[Freightos Weekly Update] Mexico increases trade barriers for Chinese imports

Key insights:

1. Ocean rates out of Asia overall trended up slightly to end the year, but with Lunar New Year approaching and a range of January transpacific GRIs announced, prices could face upward pressure to start 2025.

2. A seasonal decrease in demand post-LNY should see rates decline, though Red Sea diversions will keep them elevated well above normal.

3. For the transpacific, pre-LNY demand will be stronger and the post LNY dip likely less pronounced than usual as many US shippers continue to frontload ahead of expected tariff increases.

4. Mexico has raised tariffs on apparel imports from China to as high as 35% and essentially closed the INMEX duties exemption for pass-through imports of certain textiles and apparel, challenging importers using Mexico as a lower-cost channel to the US market.

5. Transpacific air cargo rates eased to $5.67/kg last week from highs of around $7.00/kg earlier in December as peak season for air comes to an end. China - Europe prices came down to about $4.25/kg after surpassing $5.00/kg earlier in the month and transatlantic rates fell to $2.30/kg from an early-December high of $3.16/kg

Ocean rates - Freightos Baltic Index:

• Asia-US West Coast prices (FBX01 Weekly) increased 8% to $4,825/FEU.

• Asia-US East Coast prices (FBX03 Weekly) increased 3% to $$6,116/FEU.

• Asia-N. Europe prices (FBX11 Weekly) increased 4% to $5,155/FEU.

• Asia-Mediterranean prices (FBX13 Weekly) fell 4% to $5,471/FEU.

Air rates - Freightos Air index

• China - N. America weekly prices decreased 3% to $5.67/kg.

• China - N. Europe weekly prices fell 13% to $4.28/kg.

• N. Europe - N. America weekly prices fell 16% to.$2.30/kg.

Analysis

Ocean rates out of Asia overall trended up slightly to end the year, but with Lunar New Year (LNY) approaching and a range of January GRIs announced for the transpacific, container prices on these lanes could face upward pressure to start 2025. A seasonal decrease in demand starting later in February should see rates ease on the ex-Asia lanes, though Red Sea diversions will keep them elevated well above long term averages just as they were through 2024.

Pre-Lunar New Year demand will combine with higher than normal volumes for this time of year into the US. And the post LNY dip in volumes will likely be less pronounced than usual too as many US shippers continue to frontload ahead of expected tariff increases, with this pull-forward already reflected in record November volumes at the port of Long Beach.

Since the 2017 start of the US - China trade war, Chinese imports to the US have fallen while Mexican imports increased. But at the same time, Chinese investment in and trade with Mexico surged. And with Mexican tariffs usually lower than US duties, the USMCA facilitating low-barrier trade between Mexico and the US, and the INMEX program allowing many imports destined for the US to enter Mexico duty-free, many of these Chinese imports were arriving in Mexico as a channel to the US market.

Last week though, Mexico’s President Sheinbaum signed an act that immediately raised tariffs on apparel imports from countries including China to as high as 35%. The act will also essentially close INMEX to certain categories of textiles and apparel, challenging importers who had relied on these methods to reduce their exposure to US duties, including e-commerce sellers for whom INMEX was key to their decisions to import via Mexico. In January, the government will also start enforcing stricter reporting requirements for B2C e-commerce imports.

In other recent trade war-related developments, Panama rejected President-elect Trump’s recent accusation that China exerts control over the Panama Canal.

Volume strength relative to last year, together with Red Sea-driven capacity reductions kept 2024 transatlantic container rates above the loss-making lows seen in 2023, with prices around the $2,500/FEU level since October. Though rates dipped 10% last week, carriers are announcing January disruption surcharges for this lane in anticipation of a possible mid-month ILA strike. A prolonged strike would cause congestion and disruptions that could put additional upward pressure on East Coast lanes in January.

In air cargo, Freightos Air Index data show that transpacific rates eased to $5.67/kg last week from highs of around $7.00/kg earlier in December as peak season for air closes. China - Europe prices came down to about $4.25/kg after surpassing the $5.00/kg level earlier in the month and transatlantic prices are down to $2.30/kg from an early-December high of $3.16/kg.