- Measures include steep port entry fees for vessels
- Japan, Korea’s shipbuilding sectors likely to benefit
Mysteel Global: Global shipping companies that have Chinese-made vessels in their fleets and that regularly call at ports in the United States are bracing for what could result in a huge escalation in their costs as the Trump administration ponders punitive action against Chinese shipping companies and Chinese-built vessels now plying the world’s oceans. Although Japanese and Korean shipbuilding companies and logistics firms sense a welcome surge in business – shares in HMM co, formerly Hyundai Merchant Marine and South Korea’s largest shipping company, surged to a 52-week high late last month when news broke – the impact on global trade could be just as massive as Trump’s tariffs, industry insiders warn.
Biden’s goodbye gesture to US builders
In March 2024, leading US labour unions connected with the shipping and shipbuilding industries filed a petition calling on the US Trade Representative (USTR) to take action against China’s policies that support its shipbuilding industry, a call taken up by the Biden administration, which, in the following April, launched a USTR Section 301 case into China’s maritime, logistics, and shipbuilding industry practices.
In the resulting report, released shortly before Trump took office in January, it was alleged that China was unfairly controlling the shipping industry and that “emergency measures” were needed to resolve the issue. The USTR is now seeking public comments on proposed actions under Section 301 of the Trade Act of 1974, which are aimed at eliminating China’s acts, policies and practices that, Washington claims, seek to ensure its dominance in three areas.
According to USTR findings, China’s share of the global shipbuilding market had skyrocketed from less than 5% in 1999 to over 50% by 2023. By January 2024, China’s ownership of the global commercial fleet had surpassed 19%, according to the report, with China now also controlling 95% of the world’s shipping container production and 86% of intermodal chassis supply.
In shipbuilding last year, China further extended its dominance in the three crucial areas of new ships delivered, new ships ordered and order backlog, with each showing double-digit increases compared with 2023. China accounted for 55.7%, 74.1%, and 63.1% of the world’s totals last year, respectively, as Mysteel Global has reported.
The USTR claimed that China’s “unprecedented market power” could displace foreign competitors, reduce global competition, and create dependencies on China. In response, the USTR has proposed substantial measures to curtail China’s control over global maritime and shipbuilding activities while at the same time promoting the transport of US goods on US vessels.
Proposed measures, fees
The measures include imposing port entry fees of up to $1 million per vessel for ships affiliated with Chinese maritime operators – such as the state-owned China Ocean Shipping Co – or up to $1,000 per tonne of the vessel’s cargo capacity when they enter US ports.
Additionally, if the proportion of Chinese ships in a global shipping company’s total fleet reaches a certain level, extra fees will be levied. For example, if Chinese-made ships comprise half of a shipping company’s fleet, an entry fee of $1 million will be charged on any of the fleet’s vessels entering a US port.
And it is not just existing fleets. According to the USTR’s plan, in the next 24 months, if 25% or more of the total number of vessels of a shipping company anywhere in the world are Chinese built, it will be charged an additional fee of up to $1 million each time its vessel enters a US port.
Keeping US yards afloat?
As Washington’s aim is to give a boost to the domestic shipbuilding industry, the raft of proposals includes some sweeteners for companies that buy American vessels. For example, USTR has said that under the proposal, fees of up to $1 million could be refunded for each entry into a US port by a US-built vessel employed in international maritime services.
On the other hand, along with the punitive fees levied on Chinese vessels, the USTR also recommends increasing the percentage of US goods that must be transported on US-flagged vessels. Under the proposal, for the first two years, at least 1% of US exports would need to be shipped on US-flagged vessels, covering capital goods, consumer products, agricultural items, and chemical petroleum and gas. This percentage would increase to 3% after two years and 5% after three years. After seven years, the policy would require at least 15% of US goods to be transported on US-flagged vessels, with 5% transported on US-built ships.
The policy will be finalised after a public hearing by the US International Trade Commission (USITC) on 24 March to gather public feedback. Afterward, the USTR will review the input and decide on the next steps, which could include implementing the proposed fees and restrictions or adjusting the approach based on the feedback received.
China’s response
The Chinese government has consistently opposed the investigation. At a press conference held early last month, a spokesperson for China’s Ministry of Commerce stated that multiple rounds of discussions have been held between the US and China since March 2024, where China has made clear its objections to the Section 301 investigation. The ministry has urged the US to stop blaming China for domestic industrial challenges and to adopt a more “rational and objective stance” – advice that Washington has clearly declined to accept.
China’s commerce ministry has warned that the proposed port fees and other restrictions could harm both nations by driving up transportation costs and potentially fueling US inflation, which would reduce the competitiveness of US goods globally. The ministry also pointed to potential harm to US ports, operators, and workers, noting significant domestic opposition to such measures. Some trade analysts caution that the heavy fees could escalate tensions with China and other trading partners, potentially leading to retaliatory actions that may harm US businesses.
Nice idea but will it sail?
The USTR’s proposed actions are likely to spark considerable debate. US shipbuilders and labour unions generally support the move, arguing that China’s unfair practices threaten US jobs and industry growth. Washington clearly hopes to refloat the US shipbuilding industry, but would this be possible?
According to data from the United Nations Conference on Trade and Development (UNCTAD), during 2023, the total amount of global merchant ships constructed – excluding fishing vessels, offshore platforms and military vessels – reached 64.7 million gross tons (GT), of which China’s shipbuilding industry contributed 32.8 million GT (for a 51% global share), South Korea some 18.3 million GT (28%) and Japan 9.8 million GT (15%). By comparison, the US added 64,800 GT to global merchant marine capacity, just above Iran with 64,700 GT, the data show.
The US would argue that it is precisely because of China’s dominance of the sector that its share is so small. But re-equipping US yards, training workers, and sourcing inputs such as steel – amid Trump’s punitive import tariff scheme – would be slow and in the meantime, global ship owners would rush to place orders elsewhere.
“If Trump decides that Chinese-made ships attract large port fees, ship owners will have to secure ships made in other countries such as in South Korea or Japan, so there is a chance for Japanese yards to receive more orders,” an official from the Japan Ship Exporters’ Association (JSEA) said. “But Japanese shipbuilders have already full orders to keep their yards fully occupied until 2027 and are now receiving orders for deliveries from 2028… so, the Japanese shipbuilders are not in a hurry to receive more orders,” he said.
As of end-January this year, the Japanese yards had orders in hand totalling 29.38 million GT, according to the latest JSEA statistics, with orders for delivery by March 2029 at 3.54 million GT. Japanese yards need over 3 million GT of orders in hand to keep them fully operating, Mysteel Global notes.
“In any case, even if the US does not impose extra fees this time, owners may place orders with Japanese or Korean yards, just in case,” the JSEA official observed.
Meanwhile, if Washington proceeds with its plan and formally implements the port entry fee policy for Chinese ships, the Korean shipbuilding industry would be the biggest beneficiary, being the world’s second-largest builder currently and with capacity to spare.
“For global shipping companies, choosing South Korean ships can effectively reduce the burden of additional port entry costs compared to ordering Chinese ships,” argued local media Aju News. “Although South Korea’s shipbuilding industry has been disadvantaged in recent years due to China’s low-price offensive, it still has excellent construction capabilities, and the competitiveness of the industry should not be underestimated,” it noted late last month.
Germany’s Hapag-Lloyd, the world’s fifth-largest shipping company, is finalising a $1.2 billion order for six dual-fuel LNG container ships from South Korea’s Hanwha Ocean, the former Daewoo Shipbuilding and Marine Engineering, according to shipping journal TradeWinds. In November last year, Hapag-Lloyd announced that it had signed contracts with two Chinese shipyards for a total of 24 new container ships – 12 to be built by Yangzijiang Shipbuilding Group and an additional 12 ships ordered from New Times Shipbuilding Co, both located in Jingjiang city, East China’s Jiangsu province.
However, early last month, local media BusinessKorea quoted TradeWinds as reporting that, due to predictions that the US government would further strengthen sanctions against China, Hapag-Lloyd has decided to adjust the order and hand over six ships in the order to Hanwha Ocean to build. BusinessKorea quoted Hanwha Ocean as insisting “nothing has been confirmed” regarding the construction contract with Hapag-Lloyd.
Note: This article has been written in accordance with a content exchange agreement between Mysteel Global and BigMint.
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