Missiles, Tariffs and Christmas

•    The global supply chain is once again showing signs of strain as spot container rates are up 117% since early May.1,2 

•    Geopolitical tensions3 in the Red Sea have forced shippers to route around the horn of Africa, adding 4,000 miles and a significant delay to transit times, which can cause companies to over-order as they look out to the holiday season, compounding the problem.4

•    The specter of additional tariffs5 floated by former President Trump may also cause some firms to order early to front-run any new taxes.4

In January 2024, the Red Sea Shipping Crisis had caused container rates to more than double in a single month.⁶ Since then, 143 attacks have been recorded in the Red Sea and the Gulf of Aden (the body of water on the other side of the Suez Canal), causing ships to reroute around the Cape of Good Hope, adding 4,000 miles to their journey.^7,4Container rates steadily declined from February through April, even as the Houthis averaged 26 attacks per month. However, an increased number of containers at sea due to the longer transit times combined with higher-than-expected demand and bad weather in East Asia caused rates to turn a corner and march back up in May.¹⁰ Redoubled Houthi attacks in June, including one attack that sunk a bulk carrier and killed a sailor, added to the pressure and container rates continue to climb as of this writing.¹¹It’s important to note that the Shanghai to LA shipping route doesn’t require transit through the Suez Canal—the route traverses the Pacific. The interconnected nature of supply chains means that disruptions in one area often spill over into another, especially in such heavily trafficked routes. We should also note that major carriers move most of their cargo under long-term contracts, so these spot rates don’t apply to every container. However, these contracts often have escalation clauses that allow for additional surcharges when space onboard gets tight, and the longer spot markets stay elevated the greater the risk of contract renegotiations at higher rates.¹⁴

Although high prices do normally (eventually) cure high prices, the short-term effect can actually be a rightward shift in the demand curve, as concern over shipping delays and climbing container rates may cause some retailers to accelerate order schedules as they look ahead to the holiday season.^4,14

Additional pressure may come from importers attempting to front-run tariffs floated by former President Trump. While the full extent of the proposed tariffs will almost certainly not go into effect (60% tariffs on all Chinese imports would be devastating for the US consumer), the rhetoric to this point implies that, should he win, Trump will continue to expand the protectionist policies he implemented in his first term and his successor carried forward.¹⁵

These upward pressures on shipping costs risk reversing some of the progress the US has made on inflation, though probably at a several-month lag. As importers face increased costs, they may pass these costs on to consumers.¹⁶ While recent declines in headline inflation rates give use some breathing room, an uptick may cause the Federal Reserve (the Fed) to push rate cuts further out. Supply chains certainly aren’t as stressed as they were during the COVID-19 pandemic, but persistent disruptions in a major shipping lane can have a cascading impact. For this reason, the situation in the Red Sea bears monitoring, especially as markets hold their breath for a policy shift from the Fed.

Important Disclosures & Definitions

1 Source: Bloomberg, Time period: 05/02/2024 – 07/11/2024 

2 Based on the Drewry World Container Index (WCI) Composite Index (WCIDCOMP): reports the volume-weighted average of eight shipping routes (Shanghai – Rotterdam, Rotterdam – Shanghai, Shanghai – Genoa, Shanghai – Los Angeles, Los Angeles – Shanghai, Shanghai – New York, New York – Rotterdam, Rotterdam – New York), all referencing a 40 ft. container. 

3 A euphemism for “missiles.”

4 Baertlein, L. (July 15, 2024). US importers balk at return of $10,000 container shipping rate. Reuters. 

5 Stein, J. (January 27, 2024). Donald Trump is preparing for a massive new trade war with China. Washington Post. 

6 Source: Bloomberg. Time period: 12/21/2023 – 01/25/2024 (weekly time series). $1,661 - $3,964. See footnote 2 for source index. 

7 Data source for comments related to the number of Houthi attacks: Armed Conflict Location & Event Data (ACLED). (n.d.). Yemen Conflict Observatory (YCO) Red Sea Attacks Dashboard. Data as of July 16, 2024.

8 Suez Canal (South>North) Container Ship Crossings Index (TRSSCTCT): reports Bloomberg’s estimated number of vessels (7 day rolling total) passing through the Suez Canal from South to North.

9 Cape of Good Hope (East>West) Container Ship Crossings Index (TRCECTCT): reports Bloomberg’s estimated number of vessels (7 day rolling total) passing through the Cape of Good Hope from East to West.

10 LaRocco, L. A. (May 31, 2024). Sudden container crunch sends ocean freight rates soaring, setting off Global Trade Alarm Bells. CNBC.

11 Gambrell, J. (June 20, 2024). Ship attacked by Yemen’s Houthi rebels in fatal assault sinks in Red Sea in their second sinking. AP News. 

12 Drewry World Container Index (WCI) Shanghai to Los Angeles Index (WCIDSHLA): reports spot container freight rates per 40 ft. box for the Shanghai to Los Angeles shipping route. 

13 Drewry World Container Index (WCI) Shanghai to Rotterdam Index (WCIDSHRO): reports spot container freight rates per 40 ft. box for the Shanghai to Rotterdam, Netherlands, shipping route.

14 Goodman, P. S. (June 24, 2024). 'It’s All Happening Again.' The Supply Chain is Under Strain. The New York Times.

15 Reuters. (May 14, 2024). Trump says US China tariffs needed on other vehicles, products. Reuters.

16 J.P. Morgan. (February 8, 2024). The impacts of the Red Sea Shipping Crisis. J.P. Morgan.

AAI000728  07/23/2025