Is US energy and economic security at risk under port fee proposal?

Commenting on the USTR proposal, ICS secretary general Guy Platten emphasised that if the service fees are applied at the proposed levels, it would be unfeasible for many operators to immediately transition to non-Chinese-built vessels. As a result, the cost of calling at US ports would "increase drastically", forcing vessel operators to either reduce or cease operations at these ports.

This could lead to a decline in available tonnage for US imports and exports. For those operators that continue servicing US ports, the added costs would likely be passed on to consumers, as is standard industry practice “when such unforeseen, exceptional and exorbitant costs are incurred”.

Could China ultimately benefit?

Despite the intended objective of reducing reliance on Chinese-built vessels, ICS suggests the proposed fees could inadvertently benefit China. Data indicates that while China accounts for only 13% of global merchant fleet ownership, at least 35% of the fleet serving US maritime trade is built there but owned and operated by companies based in US trading partner countries outside China.

A service fee leveraged against a vessel which is already built or in construction under contract, may, at best, fail to disincentivise or eliminate alleged Chinese acts, policies or practices and, at worst actively hinder US market access to vessel types vital to maintaining its energy and economic security, ICS noted.

“If the proposed service fees are imposed, they could not only increase the costs of chartering Chinese-built ships, but non-Chinese built ships as well, given the resulting shortage of these vessels and a sharp increase in demand,” ICS stated. This could inflate costs along the entire supply chain, ultimately burdening US businesses and consumers.

According to ICS, since most vessels take at least 2.5 to 3 years to build, this could lead to a prolonged period of higher fees for businesses exporting and importing US goods, ultimately undermining the intended objectives of the proposed measures.

“The proposed remedies may result in newbuild vessels remaining under Chinese control and operation, rather than delivered to shipowners around the world, thus enhancing China’s dominance in the maritime sector,” ICS added.

Impact on trade 

ICS warns the proposed fees could significantly affect the competitiveness of US agricultural and energy exports in global markets.

For example, in the agricultural sector, ICS highlighted soya beans, the top US agricultural export by value. If these exports can only be transported using Japanese or South Korean-built bulk carriers, freight rates could rise to US$100,000–200,000 per day, potentially disadvantaging US producers against competitors in Argentina and Brazil.

In the energy sector, ICS noted additional fees ranging from US$500,000 to US$1.5M per voyage for Aframax tankers could drive up costs by US$7–21 per tonne. A US$7 per tonne increase on Aframax shipments from the US Gulf to the Mediterranean would make US crude oil considerably less attractive to European refiners, who could turn to alternative suppliers in Latin America, West Africa, the North Sea or the Middle East.

In container shipping, ICS cites estimations indicating the proposed service fees could add US$600–800 per container, effectively doubling freight costs for US exports. Given that container ships servicing the US typically call at three to four US ports per trip, additional fees ranging from US$1M to US$3.5M per port call “would add millions in cost to each voyage”.

BIMCO echoes similar concerns 

BIMCO has expressed similar concerns. Commenting on the proposal, BIMCO deputy secretary general and director of regulatory affairs Lars Robert Pedersen warned if the fee structure is implemented as proposed, it would make seaborne trade to and from the US less efficient and less economically viable.

Mr Pedersen noted that some operators might avoid using Chinese-built vessels altogether, dedicating their maritime operations towards the US market, while others might increase their reliance on Chinese-built ships and shift their focus away from US trade.

While the overall size of the global fleet would remain unchanged, BIMCO predicts these shifts would reduce competition within the now-segregated US market, leading to increased costs for maritime trade.

“In this regard, it is worth keeping in mind that US import/export is about 12% of global seaborne trade, so the consequences of re-organising maritime trade will have a much bigger impact on US import/export than on trade in the rest of the world,” Mr Pedersen concluded.