Preliminary signs of a two-tier freight market emerge as US crackdown on Chinese-built tonnage nears

The first signs of a two-tier market are emerging in anticipation of Donald Trump’s likely penalisation of Chinese-built tonnage. 

Broker BRS is reporting Chinese-linked ships are now becoming far less attractive for long time charters due to the likelihood that, at some point during their charters, these ships would be required to call at US ports. 

Law firm Hill Dickinson is seeing revisions to charterparty wording, both bespoke terms and amendments to standard charterparty forms for voyage and period fixtures in relation to a likely impending clampdown on Chinese-built tonnage by the US.  

“It appears likely that a two-tier tanker freight market will eventually form with one tier for non-Chinese ships (overwhelmingly Japanese and Korean) and a lower tier for Chinese-linked ships which would likely be hired at costs slightly below the first tier,” BRS has predicted. 

The American president will make a decision soon on whether to carry out suggestions made by the office of the US Trade Representative (USTR) following an investigation carried out over the past year into China’s growing dominance in maritime, especially in the realm of shipbuilding. The USTR report cited artificially suppressed labour costs, forced technology transfer and intellectual property theft among a raft of accusations levelled at Beijing. The trade office has recommended potential fees of up to $1.5m per port call for Chinese-built vessels, $1m per port call for operators of Chinese-built ships, and mandatory US-flag shipping requirements with Trump strongly suggesting in recent days he will carry out these policies as part of a wider plan to revitalise American shipbuilding.

“Initial industry reaction suggests that the market contemplates an increase in freight rates, a substantial diversion in traffic towards Mexican ports, and a cancellation of some newbuilding contracts at Chinese yards,” Hill Dickinson suggested in a note to clients. 

Clarksons Research has calculated nearly 37,000 US port calls last year by ships that would likely face the maximum $1.5m fee due to their connection to China, equivalent to 83% of container ship calls but only around 30% of stops by tankers.

As with many industries, China has come to dominate shipbuilding this century, moving from a global market share of less than 10% of the global orderbook to a commanding two-thirds stranglehold by the end of last year. The US, by contrast, has a market share of just 1%.

Global Times, a state-run Chinese newspaper, lambasted the American plans yesterday in an OpEd, arguing: “The chasm between American and Chinese shipbuilding is fundamentally a gap in industrial infrastructure. The forces of globalization swept away America’s steel mills, machine shops and skilled labor force, leaving behind rusting supply chains and a hollowed-out manufacturing base. Shipbuilding, a quintessential heavy industry, requires a robust industrial foundation. When that foundation crumbles, shipbuilding inevitably follows.”