In April, the US Trade Representative issued their final assessment for port fees applied to vessels and vessel operators with Chinese ownership. An overview of the fees, changes from the original announcement and timelines of implementation, can be found here.
With less than one month to implementation, set to begin on October 14, we can now assess the possible impact on the US shipping community. Based on current evaluation, the expected impact seems to be negligible, at least for now.
Current conditions have subdued original concerns over implementation of the port fees as follows:
Would ocean carriers implement a new surcharge to cover the costs of the fees?
Almost all carriers have stated either publicly or privately that they have no intention of filing a surcharge to apply to container imports. In addition, if carriers wanted to do so at the start date of October 14, they would need to have filed a 30-day notice with the Federal Maritime Commission by September 15. No filings have been reported at this time.
COSCO & OOCL, being Chinese owned vessel operators, will accrue the fees anytime their vessels hit US shores. Given the market pressures with other vessel operators not announcing the fee, COSCO & OOCL are in the position where implementing fees would likely price them out of the market.
With this evaluation, we expect the fees to have no material effect on container pricing at this time.
Could implementation cause mass changes to service schedules or routings; to minimize the number of Chinese vessels hitting US shores and take advantage of some of the levers the carriers could pull to avoid the fees?
The six-month reprieve from announcement to fee implementation allowed vessel operators to rotate Chinese vessels out of the US trade lanes over the summer months. As a result, they are not now scrambling to re-orient schedules which will help maintain stable schedules.
Given that most vessels engaged in US trade are now non-Chinese vessels, there is minimal need to adjust rotations to leverage certain fee exemptions. For example, exemptions for short-haul transit raised fears carriers would use trans-ship ports near US Shores such as Kingston, Jamaica to transfer containers for final haulage. This would bring congestion and unstable services; however, no such action is currently expected.
Will a cutback in capacity cause an uptick in ocean pricing and a decline in service and transit times – as ocean carriers prioritize other trade lanes where these fees are not present?
Vessel operators are implementing a capacity management program independent of consideration for the port fees as ocean shipping is currently in a significantly down pattern. With low demand for container shipping, ocean carriers are already in a capacity reduction mode. Therefore, any issues that may come as a result of blank sailings or elimination of service strings is far more likely to be related to these capacity management programs, instead of the USTR port fees.
While all of this suggests the impacts to the importing/exporting community will be insignificant, it is important to know that conditions can change in the future.
Potential causes for condition changes include:
- The fees escalate over time. If the cost the carriers need to absorb any time they face the fees will be higher in the future – it could change their ability to absorb the cost.
- Market conditions can change. One reason fees would be hard to pass on at this time, is because container rates are close to 5-year lows, making it very hard for carriers to pass on increases. If market conditions reverse at some point, these fees would be easier to pass on and harder for importers/exporters to resist as ocean carriers are more able to name their price.
- While carriers have limited their exposure to the fees, COSCO & OOCL simply cannot avoid it as China owned vessel operators. A recent HSBC report estimates the fees could cost these carriers over $2 billion in just the first year. As COSCO & OOCL combine to move the most containers from China to the US every year, their ability to absorb this in the face of low container rates will almost out of necessity, have some kind of long-term impact.
- Relief from these fees is unlikely. While recent tariff actions are mainly the result of the Trump Administration, the USTR investigations on Chinese ocean vessel dominance was started under the Biden Administration and seems to have bi-partisan support. Fees should remain a reality of ocean shipping, with carriers able to use them when necessary to justify all manner of rate increases, schedule changes or service & capacity restrictions.
“This USTR action was initially designed to rebalance shipbuilding between China, which currently dominates, and the United States – where it is much needed to bolster both national defense and commerce,” says Rich Roche, Senior Vice President Mohawk Global. “With the resultant deployment of fewer Chinese-built vessels to pay into the pool, the plan does not carry the same impact that it might have when first announced. Additionally, it is tied up with yet unresolved tariff talks and unclear collections process through US Customs that might cause a delayed start.”
We will continue to monitor developments as a result of these fees and communicate changes as they occur. The long-term impacts of these fees may only be truly seen and dealt with in 2026 or later, making it difficult to assess how this may change further down the road.
If you have any additional questions about how this may impact your business, please reach out to your Mohawk Global representative.
By Chris Lindstrand, Vice President International Transportation