US Firms Weigh Higher Freight Bills Now Against Paying Tariffs Later
New tariffs on imports from China may leave American companies with a choice — pay a higher freight bill now or pay the tariffs starting soon.
It can take several weeks for ship-borne cargo from China to reach the United States — too late to beat the July 6 deadline. That could lead to more demand in the short run for airfreight services.
“The only question is how much do you want to pay,” said Brandon Fried, executive director of the Airforwarders Association, “and which is better — paying that or paying the increased tariff?”
Shipping by air is several times more costly than ocean shipping, and the gap grows the heavier the cargo.
So far, however, some freight handlers are seeing little evidence of panic.
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“We haven’t seen a rush, nor have any of our customers indicated that we need to get ready” for last-minute orders, said Steen Christensen, North America CEO for German freight-arrangements provider Hellmann Worldwide Logistics. He said some of the commodities his customers buy from China won’t fall under the tariffs.
President Donald Trump speaks before he signs a presidential memorandum imposing tariffs and investment restrictions on China in the Diplomatic Reception Room of the White House, March 22. (AP Photo/Evan Vucci)
President Donald Trump announced June 15 that starting next month the United States will impose a 25% tariff on up to $50 billion in Chinese imports. Trump targeted Chinese industrial and agricultural machinery, aerospace parts and communications technology. Most consumer goods from China such as smartphones and TVs were left off the list.
Some freight industry observers think a rush to beat the tariff deadline is inevitable.
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“There will be a surge in exports from China and from the U.S. as the date approaches,” said John Manners-Bell, CEO of U.K. research firm Transport Intelligence. “We have certainly seen that in the past with these sorts of impositions of tariffs and quotas.”
Manners-Bell expects “significant” rate increases and a shift of some cargo from ships to airfreight in coming weeks.
Rates for container shipping rose last year as the industry tried to sail past a period of overcapacity and low freight rates. Rates for airfreight have been rising in recent years as retailers meet growing demand from online shopping. Airfreight is highly seasonal, with prices spiking in the fall as Christmas gifts are sent to stores and consumers.
“Fortunately, we’re not in the high season quite yet,” said Fried, the representative of freight forwarders — they are like travel agents for companies needing to make shipping arrangements. He said it still is possible to find space in the bellies of passenger and cargo planes flying over the Pacific.
Some companies that source materials from China eventually could look for suppliers in other Asian countries with low labor costs including Vietnam, the Philippines and Bangladesh, but many will take a wait-and-see approach because it takes times to rewire supply chains, said Erik Lundh, an economist specializing in China for The Conference Board, a major business group.
It isn’t clear how long the tariffs will last, or whether the United States and China might settle their trade fight quickly.
“There is so much volatility around this issue that in three weeks’ time this could all have been for nothing,” Lundh said.
