Supply chain double whammy looms for U.S. economy in early 2025

Uncertainty among U.S. shippers is intensifying through 2025 with the expectation of new tariffs from Trump and the possibility of a new port strike that could begin in mid-January.

Supply chain and logistics executives told CNBC that shippers are now trying to manage issues that might arise in the global supply chain and how much inventory to order. This comes against a backdrop of consumption that remains strong but subject to macroeconomic risks and an early start to the Lunar New Year, a holiday period in Asia during which manufacturing activities stop for up to a month .

In a notice to its customers, Honor Lane Shipping said it did not expect volumes to rise in November as it took two to three weeks for production cycles to adjust, but initial loading could start in the first half of December, he writes. He added that the implementation of new tariffs could, however, be delayed and push frontloading to a later date in the first half of 2025.

The new rates could be in effect no sooner than late February or early March, according to a CH Robinson alert to customers. “With continued port labor uncertainty and the possibility of a rate increase in the first quarter, shippers should expect a strategic pull of inventory out of Asia, which would impact both in international freight markets and in some domestic freight markets (e.g., Southern California),” he wrote.

But shippers must now decide which coast to send their goods to, given the risk of an International Longshore Association strike at ports from New England to Texas, which could begin in mid-January. Travel time for ocean freight from China to East Coast and Gulf Coast ports is 40-55 days. The deadline for negotiations between the United States Maritime Alliance and the ILA is January 15. Last week, the USMX announced that the ILA had withdrawn from negotiations after an impasse over automation issues.

“Given the short duration of the extended deadline and the contested nature of the automation issue, it is highly likely that this will happen again in January,” said Corey Rhodes, CEO of Everstream Analytics. “The question then becomes how long the USMX will last this time to give in to the ILA’s demands.”

Rhodes said the strategies shippers employ will differ based on inventory management needs. Everstream’s clients include Whirlpool, AB InBev and Danone. He added that making these types of decisions has become part of the typical uncertainty that the supply chain must be prepared to face.

“I was running a high-tech manufacturing plant before I took this position and we were manufacturing across China,” Rhodes said. “We wanted to keep as little inventory on our books as possible, but we needed access to it at very short notice and we were dependent on sub-components from other countries. Managing this complexity was in some ways the key to the game.”

Mike Short, president of global transportation at CH Robinson, told CNBC that the logistics company is receiving various requests regarding front-loading freight, but that may not be feasible if suppliers cannot increase production.

“For those who can and want to ramp up their operations, the reasons are split between the impending second U.S. port strike in mid-January, the Lunar New Year starting Jan. 29, and possible tariff changes,” Short said. “Others are simply trying to determine the timeline: One customer asked when the last day their freight could leave Asia and arrive in the United States was before the new tariffs potentially took effect.”

The congestion that followed the ILA’s three-day strike in October took weeks to dissipate. According to Everstream Analytics, 54 container ships were waiting outside ports on October 4 when the strike ended, up from five ships before the strike began.

“Nearly three weeks after the strike, we saw the backlog clearing at a slower pace than expected and unevenly across all affected ports,” Rhodes said. “While some ports that experienced significant congestion after the three-day strike have already cleared the backlog, such as New York and Houston, others are still facing congestion, particularly Savannah.”

Rhodes said businesses with four to six weeks of inventory were at risk of another supply disruption if a new strike were to last that long.

“Dealing with uncertainties is about more than using inventory,” he said, adding that warehousing and freight shipping costs are critical operational costs that must be considered.

Everstream data shows that stocks are being built within organizations with the means to stock up in anticipation of possible disruptions.

“It can be eye-opening to see how much inventory a company has on its books,” Rhodes said. However, he added that the picture may be incomplete, with some companies not immediately taking possession of the cargo and the bill of lading showing another transport or logistics company as the recipient of the cargo.

Short said that while China gets most of the attention in trade war discussions, the global supply chain and U.S. shippers’ dependence on other countries have grown significantly over the 20 recent years, with the total value of goods imported into the United States increasing by 153%.

“President-elect Trump has indicated that his supply chain policy agenda will focus on “reducing risks” from China and other foreign manufacturing centers, as well as reversing or eliminating renewable energy mandates,” Short said. “This approach would result in higher tariffs on all imported products and potentially much higher tariffs from China.”

Trump’s planned tariff increases on Chinese imports are expected to be between 60 and 100 percent, and between 10 and 20 percent on all other imports. U.S. retail executives are beginning to signal that the tariffs will lead to higher prices for consumers and a slowdown in spending, with Walmart Chief Financial Officer John David Rainey told CNBC on Tuesday that the retailer may have to raise prices on some items if Trump’s proposed tariffs take effect.

Alix Partners advised clients in a recent note to expect higher international and domestic freight rates given the increase in volume. Shipping container rates, for example, rose more than 70% in 2018 after Trump increased tariffs on Chinese imports.

But this price trend may only be short-term, and the long-term outlook “less optimistic,” he writes. “Trump’s high tariffs discourage imports, slowing shipping volumes and, therefore, shipping rates,” the report said.

S&P Global Market Intelligence said Trump’s economic and international policies could lead to a new wave of restructuring of global supply chains.

The U.S. trade deficit with mainland China stood at $287 billion over the 12 months through September 30, 2024, according to a report from S&P Global. This represents a drop of 18.7% since 2021, but it is still the largest individual deficit of any country. S&P Global uses 2021 as a point of comparison since that is the year President Joe Biden took office and also removes any data distortions involving Covid-related factory shutdowns.

There has been an increase in Chinese manufactured goods moving to Mexico under the Trump-brokered USMCA trade deal, a legal backdoor to enter the United States without paying tariffs, which Trump is expected to reconsider during his second term. More companies have also set up operations in countries like South Korea, Vietnam and Malaysia, which could also be subject to tariff measures. Through September, Vietnam’s trade deficit with the United States had increased by 30.6% in the previous 12 months compared to the 2021 level.

According to Chinese customs data, mainland China’s trade surplus with Vietnam increased by 25.1% in the 12 months through September, compared to the 2021 level.. According to S&P Global Market Intelligence, China’s trade surplus with Vietnam reached $11 billion, compared to a US trade deficit with Vietnam of $28 billion. S&P Global warns of increased business risks from Vietnam given its relationship with China.