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5 Biggest Risks in International Logistics and Supply Chain

2024 has so far been a year with many potential risks and unknowns. Some of the risks and unknowns noted at the beginning of the year were supply chain delays, inflation, geographical conflicts, elections (India, U.S., Indonesia, South Africa, and Mexico to name a few), protectionism and a potential U.S. East Coast port strike. Out of these, many still remain in place. The U.S. East Coast port strike was suspended but is still a potential disruptor until both parties reach a contract agreement hopefully next month. Inflation is coming down, for now, and interest rates are moving lower for the foreseeable future.

Now, the U.S. elections, perhaps the biggest unknown out of these, is over. The risk of unknown U.S. policy is over, and all industry stakeholders are positioning themselves according to the potential disruptive policies in the horizon. From high tariffs to targeted trade wars, the new policies on the horizon will have great impact on everything related to logistics, the supply chain and the greater economy. I have identified five disruptive risks as a result of this election.

Below are the five potential risks/challenges in the horizon with the change of power in the U.S., based on previous term policies and what was discussed throughout the campaign.

1. Short-Term Shipment Rush and Supply Chain Disruptions

Port labor instability at U.S. East and Gulf Coast ports have been already prompting U.S. retailers to front-load their import cargos since the beginning of this year, especially for high-value cargo and cargo that has strict delivery deadlines. Now, potential high tariffs have been added to the mix, further igniting the demand for container shipments. Since this is coinciding with an early Chinese New Year next year, potential record shipment numbers for U.S. imports from China is on the horizon.

Importers are already front-loading as it will cost them much more in the event tariffs are being implemented. From large retailers to small to midsize importers, based on our conversations and meetings with our clients, the overall sentiment is clear: bring shipments now and store them in U.S. warehouses rather than taking additional risks.

This front-loading and increased demand will come with capacity constraints, increased shipping costs, and higher rates for warehousing and trucking.  The short-term shipment rush may follow a slowdown as a result of built-up inventories, similar to the situation which we saw right after the Covid shipment rush ended. Many companies struggled to finish their inventories for months and they had to provide huge discounts to get rid of excess inventory.

2. Inflation and Increased Costs

Simple economics is very clear, and it is very hard to have a different perspective on this: higher tariffs on imported goods will result in higher prices which will be passed onto American consumers, potentially fueling inflation.

Based on the research by National Retail Federation, tariffs on categories like apparel, furniture, and toys, where China is a dominant supplier, could lead to U.S. consumers paying an additional $46 billion to $78 billion annually. The specific impact would include increases of $13.9 billion to $24 billion on apparel, $8.8 billion to $14.2 billion on toys, and $8.5 billion to $13.1 billion on furniture. Such added costs would be difficult for retailers to absorb, leading to higher consumer prices and likely diminishing spending power, which would have downstream effects on demand for logistics services.

3. Trade Volume Uncertainty

While short-term volumes might see an increase, the long-term impact of tariffs might be a decline in global trade volume as a result of higher overall costs of shipping and products. As a result, this may cause companies to slow their import activities.

4. Potential Retaliation and Trade Wars

As we saw in the first round of tariff implementation, when one country imposes tariffs on another, it comes with likely retaliation from the other country. The biggest potential risk is from China where trade volumes have been up 15% so far this year (October 2023/October 2024) from 7.69 million TEUs to 8.89 million TEUs.

Regardless of the sourcing shift from China to elsewhere, there is not a single country that comes to close to this number to meet sourcing demand. China has also been shifting from low-cost production sourcing areas to value-added ones. Any major trade war will have disruptive effects on international shipping, and it will be felt at every level of the industry.

5. Instability in Mexico-U.S. Trade

Mexico has been one of the winners from high tariffs as a good nearshoring alternative. However, with potential proposed revisions to the USMCA on the table, which is officially due to be re-negotiated in 2026, the Mexico-U.S. trade corridor may face significant instability.

Many companies have been using Mexican manufacturing to avoid tariffs, by importing parts to this country and assembling them. Then, they would be shipped to the U.S. as a finished product. Auto parts is one area that will be affected from this. Potentially, Mexico-U.S. cross-border trade will be disrupted, based on remarks made during campaign in regard to protecting U.S. interests against transshipments via Mexico where the product is altered and then shipped to the U.S. after the assembly and/or production process is completed. 

Upcoming policy changes pose a lot of risks and unknowns not only for logistics and the supply chain but for the broader economy and consumers.

It also poses opportunities, especially on the domestic trucking and warehousing side as demand increases and consequently price changes are expected in these sectors.

Some of the expected changes will have prolonged effects and change the sourcing, and the logistics of it, for good. Staying vigilant, being flexible and having a diversified supply chain with real-time information is becoming more important than ever.

Serkan Kavas
Serkan Kavashttps://www.mts-logistics.com
Serkan Kavas was born and raised in Turkey. He graduated from Dokuz Eylul University with a Degree in Business Administration in 2001. He had an internship in Germany at a major industrial company after college. He worked at their family business in Turkey and managed their exports from Turkey to Europe. He moved to the U.S. to continue his education in New York and obtained his MBA degree with International Business concentration at New York Institute of Technology in 2005. After graduation he was recruited by MTS Logistics and he has been working at the company since 2005. Serkan worked his way up from the entry level to operations manager and to his current position as our VP of Imports at MTS Logistics. He wears different hats daily with different responsibilities. He has vast knowledge, experience, and understanding of all aspects of logistics, freight, and the supply chain. His focus now is to help develop our import department and help our company move forward.
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