A U.S. proposal to impose cumulative, severe, financial penalties on China-connected shipping calling at the U.S. could lead to widespread business failures, increasing unemployment in the United States, a disruption of import and export trades, disruption to U.S. markets (multiple sectors) and ongoing supply chain disruption. Words like “disastrous”, “reckless” and “catastrophic” have been used to describe the proposal.
Numerous submissions to the U.S. Office of the Trade Representative have talked of immediate business failure, and widespread economic damage, if the proposals go ahead as currently drafted.
“These policies would be catastrophic for our industry as a whole…. These policies would cause major disruption and create extreme economic instability,” wrote Kluth Thilo of Mitchell Bros Truck Line.
“This new law if implemented will have an adverse effect on general transportation and would impact trade by shutting down American business from trucking, warehousing, shipping, stevedoring, port operations and laying off tens of thousands of American jobs. The impact will be reverberated across the economy affecting American manufacturing and reducing exports to levels we have never witnessed. Exports will dwindle from the U.S and importers will seek goods from Europe and Asia while destroying thousands of American businesses in the process. The impact on manufacturing will be devastating,” Carlos Rice of Windward Freight Solutions wrote.
“… A disastrous miscalculation ,” Paul Katovich of Highline Grain Growers wrote.
“Just stop and think for a moment how ridiculously stupid this proposal really is… this decision would effectively totally put US Shipping companies out of business. Tropical Shipping is one such company trading to Puerto Rico and the entire Caribbean. They would effectively be out of business and so would all the islands and countries they trade to with their shipping services to the entire Caribbean Basin. Islands and countries in the Caribbean would not be able to survive and exist because all trade is supplied from the USA… who is responsible for thinking of and implementing such reckless stupid policies that are so damaging in foreign trade,” wrote John MacKenzie of West Indian Marine Group.
” If you think inflation is bad now just wait if this [policy] is approved. It will paralyze the USA economy,” wrote Ricardo Valdes of Amcar Freight Inc.
“This change would be severely detrimental to American Samoa, as both vessels currently servicing our US-American Samoa trade route are Chinese-built. The proposed fee increase could cripple our supply chain and lead to a catastrophic economic impact. Most concerningly for American Samoaโs port, the proposed fees would incentivize ocean carriers to consolidate traffic to the nationโs largest ports, while cutting out small ports like ours from their routes and leave us stranded for service. This would not only cause significant congestion at large ports but the collapse of business lines at small ports like ours would be devastating. The results would be terrible inflation, high unemployment,” submitted U.S. Congresswoman Uifaโatali Amata Coleman Radewagen.
“Such price increases could create opportunities for alternative products from other countries to gain traction in these markets, potentially displacing American exports. The ramifications of this shift would not be limited to exporters alone. A decline in demand for U.S. products could lead to reduced production, negatively impacting GDP growth and resulting in job losses across key industries,” wrote Ruiz Fernando of Cost-U Less, the North West Company International.
We could go on – the comments above are just a selection from less than half a page of the nearly 200 submissions to the U.S. Office of the Trade Representative so far. The complaints and criticisms and claims of disastrous impacts of business failure roll on in submission after submission after submission from across numerous different sectors – whether that’s logistics, shipping, marine terminals, import / export, agriculture, manufacturing and more.
The Proposal
The Office of the U.S. Trade Representative has proposed a series of accumulating fees be imposed on China-connected shipping as follows:
- A $1m penalty imposed on each vessel call at a U.S. port when that ship is operated by a Chinese company; or, alternatively,
- a USD$1,000 penalty per net ton of the vessel’s capacity per vessel call to a U.S. port (incidentally, a tanker of, say, 300,000 deadweight would therefore be on the hook for a USD$100m penalty per port call, according to BIMCO. Shipping Australia agrees that such a scenario would likely be “prohibitive for continued trading to U.S. ports“.
- An additional USD$1.5m penalty per vessel call for a Chinese-built vessel to a U.S. port (so if a Chinese operator uses one of its Chinese-built ships to call at a U.S. port that would be a USD$3m penalty per port call); there is a proposed sliding scale from USD$500k to USD$1m for operators with a given percentage of China-built ships in that company’s fleet
- An additional fee of potentially up to $1m per vessel call to a U.S. port if the shipping company’s fleet has more than 50% of ships on order at a Chinese shipyard that will be delivered over the next 24 months.
Shipping Australia, however, notes that the policy as written lacks definitions and clarity. No one, for instance, knows exactly what an โoperatorโ is. It appears from the way the policy is currently drafted, that the penalties appear to be cumulative, however, this is by no means certain.
Shipping Australia notes that that the proposal would put extensive fees on Chinese-operated or built ships, and on ships that have sister-ships on order at a Chinese yard, and that in 2024 there were just under 36,600 calls at U.S. ports that would have fallen within the potential scope of the proposed measures, equating to about 43% of all U.S. port calls by internationally trading ships, according to Clarksons research data.
It seems likely to conclude that the proposed policies will have profound impacts should they go ahead as has been currently drafted.
Origin of the proposal
In March 2024, several U.S. labor unions filed a request to the U.S. Office of the Trade Representative requesting an investigation into China’s acts and policies in the maritime world. Section 301 of the U.S. Trade Act of 1974 empowers the U.S. Trade Representative to investigate and act against countries that it believes are acting against U.S. interests.
Impacts on shipping
Several regional and international shipping bodies, including Shipping Australia, have made submissions to the US Trade Representative.
Shipping Australia has had the benefit of reading the submissions of the International Chamber of Shipping and BIMCO, and we have taken part in discussions with the World Shipping Council, and Intertanko, among others, and we have read many of the logistics and marine focused submissions on the USTR website. The general cross-sector industry consensus is that:
- the international ocean shipping fleet relies very substantially on Chinese-built ships
- the proposal if implemented as drafted would lead to:
- a massive escalation in the cost of shipping; the costs of which would likely be passed on to other participants in the supply chain
- widespread re-structuring of services to / from the U.S. with many of the smaller ports and terminals being bypassed by the international fleet as cargo is consolidated at larger ports
- widespread port congestion as a result of consolidation
- wide spread stoppages of services to / from the United States by numerous shipping companies that cannot restructure their operations (smaller shipping companies have already outright stated they would promptly stop services
Shipping Australia’s Submission
We noted the high-proportion of ships that would be affected, and we discussed how shipping may be re-organised and, in certain sectors, might simply stop. We also referred to specific sub-sectors, such as the break-bulk sector, in which up to 85% of the break bulk fleet is China-built. We also noted a variety of adverse effects on specific trades, such as the Pacific Islands trades to / from the U.S. and Australia, and the adverse effects on the Australian meat trade.
We also discussed the likely particularly adverse effects on the smaller containership sector and how the U.S. proposals would have a detrimental effect on niche markets where the route and geographic scope does not allow shipping lines to consolidate freight movements across markets, unless shipping companies are able to significantly extend lead times. That would, however, likely cut the flow of perishable goods because of those longer lead times.ย Shipping Australia noted that the policy as proposed would penalize owners and operators that have built ships in Chinese yards when there were no real U.S. shipbuilding options during the time of contracting to build the vessel. In such cases, we argued that it would be considerably just, fair, and reasonable, to provide exemptions from the policy for such vessels and to only have penalties apply to vessels built from a future date.
In conclusion, we argued that ย a careful re-evaluation of the proposed policy and a re-alignment of it with the views of industry could help advance the initiative while avoiding any particularly detrimental and adverse consequences.
You can read our submission here.
Next steps
A public hearing at the Office of the U.S Trade Representative in Washington D.C. is due on 24 March 2025. Several representatives of the international shipping industry will be present to argue for a re-consideration of the proposal.
Shipping Australia will provide further updates in due course.
