US Calls Transshipments a Scam: Why Firms Reroute Goods and How Singapore Manages This

Maritime transshipment is a common yet fundamental practice in logistics, designed to ensure that goods reach their final destination efficiently. Whether it is about optimising routing costs, adapting to complex routes or responding to operational constraints at the port of origin or destination, transshipment tends to benefit shipping companies by enabling a hub-and-spoke network.

This is where carriers use massive mega-vessels for high-volume main routes and smaller ships for regional legs. This cuts fuel and operating costs, connects remote ports and increases service frequency without running direct, low-demand ships.

The tariff gap, together with other duties and restrictions on the country of origin, may act as a strong incentive for firms to take advantage of regulatory loopholes and route shipments through third-party hubs to hide the true origin of goods.

In 2025, the Port of Singapore achieved a record container throughput of 44.66 million 20-ft equivalent units (TEUs), representing an 8.5 per cent increase compared with 2024, according to data from the Maritime and Port Authority of Singapore. About 85 per cent to 90 per cent of those containers are usually transshipped or re-exported to their onward destinations that include neighbouring South-east Asian markets, China, the United States and Europe, according to supply chain management firms.

The Aug 13 report titled “The Great Transshipment Scam” also stated that the US authorities will now use artificial intelligence-powered “detective trade” tool, among other initiatives, to help crack down on the illegal transshipment of goods headed to the US.

While Singapore was mentioned in the report as “a small opportunistic Chinese target”, some analysts think stricter US scrutiny on so-called “shadow transshipment networks” could present an opportunity for the Republic to position itself as a trusted and traceable hub. “Singapore is well-positioned to invest in the technological and monitoring requirements for stricter trade compliance enforcement, more quickly and credibly than most other trading hubs,” said Chua Hak Bin, regional co-head of Maybank’s macro research team.

Singapore exports merely 5 per cent of the goods that it re-exports. In 2025, the Port of Singapore achieved a record container throughput, but re-exports are defined as goods that have been imported, then sent out again in the same form as they have been imported.

That distinction between domestic exports and re-exports is important for Customs authorities to properly tax the goods. The bulk of Singapore’s re-exports are machinery and transport equipment, such as integrated circuits, semiconductors and electronic parts, chemicals and chemical products, mineral fuels and oil, and manufactured goods.

Re-packing goods, splitting them into lots, or actions such as sorting, grading or marking the goods are not considered as undergoing the process of transformation, says Enterprise Singapore, the state agency that issues the monthly trade performance report. But experts point out that a vast majority of the goods transshipped, even if they have gone through substantial transformation that changes their origin classification, are not illegal. For instance, Singapore has been an entrepot that has been used to import, store and then re-export goods for hundreds of years.

Economists and trade experts have long argued that Trump’s use of tariffs to influence bilateral trade flows with the aim to balance the US trade deficit is misplaced when a country’s macroeconomic conditions and fiscal policy are the true drivers.

Elissa Lim, head of Maybank’s macro research team, said: “Put simply, the US spends more than it saves, and this sucks in goods from abroad.” No matter how much trade and tariff policies shift, the US will likely continue to face goods trade deficits with many partners, she added.

Average US tariffs on Chinese exports stand near 50 per cent. In round numbers, Chinese-origin goods face an average tariff burden of roughly one-half of the declared value before any comparison is made to lower-tariff third-country routes, the report said. Hence, the US assumption is that the increase in exports from third countries with trading links to China are all suspicious trans-shipments.

In the years following the 2018 tariffs, countries in South-east Asia, mainly Vietnam, Malaysia, and Thailand, became popular destinations for companies looking to adopt the China Plus One strategy, where a business diversifies its sourcing or manufacturing operations by adding at least one other country alongside its existing base in China.

The White House report estimates that potential tariff-evading transshipments may have been within a range of US$40 billion to US$303 billion annually. The annual tariff revenue loss is estimated from about US$80 billion to more than US$100 billion.

Customs authorities worldwide use various methods to check the veracity of the paperwork filed by shipping agents, including supply chain audits, shipping manifest reviews and surprise inspections. But when millions of containers are passing through a port, it is difficult to examine them all. Investigators usually focus on unexplained spikes in exports from a specific country or company, especially after a new duty is imposed. This helps them catch big illegal transactions, but such investigations take time.

For instance, it took more than two years for the US Commerce Department to investigate, make final determinations and collect the penalties in 2024 from several companies in three different South-east Asian countries that were evading anti-dumping duties that the US had imposed on Chinese solar panels. Trump’s executive order issued in July 2025 allows the Customs and Border Protection agency to impose an additional 40 per cent cost of ad valorem duty on goods it determines were transshipped to evade tariffs. This additional 40 per cent duty has not been used so far.

Still, experts said that as tariff levels rise and global supply chains become more complex, the question may no longer be whether trade enforcement will intensify, but how quickly businesses adapt to the authorities’ increasing reliance on data analytics, supply-chain visibility and AI-assisted enforcement tools.