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The Monday deadline is fast approaching for public comments on the US Trade Representative’s investigation into China’s dominance in shipbuilding after which president Donald Trump will make a ruling. Submissions to the Washington body have been numerous, some full of praise, and plenty of others warning of the potential costly unintended consequences of any rules that penalise Chinese-built tonnage calling at American ports.
The trade office has recommended potential fees of up to $1.5m per port call for Chinese-built vessels, $1m per port call for operators of Chinese-built ships, and mandatory US-flag shipping requirements.
Most operators in the world have in their fleet one or more ships of Chinese origin meaning that when calling at a US port, they would be subject to a port fee.
Louis Sola, Trump’s pick for chair of the nation’s shipping regulator, the Federal Maritime Commission (FMC) voiced his support of the USTR’s measures, telling the Financial Times earlier this week: “We need to offset the subsidies that China has given their shipbuilding industry, fight fire with fire.”
While Chinese-built ships account for just 23% of the merchant fleet, the orderbook is dominated by Chinese shipbuilders, with 53% of all newbuildings.
“New orders have slowed, and it is likely, especially in container shipping, that operators will pause charter-in renewals on Chinese ships. An outright rush to sell Chinese-built ships has not happened, though this depends on how the proposal moves forward,” investment bank Jefferies suggested in a shipping update.
Chinese-built ships account for nearly 50% of the global dry bulk fleet, 40% of containerships, 30% of tankers, 15% of LPG, and 10% of LNG. In terms of imports and exports, US port calls in 2024 accounted for 45% of global LPG volumes, 20% of LNG, 18% of tankers, 15% of containers, and 7.5% of dry bulk.
Container freight rates from Asia to the US west coast could rise by around $150 per teu and VLCC spot rates could rise by $ 0.50 per barrel on shipments from the US Gulf to Asia, according to calculations from Jefferies.
A submission to the USTR from BIMCO, the largest direct entry membership organisation in the shipping industry, noted that a fee of $1,000 per net tonnage on a 300,000 dwt VLCC is more than $100m per port call.
“The proposed actions will impose much-increased transport costs on US imports and exports and have negative effects on the wider US economy; their impact on Chinese dominance is much less certain,” stated Lars Pedersen, BIMCO’s deputy secretary-general.
Andrew Abbott, the CEO of New Jersey-headquartered Atlantic Container Line, warned in his submission to the trade body that if the proposed action is implemented as is, ACL, owned by the Grimaldi Group, would be forced to terminate its US service, close its American offices, lay off its American staff and redeploy its ships to non-US trades.
“US export container rates to Europe for a carrier with a Chinese-built fleet – now averaging $500 per feu – would climb to around $2,500 per feu overnight – a 500% increase – simply to cover the new service fee,” Abbott warned, while US import rates from Europe would need to jump 80% to cover the new service fee.
“As the chaotic period of redeployment of non-Chinese-built ships to US trades and Chinese-built ships to non-US trades takes place, and as carriers like ACL leave the trade entirely, both the supply and demand balance and operating costs of most carriers would be completely upended. This would cause a freight rate explosion that would dwarf the Covid-era rate increases and devastate the supply chains of American companies,” Abbott wrote, arguing that none of this “turmoil” inflicted on American exporters and importers would help the American shipbuilding industry.
“It would only re-shuffle the cards, with Korea, Japan and Taiwan grabbing the new vessel orders instead of China,” Abbott wrote.
Captain Scott Bravener, the CEO of McKeil Marine, an American-owned Canadian ship operator, in his submission, warned the US and other nations currently lack the requisite shipbuilding infrastructure to replace all Chinese-built vessels serving the Great Lakes-St. Lawrence region.
Cary Davis, president and CEO of the American Association of Port Authorities, urged the USTR to reconsider its approach to countering Chinese dominance in the global shipbuilding industry by narrowing the scope of the proposed fees or reversing course until a more comprehensive strategy can be developed.
“As formulated, USTR’s proposal would raise prices for consumers and businesses, lead to chaos across the nation’s port and transportation industries, and would not reduce the international shipping industry’s reliance on Chinese shipyards,” Davis argued.
The proposed fees would incentivise ocean carriers to consolidate traffic to the nation’s largest ports, while cutting out small and medium-sized ports from their routes, Davis suggested, something that would cause significant congestion at large ports and the collapse of business lines at small and medium-sized ports.
“The results would be higher inflation, more unemployment, and higher trade deficits,” Davis predicted.
AAPA contributed to a study conducted by Trade Partnership Worldwide to analyse the impacts of the proposed fees on the American port and logistics industry, as well as the broader economy.
The preliminary results of this study suggest that if USTR’s proposed actions are implemented fully, US goods exports could decline by 11.97%. Agricultural exports will be especially hard hit, causing farm household income to fall by 15.76%, as their access to markets abroad closes. Prices for export of agricultural products will soar. The export of petroleum and coal products would also decline by 8.11%.
The Andersons, an Ohio-based grains giant, also predicted the singling out of Chinese tonnage would ultimately have “substantial economic impacts” on American farmers.
“The impact that the restriction will have on grain vessels is substantial, increasing the cost per bushel by between $0.50 and $1.25 depending on the port of call, a 10% – 30% price increase on already price-sensitive commodity,” the submission from the agribusiness firm stated.
By assessing multimillion-dollar fees on each port call, Davis from the American ports body said cargo will be diverted to Mexican and Canadian ports to be shipped by truck and rail into the US, something that also worried Dan McKisson, president of the Washington state branch of trade union, the International Longshore and Warehouse Union (ILWU), who agreed that if there are no equivalent fees for cargo entering through Mexico or Canada, cargo diversion to these countries will increase significantly to bypass the proposed fees.
“It is recommended to address the land border loophole and harmonize the US port fees across all ports of call. This would ensure that steamship lines do not favour larger load centres over smaller regional ports,” McKisson suggested.
The first signs of a two-tier market are emerging in anticipation of Trump’s likely penalisation of Chinese-built tonnage.
Broker BRS reported last week Chinese-linked ships are now becoming “far less attractive” for long-time charters due to the likelihood that, at some point during their charters, these ships would be required to call at US ports.
Law firm Hill Dickinson is also seeing revisions to charter-party wording, both bespoke terms and amendments to standard charter-party forms for voyage and period fixtures in relation to a likely impending clampdown on Chinese-built tonnage by the US.
Clarksons Research has calculated nearly 37,000 US port calls last year by ships that would likely face the maximum $1.5m fee due to their connection to China, equivalent to 83% of containership calls but only around 30% of stops by tankers.
As with many industries, China has come to dominate shipbuilding this century, moving from a global market share of less than 10% of the global orderbook to a commanding two-thirds stranglehold by the end of last year. The US, by contrast, has a market share of less than 1%. Putting the scale of how far behind American shipbuilding is to its Asian rival, China manufactured more commercial vessels by tonnage in 2024 than US shipyards have built since the end of World War II.
Global Times, a state-run Chinese newspaper, lambasted the American plans last week in an OpEd, arguing: “The chasm between American and Chinese shipbuilding is fundamentally a gap in industrial infrastructure. The forces of globalization swept away America’s steel mills, machine shops and skilled labor force, leaving behind rusting supply chains and a hollowed-out manufacturing base. Shipbuilding, a quintessential heavy industry, requires a robust industrial foundation. When that foundation crumbles, shipbuilding inevitably follows.”
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