The global shipping industry is paying close attention to a new U.S. policy that could impose port charges on Chinese-built ships, and the impact of this potential measure on the market is already beginning to be felt, with some leading industry law firms suggesting that some newbuilding contracts for Chinese yards are at risk of being canceled.
Combined with multiple sources, a two-tier freight market emerges as a result of trade restrictions that may be pushed by President Trump.
Shipbroker BRS reports that China-related ships are now becoming less attractive in the long-term charter market due to the increasing likelihood of facing “penalties”, as they are likely to be required to call at US ports at some point during the charter period.
Hill Dickinson, a well-known British maritime law firm founded in 1810, has also noticed that the revision of the wording of charter parties, whether custom clauses or standard contracts, are being revised, which fully reflects the industry’s concerns about the upcoming restrictions of the U.S..
BRS expects that even spot voyages that may call at U.S. ports will soon see the avoidance of Chinese-built ships. Looking purely at spot voyages to and from the U.S., it seems unlikely that charterers will choose to charter China-related ships,” the shipbroker noted in a market report. A two-tier freight market may eventually develop, with the first tier being non-Chinese-built ships (the vast majority of which are Japanese- and Korean-built ships); and the second tier being China-related ships, which may be chartered at slightly lower rates than the first tier of ships.”
Trump is expected to decide soon whether to implement a proposal from the Office of the U.S. Trade Representative (USTR) that calls for adding up to $1.5 million in port fees on Chinese-built ships each time they call at a U.S. port. Trump has recently expressed interest in these measures as part of a plan to revitalize the U.S. shipbuilding industry.
“Initial industry reaction suggests that the market is expecting a significant increase in freight rates, a possible shift of some shipping business to Mexican ports, and the cancellation of some newbuilding contracts for Chinese shipbuilders,” Hill Dickinson noted in a report to clients.
China currently dominates the global shipbuilding industry, with a market share of nearly two-thirds as of the end of last year. Clarkson data show that China-related ships made nearly 37,000 port calls in U.S. ports last year (83 percent were container ships), and that the U.S. could receive as much as $55.5 billion a year in port fees if taxed at the proposed rate.
USTR’s port fee program has received overwhelming opposition. According to a summary by Lloyd’s List, industry opposition is strong, with business leaders arguing that the port fee plan could have disastrous consequences for U.S. trade and the economy; several shipping companies have said they will go bankrupt or terminate their operations in the U.S. if the port fee plan goes into effect.