The U.S. shipping industry is deeply concerned about the recent proposal by the Office of the U.S. Trade Representative (USTR) to impose port charges on Chinese-owned and -built ships, arguing that these charges will ultimately be borne by U.S. importers or passed on to consumers, leading to inflation.
James Hookham, director of the Global Shippers Council (GSF), said that at a recent meeting, members discussed the possible consequences of the USTR’s proposed levy. Under the proposal, each Chinese-built ship could be levied up to $1.5 million per port call.
Hookham said that at a recent GSF board meeting, representatives from the U.S. and Canada discussed the issues with almost “ desperate ” feelings, and expected that carriers would certainly pass these additional costs on to their customers. First, it’s going to increase costs for U.S. shippers and importers, and then it’s going to end up costing consumers, either by tightening cash flow for U.S. businesses or by driving up prices,” he said. This is not going to end well for anyone.”
Fleet data provided by MDS Transmodal Consulting shows that 26% of all ships (totaling 301) calling at U.S. ports in February were built in China, representing 20.2% of available capacity.
One way to circumvent these costs is for major carriers to establish subsidiaries in the U.S. to operate feeder services from ports in Canada, Mexico, and even the Caribbean (including Kingston, Jamaica) to connect with mainline ships and transship cargo to the U.S.
Hookham said, “But if the Trump administration imposes a 25 percent tariff on goods from Canada and Mexico, this program will not work.”
According to Dynaliners analyst Darron Wadey, even if the per-port call charge were halved to $750,000, the impact on trade would be significant. Wadey calculates, “In the Port of New York, for example, there are more than 2,200 container ships calling at the port in 2022. If 30 percent of those ships are Chinese-built, even with a universal tariff of only $750,000 per port call, the additional cost to the U.S. supply chain from that one port alone would be as much as $500 million per year.”
In addition, Wadey explained that Chinese carriers will have to eliminate calls to U.S. ports to reduce additional costs, and that Canada and Mexico may not be viable freight alternatives. However, especially in the context of shipping alliances, cutting U.S. routes could call their operational relevance into question. Outside of alliances, this would also affect their commercial competitiveness.
One of the reasons the USTR proposes to impose a fee on Chinese-built ships is to revitalize the U.S. shipbuilding industry. However, Wadey is skeptical, arguing instead that the measure could cool the shipbuilding industry’s chronic overheating.
Japan and South Korea, the other two countries with experience in large ship construction, are unlikely to have enough shipyard capacity to meet the massive shift in orders.
Wadey further said: “The recent interest shown by carriers such as Maersk, CMA CGM and MSC in India is noteworthy as part of the country’s strategy to build an international presence in heavy industry. However, India has yet to demonstrate experience in building large (container) ships. In addition, India has to compete with more established shipyards, including emerging markets such as Taiwan and Vietnam, as well as experienced small yards in the Philippines.”
Moreover, Wadey firmly believes that the U.S. shipbuilding industry will not be revived in the short term. “We are still a long way from the time when shipyards can quickly rise and start building large numbers of ‘Liberty Ships’. Even if it can be achieved, the economic benefits and experience of U.S. shipyards will hardly justify large-scale transformation.”
Wadey found by rough calculations that the largest U.S. containerships are two 3,600 TEU ships delivered in 2010 at a unit cost of $210 million, which is comparable to the unit cost of a series of 18,000 TEU ships recently subscribed by CMA CGM at a shipyard in China and South Korea.