Donald Trump returned to the White House this week and, perhaps unsurprisingly, raised more questions than answers about his America First policy toward trade and import tariffs.
Below, Xeneta Principal Analyst Peter Sand shares his advice on how shippers can mitigate geo-political risks through an ocean freight tendering strategy that keeps supply chains moving while also managing spend.
What did Trump say?
On the day of Trump’s inauguration on Monday, he said he was “thinking about” imposing a 25% tariff on imports from Mexico and Canada on February 1.
He did not immediately follow through on campaign promises of 60% tariffs on goods from China and 10-20% from the rest of the world, but instead ordered an investigation into “trade deficits and unfair trade practices and alleged currency manipulation by other countries’.
How serious is the risk?
Xeneta data shows the last time Trump raised tariffs on Chinese imports during the trade war in 2018, average spot rates rose more than 70% on the critical trade from China to the US West Coast.
Current spot rates from China to the US West Coast stand at USD 5,104 per FEU. This is 24% higher than 12 months ago, mainly due to the impact of conflict in the Red Sea. If rates increase by the same magnitude as they did in 2018, the market will reach an all-time high, surpassing the previous record set during Covid-19.
On the other hand, the tariff regime may not turn out as harsh as feared, while the potential for a full-scale return of container ships to the Red Sea will cause overcapacity to flood the market and collapse rates.
This demonstrates the extreme ends of the scale of uncertainty facing shippers in 2025. Previous rules on freight procurement no longer apply.
You have to think differently.
How can shippers tender against this backdrop of uncertainty?
Stay calm and don’t do anything that limits your options.
You can’t base your freight sourcing strategy on political rhetoric. We know tariffs on US imports are coming, but we don’t know when, where or which goods will be affected.
More and more shippers are using index-linked contracts to manage this unpredictability, whereby the rate paid follows the market at agreed thresholds.
For example, if freight rates rise due to Trump announcing tariffs against China, the rate the shipper pays increases at a pre-agreed threshold. On the other hand, if the recent ceasefire agreement in the Middle East sees a large-scale return of ships to the Red Sea and the market collapses, the rate the shipper pays will drop.
In both scenarios, the shipper can benefit. In a falling market, they don’t want to be locked into a long-term contract that pays above the odds. Even in a rising market, if their contract rates are too low, they risk cargo rolling – as we saw during 2024 in the wake of the Red Sea crisis.
This strategy aims to maintain as much control as you can in a world of chaos. It also helps procurement staff explain internally to the CFO and the broader executive team why freight spend is fluctuating by millions of dollars (up or down) against budget.
What if my business is not ready for an index-linked contract?
You can insert a clause in your new long-term agreement, linked to Xeneta data, that will trigger a renegotiation if the market rises or falls by an agreed percentage or USD amount.
Although this requires manual renegotiation rather than the automatic adjustments in a full index-linked contract, it is still a sensible option that provides peace of mind that the service provider must return to the table if circumstances warrant.
What else can shippers do?
In the short term, you can front-load imports ahead of tariffs – as we know some shippers did in 2024, initially in response to the Red Sea disruption and more later to deal with the tariff threat. But it costs money in terms of shipping goods at increased freight rates, warehousing costs and bloated inventory that ties up working capital – and we still don’t even know if the goods you preload will be within the range of the rates you’re guarding against.
You may also decide to reduce the Minimum Quantity Commitment (MQC) in your new long-term contract and move more boxes on spot rates until you have a better view of how the market will develop.
However, will you have more certainty about these geo-political factors in a few months? Probably not.
Geo-political risks, both known and emerging, will continue to cause carnage. You need a procurement strategy anchored by data and market intelligence so you can effectively manage supply chain risk and freight spend today, tomorrow, next month, next year and beyond.
