A protracted U.S.-China trade war and additional tariff increases threaten business conditions for trucking, an industry already showing signs of slowing.
Trucks are the main transportation for most foreign goods arriving at the large West Coast ports in Los Angeles, Long Beach and Oakland. Higher tariffs mean fewer ocean shipments, less port activity and the need for fewer drivers to haul that freight to distribution centers.
PresidentDonald Trump raised tariffs to 25 percent from 10 percent on $200 billion of Chinese imports to take effect June 1.
“The U.S. economy is going to slow down, and that is going to spill over into trucking,” Ryan Sweet, director of real-time economics for Moody’s Analytics, told Trucks.com.
Up to 7 percent of container volume coming from China could be affected by the tariffs, according to DAT Solutions, which tracks freight prices.
“Pending orders for new trucks could be canceled if the tariffs remain in place through the end of the year,” said Avery Vise, vice president of trucking research at FTR Transportation Intelligence.
“The more uncertainty, the less excited carriers get about committing to equipment,” Vise said.
SLOWING FREIGHT GROWTH
Motor carriers added to their fleets last year to take advantage of a robust economy. A reduction in business taxes provided the funds to place record orders for new trucks.
“Things driving freight growth like the tax cut are starting to abate,” said Kenny Vieth, president of ACT Research.
Although freight demand is still rising in some sectors of trucking, rates are falling. Freight carried in conventional trailers rose 2.4 percent in April compared with the same month a year earlier, according to DAT Solutions. But the rate fell 35 cents to $1.81 per mile year over year because more trucks were available. That gave shippers leverage in negotiating lower prices.
WEST COAST PORTS
The near- to mid-term impact of higher tariffs is predictable, especially at West Coast ports, Sweet said.
“As the economy slows down, trucking is going to feel it because businesses hunker down and cut back on investment and production and lay off workers,” he said.
The tariff increases originally were targeted for Jan. 1. That led Chinese exporters to rush shipments planned for this year into the last three months of 2018 so they could avoid paying the higher tariffs.
Companies held extra inventory at port parking lots while waiting for trucks that could move it to distribution centers, said Erik Malin, vice president of operations for Loadsmart. Loadsmart prices and books truckload shipments.
A lot of the inventory from those shipments is still in warehouses near the ports. Trucks moving those goods this spring will help offset the impact of the higher tariffs, said Eileen Hart, a DAT spokeswoman.
THE NEXT ROUND
The most widely purchased products Americans buy from China — clothes, shoes, toys and electronics – are part of $300 billion in goods on a proposed list for yet another round of higher tariffs. But companies are unlikely to rush shipments of those goods to beat proposed higher tariffs.
“Shippers may decide not to tie up cash in extra inventory this time around, especially with it being the slow season,” Malin told Trucks.com.
Cargo ships that left China by May 10 can pay the 10 percent tariff on their loads. Later shipments will pay the 25 percent tariff.
SHIFTING SUPPLY CHAINS
Imports from European countries initially would pick up the slack from fewer shipments from China, Vise said. Small markets in Asia cannot match the volume of Chinese exports, at least not right away.
More shipments to the ports of New York and New Jersey could be good for trucking because they are close to major Midwest markets. Many cargo containers arriving in the West travel the greater distance to the Midwest by rail.
Editor’s note: An earlier version of this story incorrectly identified Erik Malin.