Mat: Welcome to the May edition of the Robinson Roundup. My name is Mat Leo, and I'm joined, as always, by my colleague, Ryan Hammett, to talk about the latest developments in the transportation markets. Trade policy continues to dominate shipper and carrier decisions with a recent set of announcements about new or pending trade agreements with key trade partners.

The largest of those was the recent announcement of a 90-day lowering of tariffs between the United States and China. The initial increase of tariffs between the U.S. and China impacting freights in March and April after a lull of imports for several weeks is looking to rebound as we start the summer. 

Ryan: Yeah, very true. I think we've established in the last month that the United States now appears to be approaching its global trade relationships on three separate tracks. First, you've got Canada and Mexico that remain relatively stable in the short term. Under USMCA, most certified freight continues to move duty free, and no immediate changes are expected there. 

Then you have much of the rest of the world, which includes some top trade partners that appear to be prioritized, such as Japan, Korea, Vietnam, the EU, the UK, and India. Rather than full-scale free trade agreements, these negotiations are expected to yield limited but strategic commitments like purchasing more goods from the U.S., reducing specific trade barriers, or investing in U.S. industries in exchange for the suspension or removal of reciprocal tariffs, which are currently set at 10% under IEEPA. We expect a steady amount of announcements with these countries between now and June. 

And finally, you have China, still the most volatile and complex trade partner, which is on its own separate and highly unpredictable trajectory, even after the recent announcement of temporarily lowered tariffs. 

Mat: And now that U.S. tariffs on goods from China have been lowered, at least temporarily, we're expecting a burst of pent-up cargo starting to leave Chinese ports in the middle to end of May. Shippers that had cargo stored at origin are ready to ship. Others are cutting purchase orders and asking suppliers to produce as quickly as possible to get their goods out in that 90-day window. 

Now, what shippers are doing now depends in part whether they were able to front load ahead of higher tariffs back in April. Some of our 7,500 retail customers had enough capital to stock up on inventory, factories with capacity at that time, and storage once the inventory got here. But not all had that ability. Retailers and retail suppliers tend to have a greater reliance on low-priced consumer goods from China. 

Still, many of our small to medium retail customers took a wait and see approach. As for our automotive customers, it was a bit of a mixed bag. A small windshield wiper motor, for example, made sense to front load, whereas parts specific to certain models or consumer preferences did not. 

Ryan: Yeah, and to that point, Mat, if we look across multiple sources of information that have recently been released related to Q1 activity, we can see some clear trends related to that pull forward. The first is that the pharmaceutical industry brought a lot of materials into the U.S. in Q1. And after that, we also saw large increases in electronics, cell phones, computer accessories, textiles, and toys when compared to Q1 of last year, which are some of the most common products the U.S. routinely imports from China. 

Now, beyond the import data, we see sources like the Logistics Managers Index show increases between January to April in both inventory levels and inventory costs. The Logistics Managers Index said this level of inventory buildup reminds them of trends they typically see during the holiday buildup, except this occurred in Q1. 

Now, with the increase in inventory, it's no surprise that we're also seeing an increase in demand for warehousing. After a steady decrease in warehouse prices throughout 2024, Q1 of this year saw an inflection point in pricing as warehouse space started to be filled up with that inventory. And that trend can be seen across all the regions. But beyond standard warehouse space, we're also seeing increased demand for bonded warehouses in foreign trade zones, which demand for this type of warehouse solution is very high, but supply is low. 

So warehouse providers are looking for long-term commitments for this type of space. C.H. Robinson recently put out a blog highlighting the topics of bonded warehouses in foreign trade zones. So check that out if you have questions. 

Mat: So where does that leave us here in the short term? Well, first, the ocean carriers have to reposition their vessels, as with any freight airlines that move capacity to other trade lanes. I'd say about 20 to 30 percent of capacity was removed on the Asia to U.S. West Coast trade lanes and about 30 to 40% on the Asia to U.S. East Coast lanes in May. Some carriers have had vessels anchored in Shanghai waiting for floodgates to reopen, but others moved ships to other regions. And it'll take about two to four weeks to bring them back. 

Now, with this new demand, all major carriers have announced spot rate increases starting immediately, and additional increases are set to be implemented on June 1st. Considering the transit time of roughly 2 to 3 weeks on the water, we expect that the flow of additional freight to start hitting the U.S. West Coast ports specifically will start occurring in June. So it could shape up to be an earlier ocean peak season this year. 

Now with declining imports from some of those shippers who put a hold on ocean freight due to April tariffs, some folks are wondering how that will impact trucking today. Productivity can be an indicator of ripple effects downstream, but this situation is unique due to that front-loading earlier this year. Front-loading is a sign of preparation, not demand increase. 

That front-loaded freight is now moving through the supply chain, sitting in warehouses and getting delivered as demand calls forth. Freight volumes can naturally go up this time of year, because of produce season and what we like to call beverage season, when retailers are stocking up on water, soda, and beer for the summertime. And for trucking, that may mask any change in freight volumes coming in from overseas. 

Now, we'll have a clear picture in July when two factors converge. We'll know how many trade deals the U.S. has made with other countries before higher reciprocal tariffs are slated to kick in again. And we'll know how much freight demand remains after produce and beverage seasons peak. Sometime this summer, we'll also know whether this 90-day lowering of tariffs between the United States and China holds and how much holiday inventory might have been pulled forward in the meantime. 

Ryan: Well, Matt, while international trade continues to be the large area of focus, as we've mentioned, we're moving into one of our peak seasons for freight. We recently went through the annual road check week, which some folks like to call blitz week, where there are intentionally heightened inspections on carriers, which historically takes capacity out of the market, either because of the time related to the inspections themselves or drivers sitting out that week to avoid the risk of inspection. 

Now we highlighted this in our monthly report, but every year, regardless of macro market conditions, we always see tightened conditions during the primary three days of the blitz, and if we switch to look at DAT's data from last week, we can see that prove true again this year with increased spot market cost per mile and load to truck ratios. 

Now the light blue line is 2025 data compared to the dark blue line that's showing the five-year average for both of those. The underlying data leading to this graphic shows that the number of loads increased in every region of the country compared to the previous week, and the number of available trucks looking for loads decreased in all regions except the Southeast, which isn't surprising due to produce season. 

So the combined capacity tightness led to increased costs that week in the spot market. Now, Mat, one week of seasonality does not a market make. There are larger market dynamics at play that are influencing our 2025 forecast. 

Mat: Yeah, that's exactly right. And we did make a cut to our forecast for the rest of the year, reducing the full year cost for spot dry van freight to a 4% increase compared to 2024. This forecast cut comes down from the 7% we had previously considered for the full year 2025. This change is in response to emerging U.S. tariff policies as a growth headwind. As mentioned earlier, there has been some pull forward of imports ahead of tariffs, and it is yet unclear how consumers will respond to deplete said inventories. 

Once there is clarity on where tariffs land, supply chains will reconfigure to match the policies. The magnitude and breadth of the tariff policies, though, will determine how much the supply chains will change. So the demand side remains a dynamic situation, to say the least, that we'll continue to monitor. Now, here's where I'll remind everyone that in March, we highlighted the supply side factor that still is a heavy influence on the future truckload rates. And after multiple years of high cost inflation to operate a truck, carriers are under pressure to maintain profitability. 

So what we'll see in the months ahead are the supply side dynamics where carriers will either be forced to close, thus producing capacity in the market further, or increase rates just to afford to safely and effectively utilize their equipment. 

Ryan: So as you said just a moment ago, it's a very dynamic marketplace. We didn't even have a chance to cover air freight, which is being impacted by changes to de minimis or cross-border, which is seeing some differences in May than what we experienced in March now that some of those tariff changes have settled in for those two countries. For details on those and other topics, make sure you go read our May freight market update on our website. 

Mat: Thanks for joining us this month and remember that Robinson goes further than anyone in providing you with the edge you need to manage your complex global transportation strategy. For additional insights or more details, reference the insights page on our website.