- The USTR plans hefty fees on vessels linked to Chinese shipyards or operators.
- Only 36% of crude and 35% of product tankers will avoid the fees.
- VLCCs could pay up to $105.3 million per US port call.
The new trade policy plan of the Trump administration will cause havoc in world shipping markets. The US Trade Representative (USTR) has called for significant tariffs on Chinese-built vessels to stem China’s domination of the shipbuilding sector. This plan may render ships associated with Chinese operators or shipyards economically unfeasible for US trade, creating a two-tier market, reports Drewry.
Overview of the Proposed Policy
The USTR’s suggested policy would impose hefty fees on:
- China-built or China-operated ships calling at any US port
- All ships operated by owners with or that have ordered China-built ships, independent of the vessel’s place of construction
The fees will be per vessel call, and not just for Chinese operators but worldwide shipowners who have any relationship with Chinese shipyards.
Impact on the Oil Tanker Market
Less than one-third of the world’s oil tanker fleet will be exempt from these charges, with 36% of crude tankers and 35% of product tankers spared. This leaves two-thirds of the oil tanker fleet paying extra fees upon arrival at US ports, thus raising freight expenses.
China-operated ships will be charged the most, with charges up to $1,000 per net tonne of ship capacity. A small product tanker may pay charges of nearly $10 million per port call, while a Very Large Crude Carrier (VLCC) may pay as much as $105.3 million. These charges would render China-operated ships uneconomical for US trade.
Impact on Freight Rates and Cargo Costs
With fewer unaffected vessels, US trade freight rates will jump sharply. VLCCs for Middle East to US crude exports may see freight prices rise by 14% to 41%, while Medium Range (MR) tankers for US Gulf to Northwest Europe diesel exports may see rates jump by 57% to 172%.
For shipowners, this will mean increased per-barrel transport prices. Crude oil loaded on VLCCs from the Middle East and transported to the US will set an extra $0.3 to $0.8 per barrel, and diesel loaded from the US Gulf and transported to Northwest Europe on MR tankers will cost $1.8 to $5.4 more per barrel.
Longer-term implications for international trade
The suggested fee will increase US crude and refined product exports and imports. While unaffected ships will experience increased demand, driving freight rates up, others will lose competitiveness. Increased freight charges will also shift international trade patterns. US crude and product imports will be more expensive, and possibly higher domestic oil prices will follow. At the same time, US exports of products could drop as higher freight costs make them less competitive. Middle East diesel will take a share in Europe at the expense of US diesel exports, while European gasoline imports will rise in Latin America at the expense of US supply.
If the policy is implemented, it may impact shipowners’ future choices of shipyards. Although Chinese shipyards are dominant at present, other shipbuilding countries such as Vietnam and India might gain an advantage in the long term. But China’s grip on the shipbuilding sector is not likely to be broken anytime soon.
Limited Benefits from US-Built Ship Refunds
The policy has a refund provision under which operators of US-built ships can claim a $1 million refund for each US port call. But fewer than 1% of the world’s tanker fleet are US-built ships, and owns the majority of these. Consequently, this refund system provides little comfort to the majority of shipowners.
Uncertainty Surrounding Implementation
The policy, however, remains in its draft stages, with no decisive details revealed. In its implementation, it will transform the international shipping industry by raising the costs of freight, changing trade routes, and, maybe, reorienting shipbuilding. The next few months will be decisive in determining the ultimate form of the policy and the effect it will have on international trade.
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Source: Drewry
