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Let It Burn!
Trump has two weeks to save America from empty shelves
As imports from China dwindle, US retailers face a difficult choice: pay the tariffs or suffer shortages
www.telegraph.co.uk
Donald Trump has kept the world on edge with a trade policy that seems to change by the day.
So far, American consumers have been shielded from much of the impact. But as the world of international shipping adjusts to his policies, the president is facing a potential reckoning.
With the US-China trade war starting to gum up container traffic between the world’s two biggest economies, freight companies are warning of plunging bookings and a surge in “blank sailings” – where ports are skipped or voyages are called off altogether.
Earlier this week, America’s most powerful retail executives trooped into the White House to deliver a blunt prognosis: tariffs on Chinese goods risked causing “empty shelves” in two weeks without a change of course.
The three companies who attended the meeting – Walmart, Target and Home Depot – are among the most exposed to the president’s policies, which include tariffs of up to 145pc on Chinese goods and higher port fees for Chinese-made vessels.
Walmart sources roughly 60pc of its imports from China, including clothing, electronics and toys, according to Reuters’ research, while around 50pc of Target’s suppliers are also based there.
Many retailers and manufacturers will have a “buffer” of stock kept in warehouses and other storage facilities that will have initially allowed them to weather any disruptions.
But these can only last so long, usually a matter of weeks. And after that point, retailers will face a choice: pay the tariffs and either swallow the extra cost or pass them on to customers; or stop buying goods from China and accept shortages on shelves.
Sailing into trouble
There are signs that many American companies are now responding by cancelling orders, at least temporarily.It takes about two to three weeks for vessels from the east coast of China to make their way to the west coast of America.
According to data published by the Port of Los Angeles, which handles large amounts of goods shipped from Chinese ports including Shanghai, container traffic was 56pc higher this week than a year earlier, likely reflecting a flood of orders that were placed just before Trump’s “liberation day” tariff announcement on April 2.
But next week traffic is expected to be 11pc lower, and then 33pc lower the week after.
The drop in predicted arrivals at Los Angeles follows reports from data provider Vizion of a “crash” in container bookings in April. For shipments from China to the US, bookings fell 64pc in the first week of the month compared to the previous week.
Analysts blamed the crash on importers who were cancelling shipments to “reassess costs, timelines, and broader trade strategy”.
This is leaving more container ships half-empty – and prompting more shipping companies to cancel voyages in a bid to reduce losses and stop fees plummeting.
The spot cost of shipping a 40ft container has already fallen from $5,729 (£4,300) at the start of the year to $2,793, according to Xeneta, a shipping data platform.
Meanwhile, the number of blank sailings is surging. Since early April, the number of voyages cancelled between Asia and the east coast of America has doubled to more than 40pc, data from Sea Intelligence shows.
“When we look at the data, it is quite evident that the impact of the trade war has caused many shippers to pause, or outright cancel, shipments,” analysts at the company said on Thursday.
“This in turn reduces demand for capacity on container vessels, to which carriers respond by cancelling sailings.
“This level of escalation in blanked capacity illustrates a dramatic change in the market.”
‘We’re going to be very nice’
Peter Aylott, head of policy at the UK Chamber of Shipping, says the question of whether this will now result in empty spaces on American shelves will depend on a range of factors.But it is the uncertainty that is likely to prove most damaging, he adds.
“There is still a hell of a lot of uncertainty,” says Aylott, “and in that situation many people just pause activity to wait and see what will happen.”
The president had previously defended his tariffs strategy as being necessary to re-shore American manufacturing. But within hours of this week’s closed-door meeting with retail chiefs, he appeared to have shifted his position dramatically.
“We’re going to be very nice. They’re going to be very nice, and we’ll see what happens,” he told reporters on Tuesday, in comments that were viewed as an olive branch to China.
Ultimately, climbing down from the trade war on terms acceptable to Washington is not in Trump’s gift alone. Beijing has hit back with its own tariffs of 125pc on American exports.
And despite his claims that the two sides are in regular contact, a Chinese foreign ministry spokesman on Thursday shot this claim down, telling reporters that the suggestion was “groundless and has no factual basis”.
Whatever Trump now hopes to accomplish, he needs to do it quickly. If not, American shoppers may see the impact of this trade war on shelves within weeks.
