Later this month, the Donald Trump administration in the United States is expected to take a call on imposing stiff penalties on ships built in China, calling at American ports. It is being widely spoken of as among the most bewildering decisions around trade and commerce listed for consideration by the US government.
The US proposal is inspired by allegations ranging from suppressed labour costs to forced technology transfers and intellectual property theft, within the Chinese ecosystem of maritime, logistics and shipbuilding sectors, cited in a report by the office of the United States Trade Representative (USTR).
The problem is – China accounts for a major share of the world’s ship building capacity and if penalties are imposed simply because a ship happens to be built there, then there would be plenty of ships ineligible to call at US ports or capable of doing so only at added cost to shippers.
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On February 28, 2025, Reuters quoted Ramon Fernandez, the Chief Financial Officer of CMA-CGM as saying, “China builds more than half of all container ships in the world, so this would have a significant effect on all shipping firms.”
The USTR investigation and report followed five national labour unions filing a petition requesting an investigation into the acts, policies and practices of China targeting the maritime, logistics, and shipbuilding sectors for dominance. The petition was filed in March 2024.
Trade journals reporting on the subsequent USTR recommendation of steep fees imposed on Chinese built ships have pointed out that China’s share in shipbuilding moved up from less than 5% in 1999 to over 50% in 2023. The US has a corresponding market share of just one per cent. The US has been talking to Korean and Japanese shipbuilding yards to augment its capacity. USTR’s report on its investigation (available on the agency’s website) also said that China’s ownership of the world’s commercial shipping fleet had risen to over 19% as of January 2024. China controlled production of 95% of shipping containers and 86% of the global supply of intermodal chassis.
A USTR press release of January 20, 2025, quoted ambassador Katherine Tai (former USTR) saying, “Today the US ranks 19th in the world in commercial shipbuilding, and we build less than 5 ships each year, while the PRC is building more than 1700 ships. In 1975, the United States ranked number one, and we were building more than 70 ships a year.”
As per published reports, the USTR has recommended fees of up to a million dollars per port call (in the US) for ships operated by Chinese carriers, up to 1.5 million dollars per port call for operators of Chinese built ships and compulsory US flag requirement. There is also provision for tiered fees calculated on the basis of what the percentage of Chinese built ships is, in a given operator’s fleet and what its prospective orders at Chinese shipbuilding yards are.
March 24 is the deadline for receiving public complaints before the US President takes a decision. If imposed, the steep penalties will most likely be passed on to the export-import trade by shipping lines. Reports say that the worst hit could be container shipping. At least three lines or consortiums from the top ten container lines of the world are currently heavy in Chinese built tonnage.
Additionally, it is quite common for container ships to call at multiple ports in a given country. Select players from the industry could thus be impacted for both, owning/operating Chinese built ships and having multiple port calls. Calculations by one investment bank have it that a 1.5-million-dollar penalty imposed on a ship having capacity of 10,000 TEUs (twenty-foot equivalent units) would escalate cost per container by 150 dollars.
While the penalty for being Chinese-built could impact ships sailing into the US from anywhere, the US is estimated to account for as much as 85% of the container trade currently plying between China and North America.
Among the world’s top container shipping lines, China-owned COSCO (currently the world’s fourth biggest), French container shipping major CMA-CGM (world’s third biggest; Indian prime minister Narendra Modi recently visited its headquarters in Marseilles) and Ocean Network Express (ONE) with headquarters in Tokyo and Singapore are said to bear the brunt of the proposed charges as they have a sizable number of ships built in China.
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COSCO for instance, has 55% of its fleet built in China and its complete order book is also with Chinese shipyards. CMA-CGM’s fleet exposure has been pegged at 40% by DNB Markets, a trade journal reported. DNB Markets has also observed that the impact of US punitive fees could be highest on COSCO as it is both owned by the Chinese state and having a lot of ships built in China.
Besides container shipping, dry bulk cargo ships will also take a hit as the US is critical for coal and grain shipments. However, unlike in the case of containers, multiple port calls are much less in the dry bulk segment. Warnings have emerged of likely congestion at US ports ahead of the administration deciding on the new fees.
Rush hour
The likelihood of Trump imposing tariffs on imports from China had fueled a flurry of shipments to the US in late 2024 and early 2025. The latest set of fees and the implications it could have on ships deployed for sailings to the US may have a similar effect.
One fallout speculated is that the proposed fees may force container lines to limit their US port calls to fewer locations resulting in congestion at gateway terminals. A similar scenario had played out earlier in Asia, specifically Singapore, when the crisis in Red Sea shipping – triggered by the unrest in the Levant and the Houthi attacks on shipping – forced lines to handle more containers per call at Singapore causing severe congestion there and sending average spot rates from the Far East to the US East Coast up by over 300%.
It may be noted in this context of the US moving against Chinese shipyards that the latest Union budget, presented by the finance minister Nirmala Sitharaman, contained several proposals to boost the maritime sector in India, including shipbuilding.
“The Union Budget proposes to set up Maritime Development Fund (MDF) to support India’s Maritime sector by providing financial assistance, via equity or debt securities. The initial corpus of the fund is pegged at ₹25,000 crores – where the Government contribution will be 49%. The remaining balance will be contributed by Major port authorities, other government entities, Central PSEs, Financial Institutions as well as private sector. This fund will directly benefit in financing for ship acquisition. It aims at boosting Indian flagged ships share in the global cargo volume up to 20% by 2047. Further, indigenous fleet will reduce dependability of foreign ships, improve Balance of Payment and secure Strategic interests of the country. By 2030, MDF is aiming at generating up to ₹1.5 lakh crore investment in the shipping sector,’’ a related statement put out by the Press Information Bureau (PIB) on February 1, 2025, said.
The Indian government has also announced plans to set up a national container shipping carrier called Bharat Container Line.
Shyam G Menon is a freelance journalist based in Mumbai.