“Admire a small ship, but put your freight in a large one; for the larger the load, the greater will be the profit upon profit.” – Hesiod
Global shipping is often seen as a leading indicator for economic growth and goods inflation signals. Most international trade – about 80% by volume – involves waterborne shipping. The Baltic Dry Index, a benchmark used to assess global shipping costs of dry commodities including (but not limited to) grain, coal, and iron ore, shows that while those costs briefly spiked in November 2024, they have declined since then. That’s despite President Trump’s nascent plans to initiate across-the-board tariffs on imports from virtually every other country. The declines signal that the market and much of the public might be overreacting about tariff-related risks, which is consistent with the views of both Fundstrat Head of Research Tom Lee and Head of Technical Strategy Mark Newton.
Although the contours of Trump’s tariff campaign have yet to be established, it is still reasonable to ask whether it could have material consequences for the maritime shipping industry, which is already dealing with overcapacity. It does help that this isn’t the first time oceanborne cargo shippers have had to deal with Trump’s fondness for tariffs. In January 2018, Trump placed tariffs on a range of goods including solar panels, washing machines, steel, and aluminum. China was the most prominently mentioned target of his ire. Canada, Mexico, and India were also among those affected, and all of those countries retaliated in turn.
The effect on global shippers was a short-term 70% spike in volumes and rates as businesses rushed to front-load shipments ahead of the tariffs taking effect, and then a plunge in both metrics as the tariffs took effect and businesses relied on inventory overhang. In an interview with the venerable Lloyd’s List, Clarksons Securities analyst Frode Mørkedal estimated that the trade war Trump instigated during his first term “had a negative overall impact on shipping, with tonne-mile growth falling by around 0.5% in both 2018 and 2019.”
With President Trump indicating a broader, more ambitious set of tariffs during his second term, these effects could be more pronounced. Michigan State University freight economist Jason Miller has said that consequently, “2025 has the potential to be the craziest year we’ve ever seen on the ocean container side.”
Yet there is reason to hope that this prediction might be wrong. In the Feb. 6, 2025 First to Market, we noted that many companies outside the Transportation sector have used their experience coping with President Trump’s first trade war to craft contingency plans that they believe could mitigate or even negate the impact of a potential second one. It seems reasonable to hypothesize that maritime shipping companies have done the same.
In fact, the CEO of Danish container shipping giant AP Møller-Maersk (AMKBY) told the Financial Times on Feb. 5 that he expected shipping demand to grow 4% this year. “The reason why we don’t expect a massive impact is [that] what really matters is not tariffs but what the purchasing power of consumers looks like,” Vincent Clerc said. Seeming to address those who are panicking, he added that “as long as tariffs are not implemented and we cannot assess the impact on customers’ wallets, it’s premature to see [this] as a major factor.”
Even if the tariffs and likely trade war turn out to have a negligible effect on maritime shipping companies, it’s not necessarily smooth sailing (get it?) ahead for cargo companies. Shipping has never been a soft, easy business, and the industry today faces a raft of challenges, both old and new – though it’s worth adding that sometimes challenges can turn out to also be opportunities.
We’ll start with an old challenge, albeit one that has evolved:
Security
For all that old-time piracy has been romanticized in books and movies, security has always been a threat to global shipping, with innumerable parties seeking to take advantage of the inherent vulnerability of a lone ship on the high seas. That has not changed: With global trade on the rise, avaricious pirates have found themselves with an expanding plethora of targets from which to choose.
In truth, piracy never really went away. One enduring hotspot has been in Southeast Asia – particularly the Straits of Malacca and the South China sea. Around the world, maritime pirates cause roughly $37 billion in losses to the global economy every year.
Shipping companies now have to contend with terrorism as well. In October 2023, Houthi rebels began a campaign of terror attacks on cargo ships traversing the Red Sea near the Suez Canal, through which roughly 30% of global maritime shipping by volume normally passes. The drone, missile, and hijacking attacks continued despite the best efforts of the U.S. and British navies, leading to a massive decline in Suez Canal shipping volume.
That was challenging for many industries, but not necessarily for maritime shipping companies. Because the Houthi attacks compelled major shipping companies to take the longer, more expensive way around Africa via the Cape of Good Hope, they were able to boost both shipping rates and revenues.
In fact, even though the longer route put the ships within easier reach of pirates operating the coast of Somalia (Somali piracy has surged in the past two years and the region has been plagued by economic insecurity for decades), Maersk suggested that a delay in resuming the Red Sea route this year could make 2025 more profitable, not less.
After the Jan. 19 announcement of a Gaza ceasefire – the primary impetus for the Red Sea attacks had been to show solidarity with Palestinians during its war with Israel – the Houthis announced they would scale back their own attacks. This week, Clerc said, “I don’t think [Maersk is] close to making a change and going back into the Red Sea because there is so much uncertainty about the situation in the Middle East.”
Climate change
Observers reacting to Trump’s tariff policy might conclude that he wants the U.S. to become more self-sufficient – for Americans to make or produce as much as possible of what they consume. Yet even before he took office, there were clear indicators that he also recognizes the enduring importance of global trade.
That’s arguably why Trump made such a big issue about the Panama Canal. Fees for cargo ships to go through the canal have risen dramatically in recent years, and it’s hurting American businesses. Global trade remains a cornerstone of American prosperity and security.
The 47th President might believe that Panama Canal fees have risen because Panama is unfairly favoring China (and Chinese businesses) over the U.S. In truth, climate change, along with basic economics, accounts for most if not all of it.
In the face of surging demand, climate change-driven, yearslong droughts have led to insufficient water levels to run the locks as frequently as before. Each ship passing through the canal requires the use of roughly 51 million gallons of fresh water, sourced from two rainfall-fed manmade lakes near the canal that also supply drinking water to the local populace. With inadequate water supplies, the number of ships able to use the canal each day has declined. And as every Econ 101 student learns in the first week of classes, when demand increases and supply declines, the result is higher prices.
Drought hasn’t only affected shipping via the Panama Canal, incidentally. In September 2023, a drought left water levels in parts of the Mississippi River at the lowest in recorded history, forcing barge companies to reduce tonnage per barge – causing estimated economic damages of about $20 billion. Similarly, in summer 2022, the worst drought in 500 years lowered water levels along the 800-mile Rhine River, over which about 300 million tons of goods are transported every year, significantly curtailing river cargo transport.
And it’s not just drought, either. Most climate scientists and meteorological researchers are in agreement about the high likelihood of climate change increasing the frequency and intensity of hurricanes, which means heightened risk for shipping companies. Last summer, Maersk experienced significant operational disruptions and challenges when Hurricane Beryl forced the Port of Houston to close down for several days – echoing similar difficulties it was forced to confront after 2017’s Hurricane Harvey.
Opportunities
As the Red Sea shows, for oceanborne transportation companies challenges can quickly turn into opportunities. This could be the case with the threat of far-reaching U.S. tariffs. Already, just the possibility of tariffs has created potential new avenues of business for shippers.
Worried about diminished trade with the U.S., European and Asian countries have been expanding their trade relationships with countries in South America. Last December, the EU marked a 25-year-long negotiation with a preliminary free-trade deal with Brazil, Uruguay, Paraguay, and Bolivia. Though many warn that ratification efforts could be challenging, if successful the deal would result in a free trade zone covering 780 million people and roughly 25% of global GDP. The EU also just updated its EU-Mexico Global Agreement in hopes of reducing dependence on trade with not just the U.S., but also Russia and China.
Meanwhile, the most visible symbol of China’s efforts to expand trade with South America is December’s opening of a superport in Chancay, Peru roughly 40 miles north of Lima. Although Chinese state-owned shipping firm COSCO owns a controlling stake in the port, what it represents is China’s plans to significantly expand trade with not just Peru, but the rest of South America (and that’s saying a lot, since the Middle Kingdom has been the largest trading partner to Central and South America since 2020).
Despite not involving the U.S., expansion in trade between these regions represents an opportunity for the maritime shipping industry that could mitigate or even make up for the decreased revenues from declining shipments into and out of the U.S.
Conclusion
If we view international maritime shipping as a barometer of global economic health, then there is reason to believe that President Trump’s ostensible plan to enact tariffs will not be as damaging as many economists are warning. Although countries around the world could experience disruption and impediment to growth might occur, other opportunities could open up as well.
As a reminder, Signal From Noise should be used as a source of ideas for further research rather than as a source of investment recommendations. We encourage you to explore our full Signal From Noise library, which includes deep dives on investments related to natural disasters and an update to our overview of the semiconductor industry. You’ll also find discussions about the TikTok demographic, artificial intelligence, and the alcoholic beverage industry.