KUALA LUMPUR: Global shipping costs are expected to remain high next year, with freight rates likely to continue rising due to ongoing challenges in the shipping industry, including US President-elect Donald Trump's tariff threats and the situation in the Red Sea.
CMA CGM (Taiwan) Ltd managing director John Lim noted that the targeted tariffs on China's imports would push the country to seek new markets, leading to a shift in trade routes toward Europe, Southeast Asia, and other regions.
"China's biggest challenge right now is to increase its gross domestic product (GDP). The country is in an overcapacity situation, and that's why the things are so cheap...comparing China's electric vehicles (EV) and Elon Musk's EV, China's EV is cheaper.
"Raising the tariff–does that mean China produce less? It doesn't make sense for them to produce less. So in an overcapacity situation, where do you think China will go? If they cannot ship as much to the United States (US), they will turn to Europe. If Europe also raises tariff, then the Middle East, Southeast Asia, and Latin America, definitely. That's why you're seeing a lot of movements (in trade flows)," he told a session discussing issues affecting freight, container and bulk shipping.
The session was held in conjunction with the two-day Asian Maritime Law and Business Conference which ended last Friday.
Trump had on Nov 26, pledged big tariffs on the US' three largest trading partners - Canada, Mexico and China.
The President-elect separately outlined "an additional 10 per cent tariff, above any additional tariffs," on imports from China and pledged to revoke China's most-favoured-nation trading status and impose tariffs exceeding 60 per cent on Chinese imports—significantly higher than those from his first term.
Lim also said that retailers in the US are expected to quickly frontload their inventories to the States before the tariffs are imposed.
Regarding the situation in the Red Sea, Lim said that the continuation of geopolitical tensions would result in longer shipping voyages.
"Ships and vessels are forced to go around the Cape of Good Hope, which has taken out maybe about 1.2 million twenty-foot equivalent units (TEUs) from the container supply.
"Travelling around it takes about 14 days each way, so, that's about two to four weeks. Normally, container shipping operates on a weekly schedule, that means four vessels are taken out for every round trip," he added.
It was reported that attacks on vessels in the Red Sea area reduced traffic through the Suez Canal, the shortest maritime route between Asia and Europe, through which about 15 per cent of global maritime trade volume normally passes.
The issues have caused the average transit time between Asia and the Mediterranean to increase by 39 per cent, while exacerbating port congestion in major Asian and European ports. This has strained shipping capacity and could potentially lead to shortages.
Discussing the situation from an insurance point of view, Singapore-based OM Maritime Pte Ltd executive director Singapore Captain Subhangshu Dutt said shipping companies have to pay a higher insurance premium due to the crisis.
"The insurance level varies with the threat level…if yesterday there was an attack, today the premiums will rise.
"If a ship's crew agrees to operate in high-threat areas, they typically receive at least five days of extra pay, though many negotiate for more. If the crew refuses, shipowners must bear additional costs for training, flying in replacements, and maintaining salaries," he added.
He pointed out that at the height of such threats, operating a small ship in these conditions could cost up to a quarter-million US dollars.