Late last week, the office of the United States Trade Representative (USTR) announced a public comment period on the Section 301 Investigation of China’s Targeting of the Maritime, Logistics, and Shipbuilding Sectors for Dominance on June 6, with a July 7 deadline for comments.
In its request for public comments, USTR said it proposing changes on two fronts. One is to change its fee basis from car equivalent units to net tonnage, in order to prevent fee evasion and also to apply special provisions for vessels under the Maritime Security Program, supporting U.S. national security. And its other proposed change eliminates a provision allowing the suspension of LNG export licenses, retroactive to April 17, due to industry concerns, and also seeking feedback on data requirements from vessel owners or operators
This follows the initiation of an investigation of China’s acts, policies, and practices targeting the maritime, logistics, and shipbuilding sectors for dominance on April 17, according to the Federal Register notice. Which, it stated, was preceded in January by a public report on the investigation that explained, for nearly three decades, China targeted the maritime, logistics and shipbuilding sectors for dominance and has employed increasingly aggressive and specific targets in pursuing dominance.
“China has largely achieved its dominance goals, severely disadvantaging U.S. companies, workers, and the U.S. economy generally through lessened competition and commercial opportunities through the creation of economic security risks from dependencies and vulnerabilities,” the notice said.
As previously reported, the USTR issued an announcement on February 21, regarding a proposal that would have charged Chinese-owned ships up to $1 million per entrance and Chinese-built vessels charged $1.5 million per entrance.
The impetus for these fees, according to a Federal Register notice, is “China’s targeting of the maritime, logistics, and shipbuilders’ sectors for dominance is unreasonable because it displaces foreign firms, deprives market-oriented businesses and their workers or commercial opportunities, and lessens competition, and creates dependencies on China, increasing risk and reducing supply chain resilience.”
And the USTR added that China’s global shipbuilding market share increased from less than 5% in 1999 to more than 50% in 2023, while also increasing China’s ownership of the commercial world fleet to more than 195 as of January 2024, and controlling production of 95% of shipping containers and 86% of the global supply of intermodal chassis, among other components and products.
USTR also stated that China’s targeting of the shipbuilding sector for dominance is hindering any public or private efforts to revitalize the U.S. shipbuilding industry, adding that U.S. companies are severely constrained to compete for business in the global recapitalization of the commercial fleet and also that low-priced Chinese ships, which result from China’s targeted dominance, are among the constraints U.S. companies face to compete for business.
These fees are intended to counter China’s dominance in shipbuilding and maritime logistics. However, industry experts cautioned that such measures could lead to increased costs for U.S. importers and exporters, as well as potential disruptions in global trade.
But those proposed hefty fines on Chinese vessels did not stick. In April, following a two-day public hearing, the USTR laid out a course of action, which will occur in two phases, outlined below:
- effective October 14, Chinese vessel owners and operators would pay $50 per net ton landed at U.S. ports, with the fee rising every year until reaching $140 per net ton in 2028. All other vessel operators of Chinese-built vessels would pay the higher of $120 per container or $18 per net ton landed at U.S. ports, rising every year until reaching $250 per container or $250 per net ton in 2028; and
- effective April 17, total LNG exports on U.S.-built, U.S.-flagged, and U.S.-operated vessels must meet 1% of all utilized vessels and rises up to 15% in 2047
Jonathan Todd, Vice Chair, Transportation & Logistics, for Cleveland-based law firm Benesch, told LM that these phases, while less concerning now compared to the initial proposals, still present challenges for shippers, with the primary reason being that container shipping will be more costly, due to the USTR’s actions, at least in the near-term.
“It is kind of an unfair expectation to think that this will not find its way into increased rates,” said Todd. “The real challenge from a strategic planning perspective is that some sophisticated procurement teams may have an understanding of Chinese steamship line operations, or the percentage of Chinese vessels within a fleet. This is the driver of the lines that will have the increased burden. I have heard some shippers may plan for a little more diversity in their supplier base. That leads them to ask about where they expect the hits to be and is additional service contracts are needed, or a need to move volumes to other lines that will be less impacted by this going forward. I don’t think it is so linear to say that there is only one option here, because there will be other knock-on impacts.”
And he added that in this complex environment there still remains the possibility of capacity constrictions of general market drivers of higher rates and also, going forward, some restrictions on export trades involving U.S. vessels versus Chinese vessels. To that end, he explained there are some shippers looking at their portfolio of service contracts and trying to determine if there is a way they can “play the field” a little bit more, have some diversity, and be able to move some volumes.
“At this point in time, I think those two pieces are kind of the best that one can do,” he said. “Understand that things may cost more, and understand that that maybe we need to avoid concentration risk across our portfolio of service contracts, because we may need to pivot volumes. But this is a new factor and a complex environment. We’ve all been through the pandemic, we’ve all been through wars, and we’ve all been through this trade war issue. I think it’s just one more factor.”
