Three challenges facing fresh cargo in the tariff era

This year has been marked by talk about tariffs on imports entering the United States and their repercussions for producers, exporters, and consumers. Continuing this trend, last week, the Journal of Commerce hosted a webinar to analyze the impact of tariffs on the shipping of fresh produce and frozen foods worldwide.  

Thomas Eskesen, CEO and founder of Eskesen Advisory, and Bruce Marshall, Head of Reefer Solutions at A.P. Moller-Maersk, were invited by the publication to break down the subject. 

During the discussion, the shipping experts identified three challenges for refrigerated cargo and expressed their concern over the short-term uncertainty that the American policy brings to the global landscape. 

#1—Tariffs are changing sourcing throughout the supply chain

Sounds simple, but the U.S. imposing a 30 percent tariff on South African imports is not the same as finding out your favorite coffee shop is raising prices. In the latter example, the problem might be solved by walking an extra block to get your morning cup of joe. In the former, finding a new supplier is much more difficult. 

“We thought we were sitting in a 10 percent range, but now we’re seeing a much bigger variation,” says Eskesen, head of Eskesen Advisory, a Danish consultancy company specializing in refrigerated transport. “I think it has the potential to change sourcing, for sure.”

Seeing this from a U.S. importer’s point of view, he says, managing supply has become exceedingly more complex than it was before. Eskesen explains that retailers and importers are not only accustomed to dealing with certain suppliers but, in some cases, have also invested in adapting their infrastructure and processes to work more easily with them. 

For those companies, change is not easy or inexpensive, and things get even more complicated when you factor in the volatility, as the White House announces new and higher tariffs on top of existing ones. On the fruit and vegetable side, the situation is even more dire, as producers also have to deal with seasonality. 

“If you’re in the U.S. and you’re a consumer, I would be exceedingly worried, because this is going to cause food inflation,” Eskesen says. 

#2 —Finding new markets

It might be easy for your neighborhood coffee shop to make up for the clients it lost by luring in new ones. But when your client is the largest economy in the world, things are not as easy, especially in the short term. Eskesen explains that it’s almost too late in the year for exporters to find new markets, as a change in destination for goods requires a lot of planning. 

Mainly, new markets mean new routes, which entail a new logistics approach to deliver a product to its final destination. Longer routes can also require more capacity, and finding enough ships in a time marked by global congestion in several key ports around the world can be tricky, to say the least. Add to that the need for reefer ships—as is the case for fresh produce and frozen foods—and you have an even more complex scenario.  

“For the next season, it’ll stabilize, it’ll find new markets—but it’s not going to be that easy,” Eskesen says. 

The complexity of it all seems to have actors all along the supply chain in a standstill. Bruce Marshall, Head of Reefer Solutions at A.P. Moller-Maersk, says he’s yet to see changes in shipping patterns or cargo flows, and this may be evidence against the argument that it’s foreign economies—not American consumers—who will be footing the tariff bill. 

“Shippers to the U.S. are very clear in saying ‘Consumers are going to pay for this—we are not going to pay for this’,” he says. “I can acknowledge that coming through in a lot of our customer conversations.” 

The expert at Moller-Maersk explains this is what will happen in the short term, and if suppliers “can’t pass the cost along the value chain, then they’re going to look for different markets.” 

However, that will take time, as global trade will need to readjust and find a new balance that makes sense for producers, exporters, importers, and, ultimately, the final consumer. That, says Marshall, will only happen in the medium to long term. 

If the finding of new markets is resolved by next season, Marshall says it’ll all come down to shipment availability (having enough of the right ships) as well as containers. But then there’s another situation to tackle.  

“At some point shipping may become easier, but if it remains restricted or constricted as it is now, then opening a new trade level it’s not an easy discussion,” he explains. 

#3—Uncertainty in the short term

With new tariffs and extensions announcements, as well as ongoing negotiations and deadlines coming to an end, there’s little left to do but to take a wait-and-see approach. 

“Customers are not sure what to do because it’s been changing quite frequently,” says Marshall. 

The expert explains that there are several limitations to changing markets and suppliers overnight. Things like packaging that has already been printed for a location, or produce that has been grown with a certain chemical that’s accepted in one market but not another, further complicate a quick pivot. 

“It’s not just as easy as ‘Let’s decide tomorrow if we’re going to ship to that location’—it’s a planned environment,” he says. 

For Eskesen, the fact that there’s no blanket tariff but different rates for different countries, depending not only on trade deficits but also on political reasons, adds to the overall complexity of the situation. 

“As an independent, I really don’t think it’s going to make America great again, because, all of a sudden, you’re going to have the climate to make your own bananas? I don’t think so,” he says.  

As other analysts have pointed out, Eskesen explains that American consumers have so far been spared the larger impact of the trade war, as U.S. importers filled warehouses with products ahead of the tariffs going into effect. 

“I suspect that when food inflation starts to really hit people at the register, there will be some voices saying, ‘Wait a minute, why are we actually slapping specific tariffs on things that we need as American consumers and that we’ll never be able to produce?’,” he says. “So maybe there will be a correction—and then we’ll have to deal with that.“

* All images are referential 

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