By Leo Ryan, Editor
Maritime analysts are raising red flags in many directions over this week’s new punitive measures proposed by the Trump administration targeting Chinese maritime shipping dominance. Astronomical fees of up to $1.5 million on Chinese-built ships per port call could potentially severely disrupt supply chains, provoke port congestion and even provide at least a temporary windfall for Canadian ports and railways, notably on the west coast.
Ryan Petersen, CEO of Flexport supply chain logistics platform, suggested on social media that, “a lot of U.S.-bound freight will attempt to divert to Prince Rupert and Vancouver and then rail into Chicago and other points east.”
The ports of Vancouver and Prince Rupert are already significant trans-Pacific gateways and are well-equipped to capitalize on a shift of global trade patterns thanks to excellent rail connections to the US heartland via carriers like Canadian National and Canadian Pacific Kansas City.
Under the measures outlined by the United States Trade Representative (USTR), carriers with fleets comprising more than 50% Chinese-built vessels face fees up to $1.5 million per US port call, whereas those with 25-50% Chinese-built vessels would pay up to $750,000 per call. The measures would also mandate increasing percentages of U.S. exports to be carried on American-flag vessels, with the requirements rising to 15% within seven years.
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Chinese carrier COSCO faces the heaviest hit, with nearly two-thirds of its fleet built in China and 90% of its orderbook allocated to Chinese shipyards. But European carriers including MSC, Maersk, CMA CGM, and Hapag-Lloyd will also feel major impacts, considering all have more than half of their current orderbooks in Chinese yards.
At Xenata, Chief Analyst Peter Sand has warned that ocean carriers will likely take evasive action to avoid the fees by calling at fewer U.S. ports.
“We saw a similar situation last year when carriers cut port calls in Asia and handled more containers per call at Singapore to offset the impact of the Red Sea crisis,” Mr. Sand noted. “The intentions were good, but the severe congestion caused by handling more containers in Singapore rippled across global supply chains and saw average spot rates from the Far East to US East Coast spike more than 300%.”
Mr. Sand stipulates that shippers might seek workarounds by importing goods into the US via Mexico and Canada—a growing trend.
Using Canada and Mexico as a back door
“Shippers have been using Mexico and Canada as a back door into the US to avoid tariffs on imports from China,” Mr. Sand shared. “Trump has vowed to stop this trend by imposing tariffs of 25% on imports from Mexico and Canada. But if shippers now face new port fees on top of the tariffs when importing directly into the US, it could change the situation again and fuel further growth in imports from China to Mexico and Canada. Ironically, Trump may be indirectly driving one of the very things he’s trying to guard against.”
In a preliminary assessment, Drewry consultancy opines that the impact of the proposed tariff fees would be massive if implemented. It estimates that more than 80% of current containerships calling at U.S ports would be affected by the tariffs.
For typical containerships servicing the main US trade routes, Drewry says the fee would cost between about $222 and $500 per TEU of ship capacity, and between $2 million and $3 million per sailing. It points out such costs would be seven to sixteen times higher than Europe’s new Emission Trading Scheme carbon taxes.
If eventually implemented, the World Shipping Council (WSC) said the “draconian” fee proposal would cause ocean carriers to make major adjustments to their service networks, including reducing US port calls while increasing costs for shippers.
“USTR’s proposed draconian $1 million-plus per US port visit fees, if carried forward, would cause broad economic harm across all sectors of the US supply chain,” the WSC said. “The fees would result in fewer US port calls, higher prices for US consumers, and severe impacts for exporters.”
While the proposed fees seek to incentivize the US shipbuilding industry, the National Retail Federation (NRF) questioned whether that goal can be reached. In a response last year to the Biden administration’s investigation of China, the NRF esimated it would require a $5 million fee per port call to offset the estimated $50 billion cost for adding US shipyard capacity. “This is much too high for the shipper to absorb. The fee will be passed on to the owners of the freight: American importers, and ultimately, their customers: American farmers, manufacturers and families.”
(Photo of Cosco ship in Port of Long Beach)