‘Thermonuclear’ port fee-tariff combo: Shipping ‘disaster’ or will rates go ‘ballistic’?

Tariffs seen as a long-term negative for shipping rates due to demand destruction, although there could be positives from trade rerouting

USTR port fee plan expected to cause disruptions but opinions diverge on whether this is a short-term positive or negative for shipping rates

Disincentive for Chinese yard orders widely seen as a long-term positive for rates, but upside would take years to materialise

Shipping forecasts are having a ‘chaos theory’ moment. Trump tariffs and US port fees imply a volatile mix of positives and negatives, and no one really knows how this will play out for rates — although shipowners predict they will ultimately profit, just as they did in past disruptions

SHIPPING faces two simultaneous and severe disruptions courtesy of the Trump administration: a massive wave of tariffs to be unveiled on Wednesday — or, as Donald Trump calls it, “Liberation Day” — and the US Trade Representative plan to levy massive port fees on operators of Chinese-built ships.

Speakers at the Capital Link International Shipping Forum in New York on Monday rolled out the superlatives when describing the enormity of the consequences.

Panellists saw the disruptions that lie ahead as a volatile mix of positives and negatives: potentially positive for short-term spot rates due to market dislocations, and definitely positive for long-term fundamentals due to fewer Chinese newbuild orders, but simultaneously negative due to demand destruction.

The consensus was that shipowners will benefit in the end — even if there are short-term setbacks — and that US importers, exporters and consumers will bear the brunt of the pain.

‘Potentially a headwind of hurricane strength’

“The Chinese ship fee system, if implemented as proposed, is going to be thermonuclear for the business,” warned Bill Rooney, vice-president of sea logistics strategic development at container freight forwarder Kuehne+Nagel.

“It’s going to be incredibly disruptive to ports, carriers and shippers. It is going to be a huge, huge issue — beyond anything else that’s going to happen in the next year or more.”

According to Mark Filanowski, chief executive of bulker owner Pangaea Logistics: “When the tariffs were first announced, I said to myself: ‘This isn’t a problem. Markets will adjust.’ Then the US Trade Representative shoe dropped on my head.

“That is potentially a headwind of hurricane strength in the short term, if it goes through the way it’s written. In the long term, it might actually be a strong tailwind,” he said, pointing to the implied drop in Chinese newbuild orders.

John Wobensmith, chief executive of bulker owner Genco, said: “We are in chaos theory right now. We don’t really know the implications because we don’t really know what the USTR is going to ultimately propose.”

Regarding Trump’s tariffs, Carlos Balestra di Mottola, chief executive of product tanker owner D’Amico International Shipping, said: “If they are across the board, and if there’s an escalation of tariffs by the countries that have been subjected to tariffs, it will be a disaster.”

According to Evangelos Marinakis, founder and chairman of Capital Maritime & Trading: “The Trump government has made a lot of announcements that make our lives more complicated but, at the same time, very interesting.

“I think a lot of things that we would never have imagined — that we think cannot happen — will take place in the years to come. At the end of the day, this will certainly work in favour of shipping, but in the short term, we might have to suffer or wait until the situation normalises.”

Marinakis, like di Mottola, viewed Trump’s expansive tariff programme as a negative for ocean shipping.

Marinakis said: “We face many challenges, especially as far as the tariffs are concerned. These are not only for China, but for the EC [European Community] and the other countries of the world.

“This will have a direct impact on shipping and, in my opinion, we will see some negative impact in the short term. But I don’t think it’s sustainable for this to go on for many years.”

In contrast, he believes that USTR port fees on Chinese ships could have more staying power. “I think this can last for a while — longer than many of us would dream,” he said.

Marinakis’ private and public companies own more than 100 ships, and he said he will redeploy all of his Chinese-built tonnage to non-US services.

“At the moment, in negotiations on charters, we see charterers trying to avoid Chinese tonnage. They are either afraid of how things could develop and don’t want to take the risk, or they are using this to negotiate a better rate,” he said.

“If this continues, we will have a two-tier market and, at the end of the day, the consumer will have to pay the price, especially for products coming in and out of the US.”

Differing views on short-term rate effects

One immediate effect of Trump trade policy is uncertainty, which is negative for shipping demand.

“The uncertainty we are going through right now because of all the threats that have been made on a continuous basis is already affecting consumer sentiment, businesses and investments, and of course it’s going to contribute to a slowdown in growth, which will also affect oil demand growth,” said di Mottola.

Asked for his tanker rate outlook, Navios Partners vice-chairman Ted Petrone responded: “Can you tell me what President Trump is going to say tomorrow before I answer?”

Regarding Trump tariffs, Lois Zabrocky, chief executive of tanker owner International Seaways, said levies will create “short-term disruptions, and that does tend to drive up our spot markets. Then in the longer term, it’s going to take GDP off the table”.

Star Bulk co-chief financial officer Christos Begleris said: “In the short term, tariffs are potentially positive because they create a reshuffling of trade and inflationary pressure on commodity prices.”

Retaliatory tariffs from China “mean you are going to see a reshuffling of trade of coal and soyabeans from the US to different parts of the world and not China.

“Volatility is good for shipping. It’s good for us. But I believe the long-term effect of tariffs, especially retaliatory tariffs, is potentially destructive for the demand in our industry,” added Begleris.

There was a difference of opinion at the Capital Link forum on the short-term rate effect for commodity shipping for both tariffs and USTR fees, underscoring Wobensmith’s “chaos theory” analogy — no-one really knows.

Marinakis described tariffs as a short-term negative, whereas Zabrocky and Begleris described them as potentially positive.

Simos Spyrou, co-chief financial officer of Star Bulk, and Erik Hånell, chief executive of tanker owner Stena Bulk, described the disruption effect of the USTR port fees as a short-term positive for rates, whereas Wobensmith warned of a possible negative.

According to Spyrou, the port fees would “create chaos”, pushing Chinese-built bulkers to the Pacific basin and Korean- and Japanese-built bulkers to the Atlantic basin, generating “positive factors for the short term”.

Hånell said: “Maybe the tanker market will go ballistic in the next few months, then logistics will change, and in six to eight months, everything will be sorted out. It’s going to hurt the end-user at the end of the day.”

But Wobensmith cited a temporary downside. “I think disruption and inefficiencies will come out of this, and that always tends to be positive for shipping and I don’t think there’s anything different here. But the question is: What happens in the short term?

“We’ve done two fixtures in the past week and a half and we have been able to pass through any fees that will come to the cargo owner. Unfortunately, I think this could be short-term demand destructive for US markets, grains in particular.

“Having said that, it just means more buying will shift to Brazil and Argentina. From a seasonal standpoint, things may change, but I’m not so worried about overall demand for dry bulk shipping because of this. I think it will be more harmful to US [export] companies than it will be to the Chinese.”

Long-term effect of deterring Chinese orders

Speakers at the Capital Link event were unanimous about one long-term positive for shipping rates from the USTR proposal: it would disincentivise ordering in China and thus support the future supply-demand balance.

The argument of shipping businesses in their USTR submissions was that if the US wanted to respond to unfair Chinese shipbuilding practices, it should only charge port fees for ships of operators that order in China after a specified date, not retroactively penalise operators for decisions they made before the proposal was even announced.

The mere existence of the draft USTR proposal is already causing problems for Chinese yards. The consensus is that some form of the USTR proposal will go forward, and that even the most watered-down version will include large US port fees for operators that order newbuilds in China after a cut-off date.

“If something happens — and it looks like something will happen — I think people will be extremely reluctant to order in China,” said di Mottola, who added: “There is very limited production capacity outside of China.”

Spyrou said: “Japanese yards are fully booked up until 2029, so I’m not sure where you’re going to build.”

According to Filanowski: “If building ships in China becomes disincentivised enough and there is a long-term drop in orders from China, I don’t know where the ships are going to come from that are needed for our industry. A longer-term tailwind could develop here.”

All of which is true, but given that slots at yards in China, South Korea and Japan are already full, the positive newbuilding-driven rate effect of USTR port fees would not emerge for at least three to four years, near or after the end of the Trump 2.0 administration — a very long time from now for shipping bottom lines.
source:lloydslist.com