Higher cost of Chinese goods could result in lower transpacific volumes and need for more direct calls at ports near new suppliers.
U.S. tariffs are resulting in redesigned global supply chains as companies look for alternative, lower-cost suppliers, says Drewry.
But it noted relocating production “is a costly endeavor with no safety assurances.”
In its Container Insight Weekly, Drewry said this year there has been an upsurge in U.S. imports from other parts of the world as imports from China have continued to fall.
Since President Donald Trump entered office, Drewry said the ratio of U.S. imports covered by some form of trade protection rose from 2.3% to 14.9%.
Last year, China accounted for $539.5 billion of the $2.6 trillion goods the U.S. imported.
Currently $250 billion worth of Chinese goods are subject to tariff. That would rise if the president follows through on his threat to slap tariffs on the remaining imports from China not subject to duties.
“It seems likely that all Chinese goods will be touched by tariffs in the near future,” said Drewry. “This will expedite trade diversion, but it will take time for other locations to ramp up the production capacity to meet demand, and in some cases it is doubtful this is a possibility due to China’s dominance of certain products.”
Citing customs data, Drewry said in 2018 China supplied U.S. importers with 52% of furniture (HS 94), 53% of footwear (HS 64), 83% of cellphones (HS851712) and 94% of laptops (HS 847130).
“Switching the locations of production is not something done lightly and cargo owners have to weigh a myriad of factors, including local labor costs and skills, infrastructure, proximity to demand as well as political and legal stability,” said Drewry, noting those factors “vary in importance depending on the sector.”
“Adding to the complexity, having identified a new location, there can be no guarantees that the new production countries won’t find themselves being targeted by future tariffs,” it said, noting the president’s recent threat to raise tariffs on imports from Mexico to curb migration.
Drewry said that “there are anecdotal reports that Chinese goods are being transshipped to places such as Vietnam and Malaysia, simply to have the Made in China label replaced to avoid the duties. If true, this gaming of the U.S. tariffs means extra intra-Asia traffic, a positive for shipping lines in the region, but equally that customs data is less reliable as a gauge for supply chain diversion.”
It said if production is relocated, “transpacific volumes are likely to dip as demand for the large swathe of Chinese goods that cannot readily be substituted wanes amid cost rises, although some element of substitution to other Asian territories will offer some support.”
Drewry also said that “transpacific shipping schedules will need to be broadened to reach more non-Chinese ports. The relative scarcity of direct port links in other parts of Asia to the U.S. is already being reflected in higher freight rates,” it said, pointing to figures from the Drewry Container Freight Rate Insight service showing that since March freight rates from Shanghai to Los Angeles have fallen while those from Busan, Korea to Los Angeles have risen.
“Greater U.S. trade with Europe will favor U.S. East Coast ports and demand more of the smaller ships that coast can currently accommodate. Most worryingly, more intra-regional NAFTA/USMCA trade will diminish the demand for ocean carrier services altogether,” Drewry added.