, C.H. Robinson president of global forwarding: "Keep in mind even if some companies want to front-load, it might not be feasible if their suppliers can't ramp up production. For those who can and want to front-load, the reasons are split among the pending second U.S. port strike in mid-January, the Lunar New Year starting on Jan. 29 and potential tariff changes," Short said. "Others are simply trying to figure out the timing -- one customer asked about the last day their freight could leave Asia and arrive in the U.S. before the new tariffs potentially take effect.”

Another unknown is whether accompanying ocean freight spot rates also would increase.

Alan Murphy, CEO and founder of Sea Intelligence, a supply chain market analysis firm with offices in Singapore and Denmark, told ITT following the election that his firm hasn't conducted any formal analysis of a potential volume peak driven by tariff-informed front-loading because "there's simply no forward-looking container demand data/estimates that would allow for such an analysis."

But "that said, it is clear that U.S. importers have reacted in exactly such a manner, with front-loading import volumes, when tariffs have been introduced in the past, or when there's expectations of increases in costs or serious disruptions -- e.g., U.S. East Coast strike -- so we certainly expect it to happen again," Murphy continued, adding that this is his opinion, "not an absolute claim of fact."

Up until this week, ocean freight rates have been holding steady. Stausboll told ITT that average spot ocean rates have been "relatively calm" following the U.S. election result, remaining flat from the Far East to the U.S. East Coast and even falling slightly into the U.S. West Coast.

"It may be that shippers may well have been waiting for further clarity over the scale and time frame of Trump’s tariffs before committing to front-loading more imports. There is also the factor that front-loading has been taking place throughout 2024, so businesses may have already built some level of buffer in inventories," Stausboll said.

After Trump first introduced tariffs against China in 2018, average spot rates into the U.S. West Coast spiked more than 70%, according to Stausboll. However, the scope of the tariffs announced this week seem to focus on North America, which is "easing the pressure to front-load at a global scale," Stausboll said. Nonetheless, shippers might still decide to front-load ahead of the unknown, she continued.

"Bottom line, we don’t know for certain what January will bring, and as border policy is obviously a central theme for the Trump presidency, it’s crucial to plan for different scenarios. So, our customers can make moves now, or we can help them adjust course down the road when appropriate," Laxmana said. "Similar to other supply chain challenges, we’re focused on scenario planning to ensure efficiency doesn’t take a dip as we've seen during previous periods of heightened uncertainty."