If we learned anything from 2024, it is that supply chains are fragile and unpredictable. In the span of the last 12 months, the world lived through Houthi rebels blocking the Red Sea, a major drought decreasing transits at the Panama Canal, and protests in US ports. Simply put, it was a year fraught with anomalies that resulted in sharp increases to freight costs and lots of trouble shooting for logistics operators.
As supply chain operators plan for the coming months, we want to share our supply chain predictions for 2025. Now, as we mentioned, supply chains are, by their very nature, prone to unforeseen disruptions. There is no way to predict everything that might happen in 2025. But, experience does show there might be some key trends to watch out for. And, in out opinion, there are at least three key things that will happen in 2025:
1. Shipping Rates Will Go Down
As a result of all the disruptions lived through last year, the cost of shipping increased radically. Let’s put this into numbers. Between January 4th—the earliest date available—and July 18th—the peak of cost increases—, the cost to ship a single 40ft container, as measured by Drewry, went from $2,670 to $5,901. That is a 121% increase in the cost of shipping in just half a year.
Now, this does not mean that all freight increased in cost by 121%. The above numbers are likely too disaggregated to draw conclusions, since Drewry measures weekly distortions in the price of shipping a container—thus, resulting in great variance week to week and a lot of noise to estimate the average impact of disruptions. Instead, it is better to look at monthly trends to get a better idea of the impact of these phenomena on the cost of freight.
Luckily, the UN recently released a report that does just that. In fact, it goes much further by attributing the increases in the prices of containers to specific causes each month. In the figure below, we replicate the UN’s data showing four of the main disruptions of 2024: the conflicts around the Red Sea, the drought in Panama, changes in bulk carrier supply, and changes in bulk carrier demand. On average, the total price of containers increased by 54% in the eight months between November 2023 and June 2024. If we were to consider just the first six months of 2024, the increase is actually a much higher 61%.
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As the figure above shows, a considerable share of disruptions emerged from two crises in particular: the blockade of the Suez canal by Houthi rebels, and disruptions to the Panama canal due to droughts. Yet at least one of these crisis has come to an end.
Recently, Houthi rebels have promised to stop attacking vessels in the Red Sea after a peace treaty was signed between Israel and Palestine. One would expect a sharp decrease in the cost of shipping as a result. And, thus far, data does seem to indicate that such is the truth.
Just in January, the price to ship a container went from $3,855 before the Houthi’s announcement to $3,445 after it. This is a decrease in the price of shipping of 10.6%. However, the current price tag of sending goods in a 40ft container is still 29% higher than at the start of 2024—and a whopping 148% higher than costs at the end of 2023. Now that Suez, the largest driver of disruptions, is no longer blocked, it is highly likely that the price of shipping will fall as a result, allowing companies to reduce costs as a result.
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2. Tariffs Will Hurt (But Maybe Not that Much)
One of the big talking points of 2024 came from the U.S. and, more specifically, from now President Donald Trump. Across the campaign trial, the former executive—now serving his second term—promised to impose tariffs on all goods imported to the country. More specifically, he vouched to impose a 60% tariff on all Chinese goods, a 25% tariff on goods from Mexico, and Canada, as well as a 10% tariff to all other countries.
The impact of these tariffs could be immense to companies selling goods in the U.S.—and, in turn, to logistics operators having to take said tariffs into account. But, more likely, consumers will be the ones to endure the largest burden as companies are likely to increase the price of products in light of tariffs.
The question, of course, is just how much president Trump’s proposed tariffs will impact the U.S. economy. To find this, we looked at the total value of imports and exports between the U.S. and other countries and simulated what would happen if President Trump were to place said tariffs and all countries, in return, were to retaliate with similar tariffs. This allowed us to find the amount of money the U.S. government would charge to all imports entering the country as well as the amount other countries would change to U.S. exports. This gives us an estimate of the total impact of the Trump tariffs on U.S. consumers (paying more for imported goods) and U.S. companies (paying more to sell in foreign markets).
In the figure below, we plotted the impact for the largest trade partners to the US. Interestingly, Mexico would be the most affected by these tariffs, given, in great part, to the fact that trade between both countries is bidirectional—meaning, Mexico and the US buy products from one another and thus there is a larger pool of assets to impose tariffs on. Meanwhile China, with a 60% tariff takes the second sport—in part because the U.S. imports much more from China than China imports from the U.S.
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Most important, however, are the total impacts expected from tariffs. According to the estimates above, the total impact from imports would be of $655.53 bn, while the impact to exports would be equivalent to an additional $377.26 bn. Put together, this results in a staggering impact of $1.03T.
But, what does this mean for US consumers? Well, consider that that $1.03T is equivalent to the total distortion of prices related to the U.S. economy—at least as an initial estimate. In 2023, the US economy, as measured by GDP, was worth $27.72T according to the World Bank. This means that, by and large, distortions could have an impact of roughly 3.73% of the value of the US economy. Put in other words, they could result in an increase to the price of goods, i.e., inflation, equivalent to 3.73%.
Here’s the catch! These tariffs are very likely to result in inflation to consumers. However, given the likely decrease in the price of shipments, there is a high chance that both effects could cancel each other out. If we assume that the cost of transportation is equivalent to about 10% of the price of goods, then we can translate the 61% increase in transportation costs in 2024 to be a 6.1% increase in the price of products—this being, of course, an estimate only. Thus, if this 6.1% distortion in prices is to disappear, even if just in half, it would mitigate the 3.73% increase in costs from the Trump tariffs. In other words, there is a scenario where the impact tariffs will have on trade is offset by the normalization of shipping costs.
3. Climate Will be Crucial
Finally, we want to make a point about the relevance of climate in twenty-first century freight. With climate change causing disturbances in weather conditions, supply chains are most likely to suffer.
The clearest case—which we’ve mildly hinted across this article—comes from the Panama Canal where a decrease in the amount of rain per year has let to water levels in Lake Gatun falling considerably. Since Lake Gatun forms part of the Panama Canal, the ongoing drought makes it difficult for vessels to navigate across the country. This, in turn, increases wait times to enter the canal and decreases the overall number of crossings, as shown in the graph below. Since little has been done to avert the effects of climate change, it is unlikely that the drought in Panama will stop any time soon.
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Similarly, there is a case to be made about the increased strength of hurricanes—a topic we’ve covered thoroughly in our blog before. Currently, it is estimated that the intensity of tropical cyclones—the precursors to hurricanes—is likely to increase between 1-10% with a two degree increase in global temperatures.
The Bottom Line
The coming year is likely to be full of surprises—such is the nature of supply chain disruptions. However, there are at least some facts that we can deduce from trends. Tariffs will most certainly be a part of the U.S. agenda and their impact could result in drastic inflation to consumers. However, now that Suez is no longer blocker, the cost of shopping is likely to decrease at a rate that could offset tariffs. All of this while climate change continues to create global crisis that could further impact trade.
At Desteia, we aim to give all of our clients insights like these for them to make the best decisions ahead of the coming year. If you’re interested in seeing how our platform could help your company leverage data to make an efficient strategy for 2025, make sure to schedule a demo below: