Shipper turns to airfreight to avoid ocean tariff troubles

A Canadian apparel firm is upping its use of airfreight as it anticipates that there will congestion at Asian ports in the run up to expected US tariff hikes.

While announcing its quarterly results, Lululemon chief financial officer PJ Guido said the company was expecting port congestion in mid to late July, when it is expected that the US will place 25% tariffs on another $300bn worth of Chinese goods – although this is yet to be confirmed.

As well as the concern over tariffs, Guido said that the move to increase airfreight also reflected the problems caused by ocean carriers consolidating/transhipping cargo at Asian ports.

He said: “We’re anticipating port congestion right around the timeframe, starting in that mid to late July timeframe, and we think it’s prudent and important to deliver new product for our [customers] and protect the sales associated with those goods.

“We are protecting our Fall deliveries and that’s why we’re doing it – it’s a hedge and we’re eliminating the risk.

“I mean there’s always [risk] but we’re eliminating most of it by utilising airfreight and not getting caught up in the congestion which we’ve seen before due to tariffs as companies trying to get out ahead of it, but there is also a broader issue with carriers consolidating cargo.”

Shipping consultant Drewry, meanwhile, reports that the container shipping industry enjoyed a “tariff-induced cargo rush” in late 2018 as shippers moved goods out early to try and beat the increases.

However, it is not expecting the same rush this time because US firms also benefited from tax cuts last year, which boosted the economy.

In contrast, companies are looking to run inventories down this year, the consultant said.

The tariffs are also having other impacts on supply chains. Several reports suggest that companies are transporting products from China to Southeast Asia and putting labels on from those countries before exporting to the US in order to escape the tariffs.

Vietnam, for instance, has seen its shipments to the US take off in line with declines in exports from China and has found several fake product origin certificates and illegal transfers by companies looking to sidestep the tariffs, says Bloomberg.