An interview with James Hookham, director of the Global Shippers Forum

Shippers have arguably never been confronted with such a succession of crises in recent years, resulting in severe disruptions to supply chains – the COVID pandemic, the war in Ukraine, the Houthi attacks on ocean shipping in the Red Sea, and most recently, Donald Trump's mission to ‘rebalance’ international trade.

In an interview with AJOT, James Hookham, director of the UK-based Global Shippers Forum (GSF) - a grouping of national shippers’ associations- assesses the impact of the U.S. President’s 'tariffs on-tariffs off' policy and the change to the de minimis rule. He also shares his views on whether China’s role as the workshop of the global economy can be significantly reduced, while offering advice to shippers operating in a trading environment in a state of flux.

AJOT: Trump increased tariffs on Chinese goods to 145% in early April, only for him to backtrack around a month later with a 90-day ‘truce’. What effect has this had on trade flows?

James Hookham: Volumes had already plummeted after the first wave of tariffs announced in February. This triggered a mass cancellation of trans-Pacific sailings by container shipping lines.

The subsequent three-month ‘truce’ has since led to an uptick that could grow into a rush. Ultimately, this will depend on the type of goods being imported, their competitiveness in the U.S. marketplace at the new tariff price (where this is passed on) and the interchangeability of suppliers and the availability of alternatives at the required specification/quality. So, each business needs to assess this on a product-by-product basis – there will be no single market response.

We are now approaching the traditional peak season in shipping demand in North American and European consumer markets, driven by Halloween, Thanksgiving, Black Friday, Cyber Monday, and Christmas. In previous years, orders for the production of these goods were typically placed in Q1, for manufacture during Q2, shipment in Q3, and for sale in Q4. The wave of tariff announcements will have disrupted that process, and the quandary is whether the current tariff levels will be held, dropped, or escalated following negotiations. Good luck making that call!

AJOT: So, could there be a squeeze in trans-Pacific shipping capacity given that many services were cancelled in the 2 April ‘meltdown’?

James Hookham: Ships were re-rostered to other shipping lanes during Q1, and it may take a month or so for the required capacity to be redeployed. To add spice to the mix, most Transpacific carriers have also announced a series of General Rate Increases (GRIs), effective 1 June to capitalize on the strained market. I don’t think it will be Summer 2020 again ($20,000 per box to cross the Pacific!), but the scenario of dramatic capacity withdrawal followed by sudden return of demand like we saw during the COVID lockdown, is shaping up. GSF will be monitoring the market carefully over the next few weeks.

Then there is the capacity of US West Coast ports to handle a sudden surge, and for truckers and railroads to shift it inland. Let’s hope the lessons of 2020-21 have been learned.

AJOT: Do you share the view expressed by some forwarders that before the tariff truce a number of ex-China shippers had been swift in establishing alternative sourcing origins in south-east Asia and the Indian sub-continent?

James Hookham: There has indeed been a growing trend in re-locating the production of Chinese goods to other countries deemed to be more ‘politically-friendly’ to the U.S. This was encouraged under the first Trump presidency and perpetuated by President Biden. However, Chinese exporters, reading the writing on the wall, followed the money and set up production in these so-called friendly countries. U.S. importers were buying the same stuff from the same Chinese supplier operating through a third-country affiliate or agency.

The ‘China +1’ strategy turned out in many cases to be ‘China +China-abroad’. This was a reason why the Liberation Day tariffs on 2 April were applied to so many countries. They targeted supposedly ‘friend-shoring’ countries with tariffs almost as high as China itself (before the tit-for-tat escalation in the following days). India was not so much a target [although the Trump administration has in retaliation for Apple moving production to India has said it will boost tariffs there], unlike Vietnam, Indonesia and Thailand.

It remains an open question whether production of these goods, be it in China or Southeast Asia, would ever be relocated to the U.S., as exhorted by President Trump, given the difference in costs this would entail.

AJOT: Should we expect 'friend-shoring' to gather momentum in the coming years?

James Hookham: The scope of the ‘Liberation Day’ tariff announcements shredded the concept of ‘friend-shoring’ for U.S. importers. Indeed, that started on 1 February with the alienation of Canada and Mexico. All bets are off until the purpose and outcome of the current administration’s trade policy are clarified. Shippers will probably wait for a settled US policy, confirmed by the Senate, given the unreliability of recent announcements, and could even put off a decision until after the next Presidential election in 2028. These are big, expensive, long-term decisions for businesses!

AJOT: Regardless of what the endgame might be on tariffs, does the future lie in shippers being far less dependent on China as a source of production?

James Hookham: Probably only for as long as the current ‘trade hostilities’ continue. President Trump recently described the tariff hike pause with China as ‘a complete reset in trading relations’. That could mean China becomes an acceptable supplier again, maybe not. It could be worse, or it could be better than ever. At the moment, no one knows!

In the end, dependence on China will come down to microeconomic considerations for each importer. Many U.S. and European businesses have long and trusted relationships with Chinese suppliers, so there will be loyalty factors, as well as some highly-prized skills and IP rights only available in China. I have long doubted the ability or willingness of businesses to just abandon China, despite the exhortations of politicians. It will take more than a ‘tariff tantrum’ to undo three decades of globalization.

AJOT: What has been the impact so far of the change in the U.S. deminis rule for low-value packages from China?

James Hookham: This has only affected Chinese imports valued at less than $800 and was reduced earlier this month to the same 30% tariff as other goods. Again, many imports will still be price-competitive even after tax and duty, but not all of them, and there has been a drop-off in air freight shipments ex-China, as the market finds a new level.

The long-term effect will be better understood once the big trading websites are updated to reflect the ‘Delivered Duty Paid’ price (where the exporter or more usually their U.S. agent or broker, often their U.S. courier company, pays the tariff on their behalf. Or they show that the buyer pays the additional 30% on the doorstep.

AJOT: Lastly, a word of advice to shippers navigating through the current turbulence and upheaval?

James Hookham: We are in the age of ‘compound disruption’ - like interest on investments, the effects are cumulative, year on year, but not in a good way! The way ‘disruptions’ manifest themselves to shippers is that goods are not available when they were expected, and there are then customers or consumers downstream to inform/placate/compensate, or disappoint, and this takes extra management time and additional resources. Shirk these responsibilities and you will be out of business rather quickly.

Visibility of inventory is therefore essential, in order to provide updated delivery estimates and avoid the costly double-ordering we saw during COVID. Switching to digital systems for handling trade documentation, booking procedures and tracking systems would be the big, meaningful way that shippers can build resilience into their supply chains right now.