Opinion is divided on the United States Trade Representative’s (USTR) port fee proposal for China-linked vessels, with many touting concern of economic damage for a public hearing on the fee proposal on 24 March.
Under the fees proposed by the USTR, Chinese vessel operators would be charged a fine of "up to" $1mn lumpsum per entrance "for any vessel of that operator" to a US port or "at a rate of up to $1,000 per net tonne of the vessel's capacity".
And "Chinese-built" vessels would be charged "up to" a $1.5mn fee when calling at a US port, with that fee being determined by the percentage of Chinese-built vessels in the operator's fleet. Fleets comprising 50pc or more with Chinese-built vessels would be charged $1mn per vessel entrance into US ports, those between 25pc and 50pc would be charged $750,000 per vessel entrance, and those greater than zero but less than 25pc would be charged $500,000.
The USTR also recommended that any fleet with more than 25pc Chinese-built vessels should be charged with an "additional fee" of $1mn per vessel entrance, although whether that would be in addition to the suggested maximum of $1.5mn is unclear.
A huge swathe of the global fleet is built in China and most owners will have ships under construction at Chinese yards. Broker EA Gibson estimates that more than 60pc of the global tanker fleet is owned by companies with at least one China-built ship, while 40pc of owners have at least 25pc of their fleet built in China.
If introduced, these fees could leave US importers and exporters of all commodities scrambling for tankers and bulkers unconnected to China — resulting in drastically higher freight rates — while these fees could be passed directly on to the consumer.
The USTR launched an investigation on 17 April 2024 on allegations that China’s state-led industrial planning was unfairly targeting the maritime, logistics and shipbuilding sectors for global dominance. In a report published on 16 January this year, the investigation concluded that China “directs non-market advantages” via control of its economic actors and sectors (terminology used in the report). This is achieved by "top-down industrial planning" employing "non-market policies" which "unfairly depress costs or provide advantages".
The report stated that China’s approach burdens US commerce by undercutting business opportunities for US sectors, restricting competition and choice, creating economic security risks, and undermining supply chains. For these reasons, the report indicated that China’s approach justifies trade action under Section 301 of the Trade Act of 1974.
Following the hearing, a decision on the means of implementation or whether there will be any action at all could come as early as 17 April. This is because the statutory deadline for an investigation under Section 301 of the Trade Act of 1974 is 12 months from initiation — although a one-time extension of 180 days can be provided if necessary, which could delay the decision to 14 October. Following the decision, the USTR has 30 days to implement any trade actions. This means it is possible that port fees could be implemented as soon as 17 May.
Industry pushes back on proposed port fees
Ahead of the public hearing, various industry stakeholders complained about the threat of economic damage, disruption to trade flows and higher consumer costs.
Of the 64 testimony summaries submitted to the USTR ahead of the public hearing on the fee proposal on 24 March, a majority expressed concern about the potential economic damage. Much of the opposition came from port, shipping, retail, agricultural and energy sectors, all of which rely on revenues from international trade and would likely face the most disruption from the measures. This was counterbalanced by outright support from the domestic shipbuilding, manufacturing and security sectors.
In many cases, explicit opposition to the proposal was based on the argument that the fees would stunt US trade by substantially ramping up costs, driving down the competitiveness of US goods and increasing consumer costs.
The measures would "slam the brakes on oil and gas production as the fees are onerous and make the US immediately uncompetitive", according to US midstream firm Enterprise Products' chief executive, Jim Teague. "The result will be that petroleum products will not be able to clear the market, threatening US energy security and affordability."
Some in the agricultural sector argued that the port fees would make US exports uncompetitive. The American Soybean Association said it would effectively shut off US soybean exports from global markets. The North American Export Grain Association said it supports eliminating practices that disadvantage US businesses but elements of the proposal present "challenges that may require exemptions or other actions to maintain competitiveness in the exports".
Submissions from the National Retail Federation, the American Association of Port Authorities and the International Longshore and Warehouse Union said the port fees could divert cargoes to neighbouring countries, with the latter noting that cargo diversions to Canada and Mexico could increase substantially if there are no equivalent fees for cargoes entering the US via these countries. World Shipping Council president Joe Kramek said the fees could cause port congestion, trade diversion, higher costs for consumers and harm to US businesses.
Support for the proposal was dominated by those involved in US domestic manufacturing, shipbuilding or security sectors. The United Steelworkers said the measures "provide a strong base upon which to rebuild our shipbuilding capacity, protect our logistics interests and restore maritime power", while US steelmaker Nucor noted that higher steel demand from a reinvigorated domestic shipbuilding industry had yet to materialise because of "China's unreasonable acts, policies and practices".
The Alliance for American Manufacturing claimed the measures would help to "restore American economic security, push back against China's unfair trade practices and revitalise shipbuilding in America".
Others disagreed that the measures would support domestic shipbuilding. The International Chamber of Shipping said it would probably take many years to develop US shipbuilding capacity to fill the vacuum caused by the loss of Chinese ships. Similarly, the Association of Ship Brokers and Agents suggested that focusing on Chinese-built ships without a broad strategic plan to restore the US' maritime leadership would increase the market share of other Asian shipyards, rearrange worldwide trade flows and drive up the cost of freight for US exports carried on non-Chinese vessels. It called for a "more measured strategy".
Shipowners’ possible responses
But what might shipowners do in response to these fees? Some have already indicated that they might divide their fleets into US and non-US segments to avoid the fees.
Such action depends heavily on how the fees are enforced. Each individual ship is typically owned by an individual company, with that company in turn belonging to the head owner. This corporate structure can become increasingly complex depending on where the companies are listed — which would obscure the head owner.
This trend has already become common with the sanctioned Russian crude and product export trade and shipowners looking to create US-appropriate fleets might follow a similar structure.
In the long term, parsing this corporate structure in order to assess whether or not a significant portion of the head owner’s fleet was built in China could be a nightmare for regulators, and make implementation of the fees extremely difficult. The US typically loads and discharges hundreds of ships every day.
But such corporate structures are not currently in place and would take months to implement, leaving US importers and exports unable to access perhaps as much as half of the global fleet without risking multimillion dollar fees.
Other shipowners have indicated that they will simply avoid the US completely if the fees are introduced as most have ships under construction in China or China-built ships already active within their fleet.
Authors: Leonard Fisher-Matthews and John Ollett
Spotlight content
