At the Transportation Go conference March 12-13, hosted by Specialty Soya and Grains Alliance, the one issue discussed by nearly all the speakers was the U.S. Trade Representative's (USTR) proposal to impose fees on Chinese ship operators and Chinese-built ships. One speaker said the costs to the U.S. shipping industry if the current proposal passes, would be "catastrophic." Another discussion at the conference mentioned that, besides the financial burden, U.S. ports could see ships divert to Canada and Mexico to avoid the penalties.

Here is the timeline as to how and when this proposal came about.

On Jan. 20, 2025, the USTR issued findings in the Section 301 investigation of the People's Republic of China's (PRC) targeting the maritime, logistics, and shipbuilding sectors for dominance. USTR concluded the PRC's targeted dominance in these sectors is unreasonable and burdens or restricts U.S. commerce, and is therefore "actionable" under Section 301. https://ustr.gov/…

On Feb 21, 2025, USTR in a press release said, "To obtain the elimination of China's acts, policies, and practices, and in light of China's market power over global supply, pricing, and access in the maritime, logistics, and shipbuilding sectors, USTR proposes to impose certain fees and restrictions on international maritime transport services related to Chinese ship operators and Chinese-built ships, as well as to promote the transport of U.S. goods on U.S. vessels."

IMPACTS ON AGRICULTURE AND SHIPPING COSTS

Jay O'Neil, HJ O'Neil Commodity Consulting, said in an email, "As for the USTR 301 two-tiered proposed $1.0 million to $1.5 million USD tax on Chinese vessels visiting U.S. ports, that is very misguided and troubling for U.S. consumers and U.S. grain farmers. In 2022 over one third of all commercial vessels were built in China, and that percentage is quickly rising to over 55%. If it becomes more expensive for these ships to serve U.S. ports, the added expense will definitely be passed on to U.S. consumers."

"A $1.0 million to $1.5-million-dollar port tax on each visit by a 15-20,000 TEU (20-foot equivalent unit) container ship can be spread over that volume of individual containers and would equate to an extra cost of $67.00- $75.00 USD per TEU. But the overall base shipping rate will likely go up if shipping lines find it necessary to avoid half the available fleet for U.S. visits. On the dry bulk side of things, 99% of U.S. grain exports are shipped on flag of convenience vessels."

O'Neil said, "A $1 million or $1.5 million USD tax on a 60,000 metric ton (mt) export grain vessel would equate to a freight rate increase of $16.67 to $25.00/mt. and, in turn, much of this cost would be passed back to the U.S. farmer. And, of course, it would encourage increased exports from South American and Black Sea. Any time you economically shrink the available pool of flagged ships available for service to U.S. ports, you increase freight costs and disadvantage U.S. consumers and farmers.

"U.S. grain exports would become less competitive and farm prices would suffer. Just as it was with past grain embargoes, the U.S. government would be encouraging, if not indirectly funding, crop expansions in lands of our foreign competitors."

O'Neil added that we urgently need an expanded U.S. Navy and an expanded U.S. flag commercial fleet. "But the question is, especially for the commercial fleet, where should those vessels be built, what cargo will move on those ships, and how do we pay for it? Most all commercial ship building today is done in three countries, China, Korea and Japan. The U.S. is down to only four to five commercial shipyards, and they are slow, years behind on orders, and extremely expensive on a world scale. At my last post COVID count, China had over 45 shipyards."

"And, once -- or if -- we build more U.S. flag vessels, we don't currently have trained crews for them, nor does the world have cargo for them to competitively carry. Commercial shipping rates on U.S. flag vessels generally run 4X that of global flag of convenience ships. So how do these ships become competitive and in demand?"

O'Neil concluded, "There are many challenging economic issues involved even if these ships are somehow built. And all of this is very expensive and therefore quite inflationary."

USTR requests written comments regarding potential trade action in connection with the Section 301 investigation of China's targeting of the maritime, logistics, and shipbuilding sectors for dominance. USTR also will convene a public hearing and accept rebuttal comments in relation to the potential action. The deadline for submission of comments is March 24, 2025. USTR will hold a public hearing about the proposed actions on March 24, 2025, in the main hearing room of the U.S. International Trade Commission, 500 E Street SW, Washington DC, 20436, beginning at 10 a.m.

According to a March 13 article on the National Law Review website, "Given the lack of specificity in the Proposed Action and the anticipated wide-ranging opposition from inside the United States (from importer, exporters, manufacturers, retailers, etc.) and also outside the United States (shipowners, shippers, associations, governments, etc.), it will be challenging for USTR to finish this process and publish a workable final regulation within the one-year timeframe. However, given the velocity of other recent administration trade actions, an implementation of some or all proposed measures in April cannot be ruled out."

Mary Kennedy can be reached at mary.kennedy@dtn.com

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