Forced to terminate U.S. services, shut down container operations and lay off U.S. employees
The Office of the United States Trade Representative (USTR) is scheduled to hold a hearing to discuss additional port fees for Chinese-built ships. Most submissions from trade unions, associations and market participants warn of costly and unforeseen consequences.
The Baltic International Chamber of Shipping (BIMCO) has warned that charging for Chinese-built ships will significantly increase the cost of shipping goods in the United States. American ports, cargo and shipping companies have also objected.
Maritime expert John McCowan pointed out that the fee structure could not only cause huge losses to the container shipping industry of more than $106.9 billion per year, but also severely disrupt global supply chains and increase costs for U.S. consumers. McCown emphasized the immediacy of such a fee structure and a range of adverse consequences that could be even more severe than traditional tariffs.
The chief economist of the American Trucking Association further pointed out that the fee scheme could cause merchant ships to be more inclined to dump their cargo at large ports in the United States, while small and medium-sized ports that are critical to exporters may struggle to maintain operations due to a lack of docking vessels. This will severely hinder exporters from finding ways to export their products and change the pattern of freight capacity in the United States, adversely affecting the trucking industry.
As part of its Section 301 investigation into China's maritime dominance, the Office of the United States Trade Representative proposed imposing new port fees in February. The investigation's purported conclusion was that China's actions were "unreasonable" and burdensome for U.S. business, and that action was necessary.
The proposed measures include a fee of up to $1.5 million per port entry for Chinese-made vessels and a fee of $1 million for operators who own or order Chinese-made vessels, as well as mandating that a certain percentage of U.S. imports and exports be carried by U.S.-flagged vessels. McCown, a maritime expert, Harvard Business School graduate and former chief executive of US container lines, warned that the fee structure would affect all major sea carriers that dock in the US and ultimately increase costs for US consumers.
In a detailed analysis submitted to the Office of the U.S. Trade Representative, McCown stressed that the proposed per-port call fee would effectively become a new form of tariff, with its immediacy and a range of adverse consequences that could be even more severe than traditional tariffs.
He pointed to the trans-Pacific route of Chinese operator COsco Shipping, whose vessels make three port calls on the West coast at a cost of $3.5 million each, for a total of $10.5 million per voyage. Over the course of a year, COSCO Shipping has 10 35-day voyages that cost $105 million for a single ship. This would make COSCO Shipping's vessels uncompetitive and restrict trade involving them.
However, the impact is not limited to Chinese shipping companies. French shipping giant CMA CGM, although headquartered in France and operating U.S.-flagged vessels through its subsidiary APL, can pay $2.75 million per port call due to its ties to Chinese shipbuilding and operations.
It is worth noting that Chinese ships currently account for about 23 percent of the total merchant fleet, but China holds a 57 percent share of orders, far higher than South Korea's 22.9 percent and Japan's 15.1 percent.
In its latest report, investment bank Jefferies noted that Chinese-built vessels account for nearly 50 per cent of the global dry bulk fleet, 40 per cent of container ships, 30 per cent of tankers, 15 per cent of liquefied petroleum gas vessels and 10 per cent of liquefied natural gas vessels, which play an important role in global trade. In terms of imports and exports, U.S. port traffic in 2024 will account for 45 percent of global LPG, 20 percent of LNG, 18 percent of tankers, 15 percent of container ships and 7.5 percent of dry bulk carriers. According to Jefferies calculations, container rates from Asia to the US west coast could rise by about $150 per box, while spot rates for very large crude carriers from the US Gulf to Asia could rise by $0.50 per barrel.
The Baltic International Chamber of Shipping (BIMCO), the shipping industry's largest organization, also filed a paper noting that a 300,000 DWT very large tanker (VLCC) could cost more than $100 million per port call, which would significantly increase shipping costs for U.S. imports and exports, negatively impacting the broader U.S. economy.
Andrew Abbott, CEO of New Jersey-based ACL, warned that if USTR's action goes ahead as planned, ACL would be forced to terminate U.S. service, shut down container operations, lay off U.S. employees and redeploy ships to non-U.S. routes. "For operators with Chinese-made fleets," he warned, "U.S. container rates for exports to Europe will rise by about $2,500 from an average of $500, while U.S. rates for imports from Europe will need to rise by 80 percent to cover the new port fees." This would cause freight rates to skyrocket, devastate the supply chains of American companies, and create a crisis for American exporters and importers.
Gary Davis, president and CEO of the American Association of Port Authorities, urged USTR to recalibe its approach to countering China's dominance of the global shipbuilding industry, narrowing the scope of fees or changing direction until a more comprehensive strategy is in place. He said USTR's proposal would raise prices for consumers and businesses, cause chaos at U.S. ports and in the transportation industry, and was unlikely to reduce the international shipping industry's reliance on Chinese shipyards.
Nearly 37,000 ships calling at U.S. ports last year could face charges of up to $1.5 million for being linked to Chinese vessels, according to Clarkson Research, which equates to 83 percent of container ship calls but only about 30 percent of tanker calls.
McCown suggested a more targeted approach of charging $60 per inbound container for ships not made in China and $120 per container for ships built in Chinese shipyards. He believes this alternative could generate about $1 billion a year in revenue, comparable to existing port maintenance fees.
In addition, the current proposal raises concerns about U.S. exports. McCown warned that without reasonable charging measures, U.S. exports such as grain, liquefied natural gas and coal could be displaced by other countries. "Grain exports from Iowa farmers will be replaced by Brazil, liquefied natural gas exports from Texas oil drillers will be replaced by Qatar, and coal exports from West Virginia mines will be replaced by Australia."
To complicate matters further, McCowan noted that China now produces 96 percent of dry cargo containers and 100 percent of reefer containers used in global shipping. This means that any measures that target China's shipping industry will have significant supply chain disruptions that could have far-reaching adverse effects on global supply chains.
McCowan concluded that evidence of unfair trade practices does not justify cracking down on trade any more than highway deaths justify banning cars. He called on the Office of the United States Trade Representative to take more prudent and reasonable action to avoid damage to the U.S. economy. The USTR plans to hold public hearings on the proposed action on March 24 and 26.
The Baltic International Chamber of Shipping (BIMCO) has warned that charging for Chinese-built ships will significantly increase the cost of shipping goods in the United States. American ports, cargo and shipping companies have also objected.
Maritime expert John McCowan pointed out that the fee structure could not only cause huge losses to the container shipping industry of more than $106.9 billion per year, but also severely disrupt global supply chains and increase costs for U.S. consumers. McCown emphasized the immediacy of such a fee structure and a range of adverse consequences that could be even more severe than traditional tariffs.
The chief economist of the American Trucking Association further pointed out that the fee scheme could cause merchant ships to be more inclined to dump their cargo at large ports in the United States, while small and medium-sized ports that are critical to exporters may struggle to maintain operations due to a lack of docking vessels. This will severely hinder exporters from finding ways to export their products and change the pattern of freight capacity in the United States, adversely affecting the trucking industry.
As part of its Section 301 investigation into China's maritime dominance, the Office of the United States Trade Representative proposed imposing new port fees in February. The investigation's purported conclusion was that China's actions were "unreasonable" and burdensome for U.S. business, and that action was necessary.
The proposed measures include a fee of up to $1.5 million per port entry for Chinese-made vessels and a fee of $1 million for operators who own or order Chinese-made vessels, as well as mandating that a certain percentage of U.S. imports and exports be carried by U.S.-flagged vessels. McCown, a maritime expert, Harvard Business School graduate and former chief executive of US container lines, warned that the fee structure would affect all major sea carriers that dock in the US and ultimately increase costs for US consumers.
In a detailed analysis submitted to the Office of the U.S. Trade Representative, McCown stressed that the proposed per-port call fee would effectively become a new form of tariff, with its immediacy and a range of adverse consequences that could be even more severe than traditional tariffs.
He pointed to the trans-Pacific route of Chinese operator COsco Shipping, whose vessels make three port calls on the West coast at a cost of $3.5 million each, for a total of $10.5 million per voyage. Over the course of a year, COSCO Shipping has 10 35-day voyages that cost $105 million for a single ship. This would make COSCO Shipping's vessels uncompetitive and restrict trade involving them.
However, the impact is not limited to Chinese shipping companies. French shipping giant CMA CGM, although headquartered in France and operating U.S.-flagged vessels through its subsidiary APL, can pay $2.75 million per port call due to its ties to Chinese shipbuilding and operations.
It is worth noting that Chinese ships currently account for about 23 percent of the total merchant fleet, but China holds a 57 percent share of orders, far higher than South Korea's 22.9 percent and Japan's 15.1 percent.
In its latest report, investment bank Jefferies noted that Chinese-built vessels account for nearly 50 per cent of the global dry bulk fleet, 40 per cent of container ships, 30 per cent of tankers, 15 per cent of liquefied petroleum gas vessels and 10 per cent of liquefied natural gas vessels, which play an important role in global trade. In terms of imports and exports, U.S. port traffic in 2024 will account for 45 percent of global LPG, 20 percent of LNG, 18 percent of tankers, 15 percent of container ships and 7.5 percent of dry bulk carriers. According to Jefferies calculations, container rates from Asia to the US west coast could rise by about $150 per box, while spot rates for very large crude carriers from the US Gulf to Asia could rise by $0.50 per barrel.
The Baltic International Chamber of Shipping (BIMCO), the shipping industry's largest organization, also filed a paper noting that a 300,000 DWT very large tanker (VLCC) could cost more than $100 million per port call, which would significantly increase shipping costs for U.S. imports and exports, negatively impacting the broader U.S. economy.
Andrew Abbott, CEO of New Jersey-based ACL, warned that if USTR's action goes ahead as planned, ACL would be forced to terminate U.S. service, shut down container operations, lay off U.S. employees and redeploy ships to non-U.S. routes. "For operators with Chinese-made fleets," he warned, "U.S. container rates for exports to Europe will rise by about $2,500 from an average of $500, while U.S. rates for imports from Europe will need to rise by 80 percent to cover the new port fees." This would cause freight rates to skyrocket, devastate the supply chains of American companies, and create a crisis for American exporters and importers.
Gary Davis, president and CEO of the American Association of Port Authorities, urged USTR to recalibe its approach to countering China's dominance of the global shipbuilding industry, narrowing the scope of fees or changing direction until a more comprehensive strategy is in place. He said USTR's proposal would raise prices for consumers and businesses, cause chaos at U.S. ports and in the transportation industry, and was unlikely to reduce the international shipping industry's reliance on Chinese shipyards.
Nearly 37,000 ships calling at U.S. ports last year could face charges of up to $1.5 million for being linked to Chinese vessels, according to Clarkson Research, which equates to 83 percent of container ship calls but only about 30 percent of tanker calls.
McCown suggested a more targeted approach of charging $60 per inbound container for ships not made in China and $120 per container for ships built in Chinese shipyards. He believes this alternative could generate about $1 billion a year in revenue, comparable to existing port maintenance fees.
In addition, the current proposal raises concerns about U.S. exports. McCown warned that without reasonable charging measures, U.S. exports such as grain, liquefied natural gas and coal could be displaced by other countries. "Grain exports from Iowa farmers will be replaced by Brazil, liquefied natural gas exports from Texas oil drillers will be replaced by Qatar, and coal exports from West Virginia mines will be replaced by Australia."
To complicate matters further, McCowan noted that China now produces 96 percent of dry cargo containers and 100 percent of reefer containers used in global shipping. This means that any measures that target China's shipping industry will have significant supply chain disruptions that could have far-reaching adverse effects on global supply chains.
McCowan concluded that evidence of unfair trade practices does not justify cracking down on trade any more than highway deaths justify banning cars. He called on the Office of the United States Trade Representative to take more prudent and reasonable action to avoid damage to the U.S. economy. The USTR plans to hold public hearings on the proposed action on March 24 and 26.
