Donald Trump returned to the White House this week and, perhaps unsurprisingly, raised more questions than answers regarding his “America First” policy on trade and import tariffs.
Below, Xeneta Senior Analyst Peter Sand shares his advice on how shippers can mitigate geopolitical risks with an ocean freight tendering strategy that keeps supply chains running while also managing spend.
What did Trump say?
On Trump’s inauguration on Monday, he said he was “considering” imposing a 25% tariff on imports from Mexico and Canada on February 1.
He did not immediately follow through on campaign promises to impose 60% tariffs on goods coming from China and 10-20% from the rest of the world, instead ordering an investigation into the trade deficit, unfair trade practices and alleged currency manipulation by the United States. . Other countries.”
How serious is the risk?
Zeneta data shows that the last time Trump raised tariffs on Chinese imports during the trade war in 2018, average spot prices rose more than 70% on important trade from China to the US West Coast.
Current spot rates from China to the US West Coast are $5,104 per FEU. This is 24% higher than 12 months ago, mainly due to the impact of the conflict in the Red Sea. If rates rise by the same magnitude as they did in 2018, the market will reach an all-time high, surpassing the previous record set during Covid-19.
On the other hand, the tariff regime may not be as harsh as feared, while the prospect of a large-scale return of container ships to the Red Sea could lead to excess capacity flooding the market and prices collapsing.
This shows the extremes of the amount of uncertainty shippers will face in 2025. Previous rules on cargo procurement are no longer in effect.
You have to think differently.
How can shipping companies submit their bids against this backdrop of uncertainty?
Keep calm and don’t do anything that limits your options in the future.
You can’t base your freight purchasing strategy on political rhetoric. We know that tariffs on US imports are coming, but we don’t know when, where, or what goods will be affected.
An increasing number of shippers are using index-linked contracts to manage unpredictability, as the price paid tracks the market at agreed limits.
For example, if shipping rates rise due to Trump announcing tariffs against China, the price the shipping company pays increases at a pre-agreed threshold. On the other hand, if the recent Middle East ceasefire agreement sees a large-scale return of ships to the Red Sea and the market collapses, the rate paid by the shipping company will fall.
In both scenarios, the shipper can benefit. In a down market, they don’t want to be stuck in a long-term contract paying above odds. Even in a bull market, if their contract prices are too low, they risk goods being rolled over – as we saw during 2024 in the wake of the Red Sea crisis.
This strategy aims to maintain as much control as possible in a chaotic world. It also helps procurement professionals explain internally to the CFO and broader executive team why multi-million dollar shipping spend fluctuates (above or below) against budget.
What if my company is not ready for an index-linked contract?
You can include a clause in your new long-term agreement, linked to Xeneta data, that will trigger a renegotiation if the market rises or falls by an agreed percentage or US dollar amount.
Although it requires manual renegotiations rather than automatic adjustments in an entire index-linked contract, this is still a reasonable option that provides peace of mind that the service provider should come back to the table if circumstances require it.
What can shippers do?
In the short term, you could front-load imports before tariffs — as we know some shippers did in 2024, initially in response to Red Sea disruption, and then later to deal with the threat of tariffs. But that costs money in terms of shipping goods at high freight rates, warehousing costs and bloated inventories that tie up working capital — and we still don’t even know if the goods you’re front-loading will be within the tariffs that protect them.
You can also decide to reduce the Minimum Quantity Commitment (MQC) in your new long-term contract and move more funds at spot prices so that you have a better view of how the market will develop.
However, will you have more certainty about these geopolitical factors in a few months? Maybe not.
Geopolitical risks, both known and yet to be seen, will continue to cause carnage. You need a procurement strategy grounded in data and market intelligence so you can effectively manage your supply chain risk and freight spend today, tomorrow, next month, next year and beyond.
