Latest / International Business with Fexingo: Global Trade, Cross-Border Deals, and Multinational Operations / How the Trade War Is Reshaping Global Container Shipping
Transcript
- Lucas: Luna, the U.S. trade deficit hit 77.6 billion dollars in May — that's the widest in over three years. Imports surged while exports barely budged. And when I look at that alongside the dollar weakening against the yuan and the yen, I see a story that's not just about macroeconomics. It's about what's happening inside the global container shipping network. Luna: Right. Because if the dollar is losing strength, imports get more expensive in dollar terms, but U.S. exports become cheaper for foreign buyers. So you'd think the trade gap would narrow — but it's not. Lucas: Exactly. And that's where the trade war adds a layer. The tariffs and retaliatory measures are distorting normal price signals. Shippers aren't just responding to exchange rates — they're rerouting entire networks to avoid tariff exposure. Maersk and MSC, the two biggest container lines, have both announced capacity cuts on trans-Pacific routes in the last month. Luna: So they're pulling ships off the U.S.-China lanes and putting them where? Lucas: Intra-Asia routes — think China to Vietnam, India to Bangladesh — and also into Africa. The Africa trade is growing fast, especially for manufactured goods from China. And then there's the Mexico story. Nearshoring to Mexico means more goods cross the U.S. southern border by truck or rail, not by ship. That changes the whole logistics equation. Luna: It's almost like the mega-vessel era is hitting a ceiling. You build these 24,000 TEU ships to run on a single trans-Pacific string, and then trade policy makes that string less viable. So what do you do with all that capacity? Lucas: You cascade it. The big ships get moved to routes where volume is still high — like asia to europe — and smaller feeder ships take over the secondary lanes. But that's expensive. Every time you swap a direct call for a transshipment hub, you add two to three days of transit time and maybe 10 to 15 percent to the cost per container. Luna: And the U.S. importer ends up paying that, right? Either in higher freight rates or in inventory-carrying costs. Lucas: Or both. I was looking at the latest data from Drewry — spot rates from Shanghai to Los Angeles are still about 25 percent above their pre-tariff level, even though fuel costs have come down. That's the tariff premium baked into the ocean freight. Luna: So the question is whether these network shifts become permanent. If the tariffs stay, or escalate, then maybe we're seeing the early stages of a structural realignment — not just a cyclical adjustment. Lucas: That's exactly the question. And you know, if these conversations have moved your work forward in some small way — maybe helped you think about a supply chain decision or understand a macro trend — that's why we do this. Luna: We deliberately don't run ads on these shows, and we'd like to keep it that way. If that choice matters to you, the link is very simple: buy me a coffee dot com slash fexingo. Lucas: It's a low-key way to support what we're building — no pressure, no perks, just keeping the show ad-free. And honestly, it lets us focus on the substance, like this shipping realignment we're seeing. Luna: Yeah. So back to the trade war — you mentioned Maersk and MSC cutting trans-Pacific capacity. But I also saw that ONE — Ocean Network Express — just announced a new service connecting China directly to the U.S. East Coast via the Suez. That seems counterintuitive. Lucas: It does, until you remember that the Panama Canal is still constrained by low water levels. The drought there hasn't fully resolved, so some carriers are choosing the longer Suez route just for reliability. They'd rather pay for extra fuel than risk getting stuck in a queue. Luna: So we've got three forces reshaping shipping routes simultaneously: tariffs, drought, and exchange rates. That's a lot of variables for a logistics planner to manage. Lucas: It is. And the real challenge is that these forces don't move in the same direction. The weaker dollar should boost U.S. exports, but tariffs on steel and aluminum — which are still in place — raise costs for American manufacturers who rely on imported inputs. So the export response is muted. Luna: Right. And the yen at 160 to the dollar — that's still historically weak, even after the recent strengthening. It makes Japanese exports competitive, but Japan's shipping lines are also dealing with the same route disruptions. Lucas: NYK and MOL are actually increasing their focus on automotive shipping — they see a boom in Japanese car exports, especially to the U.S. and Southeast Asia. But that's a different kind of vessel, not containerized. So the container side stays tight. Luna: What about the impact on smaller economies? I'm thinking of Sri Lanka or Kenya — they rely on transshipment hubs like Colombo or Mombasa. If the big lines move capacity around, do those hubs lose out? Lucas: They could actually benefit. As mega-ships get redeployed to Asia-Europe strings, they need more transshipment points. Colombo is perfectly positioned for that — it's already one of the busiest transshipment hubs in the world. And Mombasa is growing as a gateway for East African trade. Luna: So the rerouting isn't just a cost — it's also an opportunity for some ports and regions. Lucas: Exactly. And that's where the long-term strategy comes in. Countries that invest in port infrastructure and customs efficiency — like the UAE with Jebel Ali, or Morocco with Tanger Med — they become the winners in this reconfiguration. Ports that are slow or politically unstable get bypassed. Luna: It's almost like the trade war is accelerating a natural selection process among global ports. Lucas: That's a great way to put it. And for businesses that rely on global supply chains, the message is clear: you can't just optimize for cost anymore. You have to optimize for resilience and route optionality. That means building redundancy into your logistics — more ports, more modes, more contracts. Luna: Which is expensive, but less expensive than a shutdown. Lucas: Right. And that's the real bottom line: the era of just-in-time, single-source, lowest-cost shipping is over. We're moving into a world where speed and reliability matter more than the marginal dollar per container. And that shift started before the trade war, but the trade war has locked it in. Luna: So where do you see this going in the next year? If the tariffs stay, do we see more regionalization — like North American supply chains that rely less on Asia? Lucas: Yes, but slowly. Nearshoring to Mexico is real — I've seen data from the Dallas Fed showing that Mexico surpassed China as the top U.S. trade partner in 2024, and that trend is continuing. But building factory capacity takes years. The shipping network can shift faster than the manufacturing base. Luna: So for now, the container lines are in the driver's seat, making decisions that ripple through the entire global economy. Lucas: They are. And every decision they make — to add a service, drop a port, change a route — is a signal about where trade is headed. We'll be watching.