Final USTR decision covers much smaller portion of fleet than draft version, giving carriers much more flexibility to redeploy tonnage and avoid US port fees
Following redeployments, any remaining Chinese boxships calling in US will have a harder time passing along costs via surcharges for competitive reasons
Port fees could lead to lower competition in US liner trades, while scrapping could be constrained as older Japanese- and Korean-built ships are kept in service
Container lines would have had no choice but to pay enormous US port fees under the draft proposal. The final decision should allow most liner operators to avoid fees by redeploying ships. It also singles out one company —China’s Cosco —with the severest penalties
WHEN ships confront an obstacle — a congestion-clogged port, a drought-stricken canal, a militia-harried strait — they just sail around it. US port fees on Chinese vessels, when they begin in October, are just another hindrance to circumvent.
Workarounds will be a burden for container lines, but they look doable underthe watered-down version of the fee planannounced by the US Trade Representative on April 17.
The big question is how China’sCosco Group, the world’s fourth-largest liner operator, will fare —and how Cosco’s travails will impact the Ocean Alliance.
Cosco is far more heavily exposed to the new US port fees than any other carrier and will have a much harder time rerouting around the obstacle. Trump administration policy will effectively put Cosco at a competitive disadvantage to its rivals in Europe and Asia.
Redeployments instead of surcharges
The final USTR plan will impact a much smaller number of containerships than the initial draft. That makes it much easier for most carriers to reshuffle fleets and remove Chinese tonnage from US trades.
According to data from Drewry Shipping Consultants, 35% of capacity in the Asia-west coast North America lane is Chinese-built /or operated by Chinese companies, 26% in the Asia-east coast North America lane, and 18% in the North Europe-east coast North America lane.
For non-Chinese operators of Chinese-built ships, Drewry estimates port fees will equate to $180 per feu when they begin on October 14, or 7% of current Asia-west coast North America spot rates. By April 17, 2028, the fee will max out at $340 per feu, 13% of current spot rates.
The fees will be much more significant for Chinese containership operators, i.e., Cosco and subsidiaryOOCL. Drewry estimates port fee costs for these operators will start at $511 per feu or 19% of prevailing rates this October, then climb to $1,400 per feu or 53% of current rates by 2028.
“This really shows you how disadvantaged Chinese operators will be,” said Simon Heaney, Drewry’s senior manager of container research, during an online presentation on Thursday.
“The fees would be impactful for all of the other carriers, as well, if they don’t take evasive action and they continue to use Chinese ships in US trades.
“However, we think that’s very unlikely to happen because these new fees are likely to trigger a shift of Chinese ships away from US trades, and they will be replaced by fee-exempt vessels built in South Korea or Japan.”
The initial USTR plan elicited widespread panic thatmassive port fee costs would be passed along to US importers and exporters via surcharges, the equivalent of another tariff.
The initial draft plan proposed charging fees at every port in a service rotation (the final version only charges ships once per rotation) and charging non-Chinese ships of non-Chinese operators that had any Chinese-built ships in their fleets or any newbuilds on order in China (the final version only charges Chinese-built ships and Chinese operators).
The narrower scope of the final version —targeting fewer ships and allowing most carriers the flexibility to redeploy —renders surcharges less likely. Any remaining Chinese boxships that continue to call in the US would face customer pushback if they implement a surcharge, because their competitors would not do so.
“We don’t think there will be a surcharge,” said Philip Damas, head of Drewry Supply Chain Advisors. “You would become uncompetitive. If you look at the market realism, I think it’s more likely that carriers will try to find a way to redeploy their ships to avoid the fines instead of passing the cost on to shippers.”
Liner operators also have other options to avoid the port taxes, beyond switching out Chinese ships for Japanese and Korean ships.
One option, albeit less efficient from a unit-cost perspective, is to use smaller vessels. The USTR plan exempts containerships of 4,000 teu or less.
Another option is to use transhipment. To protect operators inshort-sea trades like the Great Lakes and the Caribbean, the USTR exempted vessels calling in the US that travel less than 2,000 nautical miles from a foreign port. This concession was meant to protect the smallest carriers, but it provides a loophole for the largest ones.
For ports along the US east and gulf coasts, a 2,000-nautical-mile radius includes all seven of the large Caribbean Basin transhipment hubs:Freeport, Bahamas; Caucedo, Dominican Republic;Kingston, Jamaica;Cartagena, Colombia; andMIT,CCTandCristobalin Panama.
Carriers could use Chinese tonnage to drop off US-bound cargo at Caribbean Basin transhipment hubs, then reload them on high-capacity, non-Chinese ships for final delivery.
The ‘Cosco tax’?
Workarounds will be much more challenging for the Cosco Group, a major provider of transport services to US importers and exporters. Linerlytica reported in February that 51% of Cosco-OOCL tonnage called at US ports, a much higher share than any other major carrier.
“Chinese carriers have been targeted in a way that leaves them with limited options,” said Alphaliner this week. “The Cosco Group in particular will be hard hit,” it said, suggesting that the USTR port fee plan might be thought of as a “Cosco tax”.
According to Heaney, “This proposal raises serious operational questions for the Ocean Alliance, which includes Cosco and OOCL. One solution would be to divide ships within the Ocean Alliance across different trades, so that the Chinese carriers focus on the non-US routes, such as the Asia-Europe market, and other Ocean Alliance carriers look after the transpacific and transatlantic market.”
One challenge with this scenario is that Ocean Alliance partnerCMA CGMhas its own exposure to the USTR plan to consider. According to Linerlytica data, 36% of CMA CGM’s existing tonnage was Chinese-built, as of February, and 64% of its newbuilding capacity was on order at Chinese yards.
Market distortions ahead
The targeting of Cosco and OOCL could have unintended consequences. If Chinese carriers are effectively priced out of US calls, it will leave fewer competitors, which could lead to higher prices and more limited service options for US shippers.
World Shipping Council president Joe Kramek brought up this concern when testifying in May 2024, in response to the initial USTR investigation. “The fee could reduce competition for ocean cargo if companies with large numbers of Chinese-built vessels choose to temporarily or permanently discontinue serving certain US routes,” said Kramek. “Decreased competition could increase prices for shippers.”
According to Heaney, “This forced concentration of fewer carriers into the US lanes will inevitably reduce options for shippers. Depending on how things develop, it could even run into antitrust issues down the line if we find that just one or two carriers suddenly become very dominant.”
Heaney pointed to other market distortions from US port fees, as well.
“These will have significant ripple effectson both the newbuild and charter markets, whereby Chinese ships will become much less desirable, and that could trigger an increase in the premium for South Korean [and Japanese] ships, which, in turn, will potentially suppress overall demand for newbuilds, which are currently mainly produced in China.
“Considering the overcapacity situation the market is in right now, that might actually be something of a blessing in disguise.”
There will also be an effect on the recycling market, which will be negative for the supply-demand balance.
“Another market distortion arising from the proposal relates to demolitions,” explained Heaney. “As the usefulness and value of non-Chinese ships increases, owners are going to be less inclined to scrap Korean and Japanese units, and that will potentially delay the rebalancing of the market.
“Because of the legacy of the shipbuilding industry, when you look at ships that are 20 years and older, only 6% of them were built in China. So, if you stop scrapping Korean and Japanese ships, you’re not really going to be scrapping much at all.”
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