US tariffs could help undo solid start to 2025 for ocean carriers

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Ocean carriers will report a strong first quarter due to elevated rates on the trans-Pacific and Asia-Europe trades that were significantly higher compared with the same period last year, analysts say.

But the outlook for the rest of the year has become clouded given the impact of US tariffs, retaliatory tariffs, slowing demand and rising capacity in an oversupplied container shipping market.

Carriers will report their first-quarter financial results over the next few weeks, with the earnings likely to be buoyed by strong demand on the trans-Pacific and high rates on both the Asia-US and Asia-Europe trade lanes. That was evident in Cosco Shipping Holdings’ estimated first-quarter earnings released this week that show a highly profitable result.

It looks to be downhill from here, however. J.P. Morgan analysts are expecting full-year profitability guidance cuts to be made by carriers “across the board” based on a weakening demand outlook and the backdrop of US tariffs.

“The high fourth-quarter 2024 freight rate will have supported a solid start of the year for EBIT [earnings before interest and taxes], but the environment has rapidly deteriorated throughout the first quarter, with the Shanghai Containerized Freight Index down 18% quarter over quarter and expected market volume growth of around 3%,” the bank’s transportation analysts wrote in a market update this week.

Tariff uncertainty has already caused cargo bookings on vessels leaving Asia for the US over the next few weeks to plummet as importers place a hold on China factory orders until greater clarity emerges.

Befitting the chaos that has marked the on-again, off-again nature of the tariff rollout, President Donald Trump on Wednesday announced he was lowering the widely varied “reciprocal” tariffs on all countries — except China — to a 10% baseline for 90 days. And in what has become a near-daily escalation of the trade war with Beijing, Trump said he was again raising tariffs on goods imported from China, this time to 125%.

The wait-and-see approach from US importers on the eastbound trans-Pacific has as yet not caused any significant movement among various spot rate indexes. Data from rate benchmarking platform Xeneta shows average spot rates from China to the US West Coast at $2,886 per FEU as of Thursday, essentially flat since a general rate increase April 1. The Asia-US East Coast rate has also been flat since April 1 at $3,861/FEU.

It was a weaker picture on China-North Europe where the rates have been falling since late December and are down 55% at $2,250/FEU; China-Mediterranean rates have followed a similar path, down 50% since Dec. 31 at $2,955/FEU.

Recession threat looms

Sea-Intelligence Maritime Analysis CEO Alan Murphy said when tariffs, demand and supply were considered, the problem was whether the world was heading into a wider recession and how that will impact the container shipping market.

“The baseline outlook for world demand is for growth of around 3.2%, matching the GDP outlook, but that was from before the tariff war was launched this past week,” Murphy said.

“Whether the tariff war becomes as severe as the financial crisis — when global demand fell 9% year over year — is still entirely unknown, but even if the impact was half of the financial crisis, this would tip the global supply/demand balance away from a strong 2025 peak and into overcapacity,” he added.

The vessel capacity on order is now at 28% of the current fleet at 8.6 million TEUs, according to Sea-web, a sister company of the Journal of Commerce within S&P Global. Demolition data from Sea-web shows just 2,379 TEUs of capacity are set to be scrapped this year compared with more than 91,000 TEUs in 2024.

Alphaliner noted in its newsletter this week that demand for all types of ships was robust amid sustained cargo volumes on various trades despite container shipping being in its traditional slack season.

“In late March, not a single ship larger than 18,000 TEUs was idle, and only three vessels of the second-biggest size class — 12,500 TEUs — were commercially inactive,” Alphaliner noted.

Originally published in the Journal of Commerce, April 10, 2025

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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.