If you thought the global shipping and supply chains would stabilize after the disruptions caused by COVID-19 and the Suez Canal blockage, recent developments suggest otherwise.
The latest Drewry analysis pointed out two emerging factors that are heightening concerns about the future of international shipping: the proposed US penalties on Chinese shipping operators and the looming threat of new tariffs on imports to the US.
Proposed US Penalties on Chinese ships, operators
On February 21, the US Trade Representative unveiled proposals for unconventional penalties targeting Chinese shipping companies, as well as non-Chinese operators using China-built container ships. Drewry, a global shipping consultancy, has conducted an initial assessment to explore the potential impact of these measures on various stakeholders, including carriers, shippers, non-vessel operating common carriers (NVOCCs), and ports.
Three new fee structures on the horizon
- Penalties for Chinese Maritime Operators: The US plans to impose fees of up to $1 million per vessel call at US ports on operators like COSCO and OOCL (owned by COSCO), two of the top nine container shipping companies serving US routes.
- Penalties for Chinese-Built Ships: A proposed $1.5 million fee could be levied on operators of China-built ships calling at US ports. This would affect nearly all of the top 9 global shipping lines, including those in major alliances, since between 29% and 31% of the world’s container ships are built in China.
- Penalties on Ships Under Construction in China: For operators with vessels currently under construction in China, the tariff fee could reach up to $1 million per ship. Of the top 9 global alliances, all but Korea’s HMM are affected by this measure.
Drewry estimates that over 80% of container ships calling at US ports could face these new tariff fees, either due to their operators being based in China, their vessels being built in China, or having new ships on order from Chinese yards.
For a typical-sized container ship on the three main US trade routes, these fees could add between $222 and $500 per TEU (twenty-foot equivalent unit) of capacity, translating to an additional $2 million to $3 million per sailing. For comparison, these costs would be significantly higher than Europe’s Emission Trading Scheme carbon taxes.
The potential for retaliatory measures from China, particularly targeting US-owned carriers like Matson, further adds to the uncertainty. Since the tariff proposal was announced in April, COSCO Shipping Holdings’ share price has already dropped 4%, despite a 3% rise in the Hong Kong stock exchange index during the same period.
Additional details on the potential impacts of these proposed penalties, including how they might affect shipper-carrier contracts, surcharges, and the broader North American container shipping market, are available to Drewry Benchmarking Club members.
US Tariffs on Imports: The Trump 2.0 Era
In addition to the new penalties on Chinese carriers, the Trump administration is implementing a wave of new tariffs that could further complicate international trade. The key developments include:
Tariffs on Chinese Imports: On February 4, the US increased tariffs on imports from China by an additional 10%, continuing the trade war initiated under the previous administration.
Tariffs on Imports from Mexico and Canada: Effective March 4, the US plans to impose a 25% tariff on imports from its North American neighbors after a 30-day reprieve. Trump had signaled that tariffs on some products would continue, with some speculating that these measures could expand.
Tariffs on European Imports: The US has also announced plans to introduce a 25% tariff on imports from the European Union soon, further escalating trade tensions.
While some of these tariffs are still in the planning stages and may be subject to negotiation, they are causing significant concern in the business community. For instance, stock prices of European car manufacturers dropped following the announcement of new tariffs on US imports from Europe.
In response, EU officials have stated their intention to resist the tariffs and hinted at possible retaliatory actions. A spokesperson for the European Commission declared, “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.”
Drewry said that as the global shipping industry grapples with the aftermath of pandemic-related disruptions, new regulatory and tariff challenges are emerging, threatening to destabilize an already fragile system.
The proposed US penalties on Chinese shipping companies and the new tariff threats from the Trump administration are just the latest sources of uncertainty. With the potential for retaliatory measures and increased costs, the outlook for international shipping remains clouded, and businesses across the globe should be prepared for more volatility ahead, Drewry concluded.
