Navigating the Trump Effect: Container Shipping in Troubled Waters?

This article provides a high-level analysis of the possible range of outcomes carriers and shippers alike might expect over the coming months as the market tries to anticipate and adapt to US President Donald Trump’s trade and international relations policies, as well as summarise developments to date.

Since President Donald Trump assumed office on 20 January 2025, he has initiated a blitz of executive orders and proclamations, much of which targets international relations and trade.

The threat of widespread tariffs is an obvious source of uncertainty for container shipping stakeholders worried about the impact on the market. But recent US involvement in negotiations for the cessation of hostilities between both Russia and Ukraine and separately Israel and Hamas may also influence freight rates this year. Likewise, should Trump seek to intervene over the current Hong Kong-domiciled entities which operate container terminals on either end of the Panama Canal, it may introduce further disruption to the market.  

This article provides a high-level analysis of the possible range of outcomes carriers and shippers alike might expect over the coming months as the market tries to anticipate and adapt to Trump’s trade and international relations policies, as well as summarise developments to date.

Tariffs

When published (25 February 2025), the following tariffs had been announced:

• 10% tariffs on China (in addition to tariffs imposed during Trump’s first term) as well as the brief abolition of the de minimis exception for imported goods under US$ 800 which has since been reinstated;
• 25% tariffs against Mexico and Canada (delayed for 30 days from 3 and 4 February respectively); and
• 25% blanket tariffs on all steel and aluminium imports (expected to take effect from 12 March 2025).

In terms of the impact of tariffs on freight rates, immediately following Trump’s election, which was announced on 6 November 2024, analysts predicted that rates may surge as importers sought to frontload shipments in advance of Trump taking office (as well as the interruption caused by the Chinese New Year). This has been at least partially borne out, given that the Drewry Global WCI increased by roughly 13% between 7 November 2024 and 9 January 2025. During the same period, Shanghai to New York rates increased by more than 35%. Shanghai to Los Angeles mirrored the WCI generally with a 14% increase. 

Since then, the Drewry WCI has dropped nearly 30% from its 2025 high of USD 3,986 (as at 9 January 2025) down to USD 2,795 (as at 20 February 2025). Shanghai to Los Angeles and Shanghai to New York have also fallen at a similar rate during the same period.

Compounding matters is the difficulty in anticipating the response of other nations. A limited international response intended to deflect or defuse trade tensions may modestly move the market. A widespread retaliatory response would be more disruptive.

Already, China has made a limited retaliation against the US with tariffs targeting farm machinery and automative goods, though the bulk of the tariffs hit US LNG, coal and crude exports, which makes the impact on the container market more limited given these commodities are transported in bulk.

More generally, tariffs imposed by the US against China (and any other threatened nations in the region) will be more detrimental to container rates from a carrier’s perspective than retaliatory tariffs by other nations against US goods given China exports far more goods to the US by volume than the US to China. 

It is therefore somewhat early to speculate on the full impact of tariffs on container freight rates, though it is likely pushing the needle downward in response to slackening demand by US importers. Over time, manufacturers may seek additional demand from retailers outside of the US, which may rebalance the market across other routes. Asia-Pacific manufacturers may also seek to relocate production to jurisdictions outside of Trump’s crosshairs, such as Vietnam.

Global hostilities

Israel-Hamas

The Houthi rebels’ sustained attacks on vessels transiting the Red Sea have resulted in one of the largest shipping lane disruptions in modern history, as almost all deep-sea container vessels which otherwise would have sailed through the Red Sea have rerouted via the Cape of Good Hope (“CGH“).

As the Houthi’s purpose behind the attacks has been to signal their support for Hamas, it was thought that the ceasefire between Hamas and Israel announced on 15 January 2025 (which the incoming Trump administration reportedly brokered) might begin to reverse the disruption. 

However, as Tradewinds has reported, volume is not returning to the Red Sea in earnest. This likely reflects the perception that the ceasefire is tenuous at best (though which continues to hold as at 25 February 2025).  

Doubtlessly aggravating the situation is Trump signalling his intent for US troops to facilitate the relocation of Palestinians out of Gaza to make way for commercial development in the region. Should this result in the collapse of the ceasefire, the Houthis would likely resume attacks on vessels for the foreseeable future, with carriers doubling down on passage via CGH in the medium-term.

As Lloyd’s List reported, equities in container shipping groups have surged in the last month (albeit with some subsequent if modest corrections in the past week). This likely reflects investor confidence in carriers maintaining rate surcharges, which supports earnings and profitability. Whether this is sufficient to offset other deflationary factors such as tariffs remains to be seen.

Russia-Ukraine

Trump’s unilateral move to invite Russia to the negotiating table has sent shockwaves through the EU and other NATO allies. Notwithstanding the geopolitical implications, should the US effectively strongarm Ukraine into a deal which may benefit Putin’s Russia, cessation of hostilities is likely to impact container shipping, albeit indirectly.

A ceasefire may eventually open the door to the lifting of sanctions against Russian entities, which targets the export of crude and refined oil products, often through sanctions on their carriage. Should the “shadow fleet” come back into the light, this should feed through to lower bunker prices for all shipping sectors including containers. No doubt shippers would expect a discount on bunker rates to feed through on freight rates, something which the contract market would also reflect in due course.

The Panama Canal

Trump has taken aim at the Panama Canal Authority and the Panama Ports Company over perceived ties to the Chinese state and the notion that American-owned vessels ought to transit through the canal at favourable (or free) rates. Trump has publicly entertained the US retaking control of the canal and has refused to rule out the use of military force in doing so.

The rhetoric surrounding the canal’s control (though possibly calmed since concessions were made to the US on free naval vessel passage in early February this year) comes off the back of increased volume through the canal, which was down in 2023 and 2024 due to droughts impeding the passage of vessels through the neo-panamax locks.

While it is difficult to fully imagine the consequences of the US government retaking control of the canal, should this happen, it is feasible that non-US owned vessels may have to pay additional fees, which would be passed onto shippers, thereby driving up container freight rates.

Key Takeaways

As with any single factor, it is impossible to attribute any rates movements now or in the future solely to Trump, be it from tariffs, interventions in hostilities or otherwise.

Taken in the round, there are a matrix of competing forces on container rates. Of course, the essence of the “Trump effect” is that only Donald Trump knows what Donald Trump will do, and his administration is still in its early days.

Just last week, Trump’s Secretary of Commerce, Howard Lutnick, raised the possibility that all foreign-flagged ships calling at US ports may be subject to additional taxes. Separately, on 21 February, US Trade Representative Jamieson Greer announced the administration’s intention to levy additional fees against operators of Chinese-built container vessels amounting up to US$ 1.5m per call at US ports. Such moves, whether if enacted separately or together, would introduce further costs and uncertainty, though the full extent and scope of the measures remains uncertain.  

The best carriers and shippers can do is plan for a range of scenarios. This uncertainty makes the use of index-linked container contracts in freight agreements increasingly appealing, as it grants both carriers and shippers a degree of assurance.

Jake Rickman, Trainee Solicitor, assisted in the preparation of this briefing.