Tariff 'earthquake' sends global shipping industry into crisis mode

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Global shipping executives gathered this week in Long Beach, California, for a major annual conference, expecting to discuss market trends and supply chain challenges.

Instead, they found themselves in crisis mode.

On Tuesday, President Donald Trump upended decades of mostly free trade with the two biggest U.S. trading partners, slapping 25% tariffs on goods from Mexico and Canada. The White House also layered another 10% duty on China on top of an identical hike a month before.

The move sent shock waves through global trade, igniting fears of recession, skyrocketing consumer prices and logistical chaos. While beefing up tariffs has long been one of Trump’s signature issues, veteran shippers at the S&P Global’s TPM25 conference in Long Beach said they didn’t expect him to follow through so fully.

“It’s like an earthquake,” said Cindy Allen, chief executive officer of consultant Trade Force Multiplier, who spoke on a conference panel about navigating Trump’s second term. “You do your best to prepare, but then when it comes it’s an 8.0 on the Richter scale. It’s a shock,” she said in an interview.

In the latest developments, the Trump administration said Wednesday it would provide a one-month exemption for “any autos coming through USMCA,” the existing U.S. trade deal with Canada and Mexico. But Canada won’t scrap its retaliatory tariffs if Trump leaves any U.S. duties on the country in place, Bloomberg News reported, citing a senior Canadian government official.

Trump has threatened higher tariffs for years, and the possibility of a major increase was universally understood. At the twin ports of Los Angeles and Long Beach — the largest U.S. gateway for Chinese imports — cargo volumes have ballooned in recent months, a sign that importers were moving in shipments ahead of potential trade restrictions.

The pattern is familiar: During Trump’s first term, port traffic spiked as businesses raced to stockpile goods, only to drop once tariffs on Chinese imports started taking effect. Half a continent away, freight rates between the U.S. and Canada have jumped since Trump’s latest election in November, said Dean Croke, an analyst at DAT Freight and Analytics.

“Clearly, shippers have been positioning as much inventory as they can,” he said. “There’s been a real surge in cross-border rate, volume and rate volatility between the two countries and some of the highest rates we’ve seen in a couple of years.”

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Jose “JD” Gonzalez, a customs broker in Laredo, Texas, tried for weeks to sound a similar alarm to customers. But most brushed off his concerns, confident the duties wouldn’t take effect — especially after a previous delay on tariffs for Canada and Mexico just a month earlier.

Then the tariffs kicked in, and the phone hasn’t stopped ringing. One call after another, Gonzalez walked clients through the biggest change in the rules governing trade at the U.S.-Mexican border in his more than 30 years in the business.

What had been a relatively tariff-free world for many of the companies he serves suddenly became one in which they had to scramble to come up with the funds to pay 25% of the value of imports. For many, that meant rushing to do the basics and setting up an account with the US Customs and Border Protection to pay the new import taxes.

“It’s just culture shock,” said Gonzalez, who also serves as president of the national industry association for customs brokers. “Everybody was kind of waiting to see what was going to happen.”

Other companies all across the region are also rushing to adapt in industries from trucking to food — and even the rarefied world of private jets.

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At trucking company Grupo Fletes Mexico, which is headquartered in the border city of Ciudad Juarez and has operations around Mexico, customers are asking for discounts to offset higher costs from the tariffs, said CEO Miguel Gomez.

But with slim margins, he said he can’t afford to say yes. If the tariffs remain in place for long, he said, he may need to lay off some of the company’s 2,600 employees or rethink plans for investment and growth.

“We don’t really have many options to reduce costs,” he said. “There is a lot of uncertainty and instability.”

In Canada, Quebec’s UgoWork, which makes batteries for forklifts, is planning to split the 25% rate with its U.S. customers.

“But at some point, this is not sustainable,” said CEO Philippe Beauchamp. He said he’s considering opening a plant in the U.S., where half of UgoWork’s customers are.

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At Toronto-based Bondi Produce, which distributes fresh fruits and vegetables, vice president of finance Paul Sandhu said the company can’t absorb a cost increase of 25% and will have to pass at least some of it on to customers. Citrus fruits, tomatoes, peaches and berries are among the affected goods.

Bondi also processes produce, importing fruit from the U.S. or Mexico and then selling it to the northeastern U.S.

“I laugh because it’s just mind boggling to think of, but yes, that’s going to be a two-way impact for the end consumer,” Sandhu said.

In the corporate jet business, some would-be U.S. buyers are hitting the pause button, said Greg Raiff, the Miami-based CEO of Elevate Aviation Group, which offers charter flights and advises clients on aircraft purchases.

Spare parts are a huge consideration and that’s prompted potential buyers of jets made by Quebec-based Bombardier Inc. to assess their total cost of ownership, Raiff said. Still, Bombardier has parts distribution hubs in Chicago and elsewhere, and many components are made in the U.S. and aren’t subject to American tariffs, said company spokesman Mark Masluch.

“If you buy an airplane from a Canadian manufacturer, you’re marrying yourself to whatever those Canadian import duties are,” Raiff said. While he was still trying to understand the tariffs’ scope Tuesday morning, he predicted “that’s going to hit business aviation considerably.”

At the TPM25 conference, news of Lutnick’s comments on a possible compromise with Mexico and Canada broke during a session with trade and customs expert Pete Mento. After fielding a barrage of questions from retailers and importers, he ended with some words of advice.

“Panic is very expensive, right? It’s probably more expensive than patience,” said Mento, who is customs and trade director at logistics provider DSV. “The best thing you can do for you, for your customers, for your executives, is to preach calm, not overreacting, no knee-jerk reactions.”

— With assistance from Amy Stillman, Mathieu Dion, Michael Sasso and Melissa Shin.