How Tariffs Can Potentially Affect Global Transportation Demands

The term 'tariffs' has recently become a focal point of global economic discussions, especially with the Trump administration's plans to impose significant import duties.

A few examples of this are the upcoming 25% tariff on imports of automobiles, pharmaceuticals, and semiconductor chips, set to take effect around April 2, 2025, and the 25% tariff on steel and aluminum imports that will be reinstated on March 12, 2025.

These measures aim to address trade imbalances and encourage domestic production. However, they have also sparked intrigue and concern among business owners and policymakers worldwide, as such tariffs can profoundly impact global transportation demands across air, ground, and ocean freight sectors.

Impact on Ocean Freight

Tariffs on imports from China have led to significant shifts in ocean freight dynamics.

For instance, the 10% tariff on Chinese goods, effective from February 4, 2025, has prompted importers to expedite shipments to avoid increased costs. This rush, known as "front-loading," temporarily boosts demand for ocean freight services, leading to higher freight rates.

Historical data from 2018 indicates that similar tariff implementations resulted in a 70% spike in ocean container shipping freight rates due to sudden changes in import patterns.

However, once tariffs are in place, import volumes may decline, reducing demand and potentially causing overcapacity in shipping lanes.

Impact on Air Freight

The air cargo industry is also susceptible to the effects of tariffs.

The elimination of the "de minimis" rule, which previously allowed duty-free imports of goods valued under $800, has disrupted e-commerce shipments, particularly from China.

This policy change has led to logistical challenges, including significant backlogs at major airports, as seen with over a million packages accumulating at JFK Airport. Such disruptions can strain air freight capacity and lead to increased operational costs.

Impact on Ground Transportation

Ground transportation, encompassing trucking and rail services, will also experience indirect effects from tariffs.

For example, the proposed 25% tariffs on automobile imports could compel manufacturers to relocate production facilities to avoid increased costs. Nissan's consideration to move production out of Mexico exemplifies this trend.

Such relocations alter domestic transportation demands, potentially increasing the need for ground freight services within the U.S. while reducing cross-border transport volumes.

How to Prepare for Potential Tariffs as a Business Owner

To navigate the complexities introduced by tariffs, business owners should consider:

• Diversifying Supply Chains: Sourcing from multiple countries can mitigate the risk associated with country-specific tariffs.
• Adjusting Inventory Practices: Increasing inventory levels before tariff implementation can help cushion the immediate impact.
• Exploring Alternative Markets: Shifting focus to markets with favorable trade terms can offset losses in tariff-affected regions.

Overall, the best thing you can do is to stay informed about policy changes and maintain flexibility in logistics planning. Doing so will allow you to adapt to any changes in regulation or demand as a result of tariffs.

Overseas Container Logistics (OCL) is a 3PL commercial freight-forwarding company based in Richmond, British Columbia. 

If you have any questions about this article or would like to talk to us about your transportation and freight needs, give us a call at 604-295-8236.