- The USTR’s announcement of fees up to $1.5 million on Chinese shipping companies and vessels has caused significant concern within the industry, with a potential policy shift following a public hearing on May 19.
- The 180-day buffer before implementation reflects both procedural timing and a strategic move, reminiscent of Trump’s negotiation tactics that emphasize unpredictability and potential renegotiations.
- Various shipping sectors will be impacted differently, with the dry bulk sector seeing minimal effects, while larger containerships and foreign-built vehicle carriers face significant challenges.
According to Breakwave Advisors, the U.S. Trade Representative (USTR) issued a Notice of Action on April 17, announcing fees as high as $1.5 million for Chinese shipping companies and Chinese-built vessels. Set to take effect on October 14, the implementation of these fees remains uncertain and could still be amended following the public hearing scheduled for May 19. The announcement has caused ripples across the shipping industry, sparking concerns over its potential effects.
Strategic Implications and Negotiation Tactics
On the surface, the 180-day window before the implementation of the fees may appear to be a procedural delay. However, it could also be part of a larger strategic move, aligning with President Trump’s use of unpredictable rhetoric and tactics to create leverage in negotiations. This approach, reminiscent of the “Madman Theory” used during the Cold War, aims to unsettle adversaries while leaving room for renegotiation. The extended timeframe might serve as both a warning of potential action and an invitation for further talks, influencing the dynamics of U.S.-China negotiations.
Impact on Shipping Sectors
The proposed fees will affect various sectors differently, depending on their reliance on Chinese-built or Chinese-operated vessels:
- Dry Bulk
The dry bulk sector is relatively insulated from the proposed fees due to two factors: the U.S. import share of global dry bulk commodities is low, and vessels under 80,000 deadweight tons (dwt) are exempt. Additionally, U.S. dry bulk exports will not be affected, as vessels arriving in ballast (without cargo) are also exempt. - Tankers
For tankers, the impact is expected to be minimal, as several exemptions apply, including vessels under 55,000 dwt, chemical tankers, and short sea routes. Given that U.S. crude and product imports are small and tanker voyages to U.S. ports are limited, fewer than 5% of tanker voyages are anticipated to be affected by the fees. - LNG Carriers
LNG carriers are exempt from the fees, though a new requirement will come into effect in 2028. This mandate will require 1% of U.S. LNG exports to be carried by U.S.-built, flagged, and operated vessels, increasing gradually to 15% by 2047. However, the feasibility of meeting this requirement is questionable due to the current shortage of U.S. LNG vessels and the lengthy construction timeframes for new ships. - Containerships
The containership sector is expected to face the most pronounced effects. Larger vessels (above 4,000 TEU) will be subject to fees, which could lead to shifts in demand toward smaller ships. Early market responses have already shown a decline in bookings on China-U.S. routes, an increase in blank sailings, and a cautious approach from shipowners and charterers. Potential consequences include reshuffling of trade routes, with Chinese ships avoiding U.S. ports, and the expansion of regional hub-and-spoke models in Latin America and the Caribbean to bypass the fees. - Vehicle Carriers
All foreign-built vehicle carriers will be subject to fees, but those ordering vessels from U.S. shipyards may qualify for a three-year fee remission. Given the U.S.’s status as the world’s largest importer of seaborne vehicles, the policy could have a significant impact. However, challenges exist in the global vehicle carrier market, which is currently oversupplied, and a slowdown in seaborne vehicle trade could hinder new orders despite the incentives provided.
The Road Ahead
The USTR’s proposed fees will have varying levels of impact across different shipping sectors. While some sectors, such as dry bulk and tankers, will face limited disruption, others, especially the containership and vehicle carrier markets, will be more significantly affected. The 180-day implementation window and the upcoming public hearing offer room for possible adjustments to the policy. Shipping industry participants will need to stay vigilant and closely monitor developments to understand the full scope of these changes and how they will ultimately affect the global shipping landscape.
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Source: Breakwave Advisors
