To many in shipping, the formation of US-Mexico-Canada Agreement (USMCA) may be seen as just another interlude of the trade wars drama curated by Donald Trump.
But even though this may seem a pointless deal given its similarities to the trade deal it replaces, that is also why it definitely should not to be ignored.
This is because trade disputes can sometimes have complex and unexpected impacts on supply chains, remapping seaborne cargo flows across the globe. They can also have little mark on real economies at times.
Shipping industry participants should carry out case-by-case assessments of such trade developments.
For the trade deal between Canada, Mexico and the US to replace the North American Free Trade Agreement (Nafta), its fate was unknown to the outside world before government officials put pen to paper at the last minute earlier this week.
Having declared Nafta “the worst trade deal” on his campaign trail, the US president unsurprisingly trumpeted the achievement.
“It is a great deal for all three countries, solves the many deficiencies and mistakes in NAFTA, greatly opens markets to our farmers and manufacturers, reduces trade barriers to the US and will bring all three Great Nations together in competition with the rest of the world,” President Trump tweeted.
At first glance, USMCA, the fruit of more than one year of negotiations, appears little different from its predecessor.
Pending legislature approvals, the new deal increases local contents of vehicles within the $1.2tr free trade zone. It also grants the US more access to Canada’s dairy market and reduces the chances of the three countries signing new trade agreements with “non-market” economies (view by many commentators as a rebuke to China) - aside from a 16-year sunset clause.
But many elements of Nafta remain unchanged in USMCA, which even fails to deal with the recently imposed tariffs on US imports of steel and aluminium from Canada and Mexico.
Robobank senior market strategist Christian Lawrence says USMCA is “hardly a game changer” unless being compared to “the prospects of no trilateral agreement at all”.
This little-changed Nafta 2.0 may point to some missed opportunities as the energy supply chain between the three countries stay intact.
Worsening trade relationships between them could have resulted in more crude, LNG and refined products from Canada the US flowing to outside of the region, with Mexico filling its product requirements from Europe and Asia, boosting tonne-mile demand for tankers.
That said, simply looking at shipping requirement in the more optimistic scenarios can miss the big picture.
Indeed, a shake-up of North American supply chain could have also hurt production and dampen demand prospects in one of the world’s most important economic zones.
So, what would be the industry’s best strategies when facing with the trade disputes across the globe?
There is no easy answer as they are generally outside of the control of industry players. But those disputes are not something that can be ignored.
Some, like Precious Shipping’s managing director Khalid Hashim, suggest trade inefficiencies could lead to more shipping needs.
This little-changed Nafta 2.0 may point to some missed opportunities as the energy supply chain between the three countries stay intact.
Others, like BIMCO, point to the likely negative impact of tariffs on overall consumption —especially when the DHL Global Trade Barometer is showing decelerating seaborne trade growth in September.
Industry participants are becoming more wary as the trade tension between China and the US continues to escalate.
In Moore Stephens’ latest shipping confidence survey, 86% of the respondents predict some or considerable impact from trade wars on shipping in the next year.
Having shown rare discipline in newbuilding orders over the past few years, the industry is enjoying firming market fundamentals amid easing oversupply in most sectors.
Following trade developments, examining them and reacting to them would be the necessary steps in the next stage.
