4 hours ago
41
Another surge in trade from China to the U.S. should be getting underway, according to retailers and logistics executives, as the initial trade deal struck by the U.S. and China leads importers to move forward with shipments during the 90-day pause on the steepest tariffs implemented by President Donald Trump.
On Monday, the U.S. and Chinese governments announced a trade deal, though the details of the U.S.-China pact are still sketchy. But in the short term the most important aspect of the agreement is the suspension of the so-called reciprocal tariffs, though broad-based 10% duties will remain in effect, as well as a 20% tariff related to fentanyl.
"I have clients with thousands of containers pre-loaded in China that is ready to come in," said Paul Brashier, vice president of global supply chain at ITS Logistics. Over the next four to six weeks, he expects a surge of containers, calling the 90-day pause "the pivotal moment for supply chain planning out of China."
"The 30% tariff for 90 days will start goods flowing again for small businesses," said Bruce Kaminstein, a member of NY Angels and founder and former CEO of cleaning products company Casabella. But the reprieve for small businesses will not eliminate their larger worries. "They are being held hostage to an erratic policy. Businesses are in difficult situations, so they will make this work somehow as they always do," he said.
"Tariffs at the 20% level didn't stop shippers from frontloading in March and April," said Judah Levine, head of research at Freightos. "U.S. ocean import volumes were up 11% year over year in that stretch, so the current 'reduced' 30% level should see a restart of shippers pulling forward demand to beat a possible August tariff hike."
Rick Muskat, president of family-owned shoe retailer Deer Stags, which imports its goods from China and sells in major retailers including Macy's, Kohl's, JCPenney, and on Amazon, tells CNBC that the 30% tariffs will allow it to resume shipments from China, but container rates will likely skyrocket due to pent-up demand.
"Our costs will go up closer to 40%," said Muskat. "So we will have to raise prices for fall deliveries."
The timing of holiday shipments will lead to even more frontloading by importers, Muskat said. Without being able to know if a permanent deal will be reached, and with the bulk of holiday goods needing to leave China in August and September, "there will be a lot of front-loading inventory due to the uncertainty of what follows the 90-day pause," he said.
There is still lingering frustration with the Trump administration for a trade policy that has whipsawed and already cost their businesses. Muskat said Deer Stags had one shipment subjected to the 145% tariffs that was moved into a bonded warehouse — a secure storage facility that is supervised by U.S. Customs without tariffs needing to be paid — to wait and see if the tariffs would be lowered. The additional storage cost for that one container is well over $10,000. "Now we will release that inventory into our distribution center, and will have absorbed all the costs involved for no good reason!" Muskat said. "This all adds up."
Rising costs in the global supply chain
Reduced tariffs on Chinese goods at 30% will also come amid expectations of rising costs in the supply chain as more companies look to frontload orders again. With the typical gross margin for consumer products companies in the range of 40-50%, a 30% tariff is difficult to work into many business models, Kaminstein said.
"For importers overall, the 30% level may still make their product and overall profitability a challenge," said Alan Baer, CEO of logistics company OL USA. "Volume increases, space and price may be another hurdle to leap over given the number of blank sailings announced by carriers."
Blank sailings of freight vessels from China have been on the rise throughout the trade war.
Xeneta data shows the four-week rolling average for offered vessel capacity on the Transpacific trade route from China to the U.S. West Coast is down 17% since April 20. Blanked (canceled) sailings are up 86% in the same period.
A combination of price increases and some absorption of margin by companies, plus a reduction of fixed expenses, will be needed, Kaminstein said, and big questions remain unanswered for business owners: "The unpredictable is a killer for businesses. How do you quote 90 days out? How do you forecast a cash flow statement? How do you make long-term capital decisions? If the intent of this tariff policy is to bring manufacturing back to the U.S., how does a company deal with the unpredictability of the future?"
Steve Lamar, CEO of the American Apparel and Footwear Association, says the tariff pause is a good development, but it will not stop prices from going up. "Sadly, the residual 30% tariff (stacked on top of the existing Section 301 and MFN tariffs) will still make for an expensive back-to-school and holiday season for most Americans," said Lamar. "If freight rates spike due to the tariff-induced shipping disruptions, which will take months to unwind, we could see costs and prices creep up further."
In some retail niches, tariffs remain much higher. Matt Priest, CEO of Footwear Distributors and Retailers of America, tells CNBC that some kids' shoes are still subject to a 97.5% duty even with the decrease, due to pre-existing duties that are still levied on the product.
"That's unacceptable. We've outlined clear, reasonable exemptions in our letter to the administration, and we urge them to take action to ease the burden on Americans further. Our industry needs relief — and so do the families we serve," said Priest.
Critical industries say inventory is running low
Beyond retail, CEOs across the economy continue to speak with lawmakers on the impact of the tariffs inside critical industries, while they rush to bring in orders. Eric Byer, CEO of the Alliance for Chemical Distribution, said the damage to the chemical supply chain has been done, and now there will be a scurry of activity to replenish inventory during the new tariffs pause, with some gaps in time where it's possible there is no supply.
"A couple of our biggest members over the weekend said the stockpiling they all did was going to tide them over until Memorial Day," said Byer. "After that, the fear sets in as the warehouses that are now in the 80-90% full range will drop precipitously, likely to less than 10% by the middle to end of June," he said. "I suspect we will see an incredibly active ordering frenzy that will once again have too few ships ready to accommodate the demand (like Covid all over again)," he added.
Byer said inventory is already extremely tight for phosphoric acid, used in detergents and cleaning products, a wide range of drinks (like citric, soda, sports drinks, etc.), and in fertilizer. Other chemicals where inventories are tight include ascorbic acid found in Vitamin C, ammonium bicarbonate used to make baking/cleaning products, and sodium thiocyanate, a critical chemical for concrete used in construction.
Peak shipping season will 'run hard' into Q3
"This will kick off peak season and run hard until the third quarter," said Brashier. "There are a lot of construction and manufacturing projects slated for 2026, and these companies have deadlines to hit, and the projects are being staged for breaking ground in early 2026."
Any progress on Trump's tax bill, and other deregulation policies, as well as any Federal Reserve interest rate cuts, may also fuel a shipments spike into 2026.
Peter Sand, chief shipping analyst at Xeneta, warns the surge will lead to a spike in ocean freight prices. "Ocean freight could be up to 20% in the short term from China to the U.S. West Coast," said Sand. That would be coming off a major decline in rates. According to Xeneta, average spot rates are down 56% and 48% from China to the U.S. West Coast and U.S. East Coast since January 1.
"Shippers will take the 90-day window of opportunity to ship as many goods as possible into the U.S. and this will put upward pressure on freight rates," Sand said. "Carriers responded to falling volumes from China to the U.S. by slashing container shipping capacity and redeploying it onto other trades, such as the Far East to Europe. It takes time to shift capacity back again, so a revival in volumes from China to U.S. may mean shippers have to pay a little 'over the odds' in the short term," he added.
Stephen Edwards, CEO of the Port of Virginia, tells CNBC it has been reviewing and planning scenarios that would lead to a surge in Chinese containers.
"We've all gone back to our financial models of what happened during Covid, what happened during the Panama Canal water restrictions, what happened when the Red Sea changes happened, and other scenarios prior to that to see what happened with the reduction in trade and then the recovery," said Edwards.
He added that the most important thing for the supply chain is to be able to know what the "playing field" is. "Once we know the playing field, the supply chain is very agile. Yes, there are parts of the supply chain that take longer, but very quickly, we will all adapt to that new environment," he said.
"What's needed now is a long-term deal — not just with China but with all our trading partners — so we can predictably make long-term trade, investment, and sourcing decisions," Lamar said.
Matthew Shay, CEO of the National Retail Federation, said the temporary pause is a critical first step to provide some short-term relief for retailers and other businesses ahead of the holiday season. He added the U.S.-China agreement "lays the foundation for substantial progress" with not just China, but with many other nations.
But many businesses will continue to wait for more certainty before making significant production and investment decisions given the changing nature of these challenges, according to Adoniro Cestari, head of trade and working capital solutions for Citi. He added that as seen during the Covid pandemic, regardless of short-term outcomes, companies will be more active with risk management strategies related to possible long-term volatility around tariffs and barriers.
"The continued uncertainty is a difficult way to run a business!" Muskat said.
English (US)