Music. No matter what you might be going through, put on some music, and for a moment, you can step away. Songs can also teach you—as the words pass on life lessons from the songwriter to the listener.  I am grateful for an extended family who taught me this at an early age. 

“You can’t always get what you want” by the Rolling Stones is one song that comes on at all family gatherings. Everyone belts it out together in a moment of connection on desires that were never met, but with gratitude for the needs that were.

Until Covid, I’m not sure I personally understood how important global shipping is to our wants and needs as consumers and business operators. Sure there was an awareness of a global economy of imports and exports. But once shipping was disrupted, leading to a spike in goods inflation, it hit hard. And it’s time to keep an eye on that again.

The tariffs, particularly the current 145% on items imported from China, is having an impact on shipping—potentially impacting consumer prices and/or corporate earnings. Container ship volumes from China to the US have dropped a staggering 40% from this year’s peak. In particular, canceled or “blank” sailings, have risen, per data from the Ports of Los Angeles and Long Beach:

To put this in context, there were 51 blank sailings in March 2020. 

Now the real question is why. One reason could be that many companies front-loaded inventory earlier this year, anticipating tariff headaches. You can see that in today’s GDP number. The headline number came in at 0.3%, a big drop from last quarter and even the last couple of years (chart below). The biggest detraction was the spike in imports (spending was strong at 2-4%, depending on the metric). Now, companies are working through those stockpiles–for an estimated 2-3 months.

But if inventory levels eventually dip too low across the board, we could see a restocking surge—and that could spike shipping costs. During the pandemic, freight rates skyrocketed, raising the price of imported goods. According to the Federal Reserve, a 10% rise in import prices can lift US Producer Prices (PPI) by 1%---which can lead to higher consumer prices.

That said, today’s backdrop is different. Unlike during COVID, the world isn’t locked down so this isn’t a supply chain freeze. Companies are ordering less goods and input items because, for now, they don’t need to. Most still have enough goods to ride out the next few months. In addition, intra-Asia shipping costs are rising, a potential sign that Chinese exporters are re-routing through Southeast Asia to avoid tariffs and reach global markets through alternate channels.

So far in earnings season, we’ve seen a mixed impact from the tariffs on outlooks for 2025. Some management teams seem confident—perhaps overly so—in their ability to pass costs through. This is becoming more evident on earnings calls. For example, Honeywell said they could fully offset tariff costs, raising guidance on future earnings. But whether anyone fully knows the exact impact of tariffs is questionable.

On the flip side, consumer-facing tech companies are more cautious. For example, even though tariffs may not touch them directly, Spotify remains aware how price-sensitive their customers could be, stating their guidance is subject to “substantial uncertainty”. This might be overly conservative depending on what happens with the labor market.

The one thing investors and management teams want is more certainty—they could figure out a way around whatever the outcome is. And once that comes—companies and consumers will find a way to get what they need.