Possible penalties on China-built ships… US tariffs hit more countries… What next?

More uncertainty ahead for shipping, everybody! If anybody expected ocean shipping and international supply chains would become more stable after the recent Covid and Suez Canal disruptions, they must be disappointed. Here, we look at two worrying new developments.

1. Proposed US penalties on Chinese ships and carriers

You will have read articles and comments on the US Trade Representative’s proposed unconventional penalties on Chinese carriers and on non-Chinese operators of China-build containerships announced on 21 April.

Drewry carried out a preliminary assessment of what carriers, shippers, NVOCCs, ports and other stakeholders in container shipping should expect, and what the impact of the proposed measures could be (the plan has a number of “options”).

The estimated impact of the 3 new tariff fees, if implemented, would be huge:

The proposed tariff fees on Chinese maritime operators would affect COSCO, and possibly affect OOCL (Hong Kong-based, but owned by COSCO), with penalties of “up to $1 million” per US vessel call. COSCO and OOCL are among the top 9 operators on US container routes.

The proposed tariff fees on maritime transport operators with Chinese-built ships of “up to $1.5 million” per US port call would affect directly or indirectly all of the top 9 global ocean carriers and all the alliances. Depending on whether you include Taiwan, China-built ships under the scope of the regulation or not, between 29% and 31% of containerships operating globally are made in China. All but Evergreen and HMM operate China-build ships calling at US ports.

The proposed tariff fee on maritime operators with ships on order from China of “up to $1 million” would hit 8 of the top 9 alliance carriers. Only Korea’s HMM does not have containerships on order in China today.

Therefore, Drewry believe that more than 80% of current containerships calling at US ports would be hit by US tariff fees as they are envisaged, either because the operator is based in China, or the ships are built in China, or the operator has ordered ships in China.

For a typical size of containership on each of the three main US trade routes, the estimated US tariff fee per teu would cost between about $222 and $500 per teu of ship capacity, and between $2m and $3m per sailing– see table. For comparison, these costs would be between 7 and 16 times Europe’s new Emission Trading Scheme carbon taxes.

There could be punitive counter-measures from China against US-owned carriers, including Matson, which would also add costs.

Since the proposed penalties were announced on 21 April, the share price of COSCO Shipping Holdings has fallen by 4% (the Hong Kong stock exchange overall index rose 3% during the same period).

Further insight into expected public comments following USTR’s request for comments, the impact of the proposed penalties on shipper-carrier contracts and surcharges, and the distortion of the North American container shipping market are available from the Drewry Benchmarking Club.

• 2. Confirmed or threatened new tariffs on imports to the US from Trump 2.0

To recap, the new US administration:

• Has already added another 10% of tariffs on imports from China with effect from 4 Feb;
• Is planning to implement tariffs on imports from Mexico and Canada of 25% from 4 Mar, after a 30-day temporary reprieve (Donald Trump was quoted as saying “the tariffs go on… not all of them but a lot of them”); and
• Has just announced a plan to introduce 25% tariffs on imports from the European Union, “very soon”.

Some of these tariffs are plans, not decisions, and may be negotiated down.

But businesses are worried. The stock prices of European car manufacturers fell after the latest announcement of tariffs on US imports from Europe.

European Union officials have said that they will resist the tariffs and implied that they could impose retaliatory tariffs on US exports to Europe. “The EU will react firmly and immediately against unjustified barriers to free and fair trade, including when tariffs are used to challenge legal and non-discriminatory policies,” a European Commission spokesperson said.

• What do all these tariffs and potential counter-tariffs mean for shipping and for shippers?
They mean not only that shippers will require more customs compliance staff, time or delays, but also that products sourced from a current supplier or country are no longer cost-competitive.

At present, it seems that supply chains from China are at the higher risk of tariffs. But in an ever fragmented world, and tariffs creating more instability, there is no one location which can accommodate a mass exodus, so shippers could use the Drewry Ocean Network Optimiser to asses best fit location.
Source: Drewry