Canada/Mexico tariff see-saw the latest to add uncertainty for supply chains: Freightos

Early last week, President Trump rolled out 25% tariffs on all US imports from Mexico and Canada only to issue a one-month reprieve for automotive goods covered by the USMCA a day later and extend that suspension to all imports that fall under the USMCA by 13 March.

An estimated 50% of imports from Canada and 38% from Mexico fall under the USMCA and include automotive goods, food and agricultural products and many appliances and electronics.

But that leaves about US$1 billion worth of imports per day that fall outside the USMCA and do not face tariffs – and other goods that pay low level tariffs – that are now subject to the 25% hike. This category includes items like phones, computers, and medical equipment.

This latest tariff caused importers to pull forward cross-border shipments in February, leading to congestion at border crossings, with the implementation and then suspension also disrupting surface volume flows from both Mexico and Canada.

This latest start and stop once again shows President Trump using tariffs and other threats as leverage for his desired trade or other policy goals: border security promises by Mexico and Canada led to the initial tariff pause in February. And though the stated goal of these measures is to stem the flow of fentanyl and illegal immigration, part of last week’s reprieve was reportedly due to auto manufacturer pledges to shift some manufacturing from Canada and Mexico to the US.

Threats about China’s presence along the Panama Canal led to the recent sale of Hutchinson Ports, and the USTR’s proposed port call fee on Chinese-made vessels has already resulted in CMA CGM pledging to invest US$20 billion in the US, including some shipbuilding.

Rapidly approaching deadlines for new tariffs or trade barriers include March 24th for the USTR hearing that will inform a decision on the port call fees, April 1st when agencies will issue reports on the range of trade issues requested in the president’s America First Trade Policy memo – including Trump’s proposed 60% tariff on all Chinese goods and after which reciprocal tariffs are likely to follow – and now an April 2nd deadline for 25% tariffs on USMCA goods.

But last week’s roll out and suspension adds to the pervasive state of uncertainty for logistics and supply chains and makes planning and adjustments extremely difficult, with most shippers opting to wait and see before investing in significant changes to their supply chains. That being said, with the likelihood of some tariff increases for imports from China and other US trade partners still high, many US importers have been frontloading shipments to some extent since November boosting ocean demand and freight rates.

The latest National Retail Federation US ocean import report shows that volumes from November through February were about 12% higher than a year prior, suggesting a significant pull forward ahead of expected tariffs. Volumes that are projected to remain level and strong through May, are expected to weaken in June and July, likewise implying weaker demand in what is normally the start of peak season due to the pull forward since late last year.

Though these projections have March volumes down from January levels but about on par with those in November and December, transpacific container rates have continued to slide post-Lunar New Year. Prices to the West Coast were down to US$2,660/FEU and were at US$3,754/FEU to the East Coast last week. These rates are 40% lower than a year ago and at or just below the low for 2024 seen post-LNY last year.

Ocean prices for Asia – Europe trade also dipped below last year’s low in recent weeks. Start of March GRIs slowed the slide and pushed rates back up by a couple hundred dollars, though well short of the US$1,000 increase carriers had announced. Asia – Mediterranean prices also leveled off, and are about even with rates a year ago.

In addition to some post-LNY lull in demand, recent rate weakness, perhaps especially on the transpacific, may be due to the recent carrier alliance reshuffle, which is resulting in increased competition and less effective capacity management as carriers are still moving vessels into place for the newly launched services. Though transatlantic rates have been about flat this year, some carriers have announced April GRIs. Prices across these lanes are nonetheless about double the long-term average as Red Sea diversions continue.

In air cargo, a one-day labor strike led to widespread flight cancellations in Germany on Monday. More broadly, US Customs and Border Protection has been charged with developing by 1 April a solution to handle the surge of formal entry parcels expected once the government suspends de minimis eligibility for Chinese imports. The lack of this capability was a main reason de minimis for Chinese goods was quickly restored after being suspended by executive order back in February, though many are skeptical a solution can be developed in such a short timeframe.

Meanwhile, there are already signs that China-US e-commerce air cargo volumes – largely dependent on de minimis – are easing and likely shifting to ocean logistics and domestic fulfillment. In addition to reports of canceled charter flights, Freightos Air Index China – US rates dipped to US$4.61/kg last week, 40% lower than at the start of the year, suggesting a gradual easing of demand on the lane. Asia – Europe prices are at about US$3.00/kg.

This article was written by Judah Levine, Head of Research at Freightos

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