With all eyes on the Middle East of late, it’s easy to forget about the US trade tariffs, but with peak season approaching it’s Australian consumers that stand to be impacted – again – by events taking place in other parts of the globe.
The US and China last month agreed to a 90-day pause of reciprocal tariffs, sparking a flurry of activity as Chinese manufacturers and suppliers look to export goods before the new deadline.
It’s resulted in a significant increase in demand on US trade lanes, impacting freight rates, container availability and vessel space. We’ve already seen rates on some China-US routes jump up as high as $US10,000 and there’s increased demand for containers and space on vessels.
Shipping lines are looking at areas to free up capacity to capitalise on that demand, and unfortunately that means Australian trade lanes will suffer.
Australia remains a relatively small player in terms of global trade, with trade lanes Down Under not nearly as lucrative.
If we consider freight rates to Australia are around $US2,000 currently, it is far more appealing for shipping lines to move available vessels and containers to more profitable trade lanes – which is currently the China-US route.
We can expect to see reduced vessel space availability for Australian-bounds goods in the coming month as vessels and containers are moved around the supply chain to cater for the increase US demand.
It also comes as the industry prepares to enter the traditional ‘peak season’, and at a time when geopolitical tensions are heightened.
The flow on impacts to Australian businesses and consumers is the likelihood of upward pressure on prices, and potential delays in the arrival of goods.
It feels like a fresh chapter in an old book, with Australian freight often feeling the impact of pressure in other areas of the supply chain.
However, rather than wait for the ‘next time’, there are steps that can be taken to better safeguard Australian trade;
- Expand Supply Markets: A heavy reliance on Chinese suppliers has long been problematic – as was highlighted during the pandemic – which is why we continually recommend importers diversify supply markets to locations such as Europe or SE Asia for example. While prices might be a little bit higher, it’s likely you’ll have more consistency around freight rates and vessel scheduling and be less exposed to volatility, which might end up being more cost efficient in the long term.
- Build Higher Freight Rates into the Business: Rather than be exposed to upward price pressures during times of high demand, businesses should consider building a buffer into the overall strategy and budget. Instead of setting your prices on fluctuating freight rates, it might make more sense to determine an average each quarter or even each financial year, and set your prices and budget accordingly.
- Government Incentives: Governments can assist by making it easier and more efficient for shipping lines to call at Australian Ports. Whether that’s in the form of incentives, reduced port fees or improving infrastructure to facilitate quicker turnarounds, we want Australian Ports to be an attractive trade destination, and not the first omission when demand picks up elsewhere.
As always, our advice to clients and importers in general is to plan ahead and factor longer lead times into import orders.
Start thinking about the back end of the year now and securing space on vessels as early as possible. Flexibility around routes and timing will also help, as we can guarantee you will get your cargo, it’s just a matter of when, and which route it takes.
