Donald Trump returned to the White House this week and, perhaps unsurprisingly, raised more questions than answers regarding his America First policy towards trade and import tariffs.
Below, Xeneta Chief Analyst Peter Sand shares his advice on how shippers can mitigate geo-political risks through an ocean freight tender strategy that keeps supply chains moving while also managing spend.
What has Trump said?
On the day of Trump’s inauguration on Monday, he stated he is ‘thinking about’ introducing a 25% tariff on imports from Mexico and Canada on 1 February.
He did not immediately go ahead with vows made during the election campaign of 60% tariffs on goods from China and 10-20% from the rest of the world, instead ordering a probe into ‘trade deficits and unfair trade practices and alleged currency manipulation by other countries’.
How serious is the risk?
Xeneta data shows the last time Trump ramped up tariffs on China imports during the trade war in 2018, average spot rates spiked more than 70% on the critical trade from China to the US West Coast.
Current spot rates from China to US West Coast stand at USD 5 104 per FEU. This is 24% higher than 12 months ago, primarily due to the impact of conflict in the Red Sea. If rates increase by the same magnitude as they did back in 2018, the market would hit an all-time high, surpassing the previous record set during Covid-19.
On the other hand, the tariff regime may not turn out as harsh as feared, while the potential for a full scale return of container ships to the Red Sea would see overcapacity flood the market and rates to collapse.
This demonstrates the extreme ends of the scale of uncertainty shippers are facing in 2025. Previous rules on freight procurement no longer apply.
You need to think differently.
How can shippers tender against this backdrop of uncertainty?
Keep calm and do not do anything that limits your options down the line.
You cannot base your freight procurement strategy on political rhetoric. We know tariffs on US imports are going to come, but we don’t know when, where, or what goods will be impacted.
More and more shippers are using index-linked contracts to manage this unpredictability, whereby the rate paid tracks the market at agreed thresholds.
For example, if freight rates rise due to Trump announcing tariffs against China, the rate the shipper pays increases at a pre-agreed threshold. On the other hand, if the recent ceasefire agreement in the Middle East sees a largescale return of ships to the Red Sea and the market collapses, the rate the shipper pays will fall.
In both scenarios the shipper can benefit. In a falling market they don’t want to be stuck in a long term contract paying over the odds. Even in a rising market, if their contract rates are too low, they risk having cargo rolled – as we saw during 2024 in the wake of the Red Sea crisis.
This strategy is aimed at retaining as much control as you can in a world of chaos. It also helps procurement professionals to explain internally to the CFO and wider executive team why freight spend is fluctuating by millions of dollars (up or down) against budget.
What if my business isn’t ready for an index-linked contract?
You can insert a clause into 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 USD amount.
While requiring manual renegotiation rather than the automatic adjustments in a full index-linked contract, this is still a sensible option that offers peace of mind that the service provider must return to the table if the circumstances demand it.
What else can shippers do?
In the short term you could frontload imports ahead of tariffs – as we know some shippers have done in 2024, initially in response to Red Sea disruption and more latterly to deal with the tariff threat. But this costs money in terms of shipping goods on elevated freight rates, warehousing costs and bloated inventories tying up working capital – and we still don’t even know if the goods you are frontloading will be in scope of the tariffs you are guarding against.
You could also decide to reduce the Minimum Quantity Commitment (MQC) in your new long term contract and move more boxes on spot rates until you have better visibility of how the market will develop.
However, will you have any more certainty on these geo-political factors in a few months’ time? Probably not.
Geo-political risks, both known and those yet to emerge, will continue to cause carnage. You need a procurement strategy that is anchored by data and market intelligence so you can effectively manage supply chain risk and freight spend today, tomorrow, next month, next year and beyond.
