An unpleasant surprise
Every year, during the first week of March, the major TPM conference takes place in Long Beach, California. This event brings together decision-makers from the container transport sector, including shipping lines, shippers, freight forwarders, and logistics service providers.
Until a few years ago, the conference primarily focused on the United States, but it has since evolved into a global event for the container shipping industry. It serves as a key meeting point where many contract negotiations begin, as companies can efficiently engage with multiple relevant parties in one location.
As a result, TPM has become an essential forum for gaining insights into the industry and market developments. This year, many participants arrived hoping to gain more clarity on the current uncertainties in the ocean freight sector. Instead, they left with even more questions than they had when they arrived.
New bill raises concerns in the industry
The main topic of the conference was the fluctuating U.S. import tariffs and the resulting trade war. The only certainty participants received was the general acknowledgment that stable import tariffs are not to be expected in the short term.
Tariffs can change within just a few days, and some shippers were unfortunate enough to have their cargo imported during the brief window between the introduction and removal of a tariff. In such cases, it simply came down to bad luck, forcing them to pay a 25% import duty.
There is no reliable way to accurately predict these changes, making it nearly impossible for importers and exporters to effectively adjust their supply chains or procurement strategies. Any new adjustment can be rendered completely useless at any moment by an unexpected tariff increase.
Details and consequences of USTR 301
Just as import tariffs were already being seen as one of the biggest challenges, the U.S. government introduced a new proposal: USTR 301. In the media, this is often referred to simply as the "$1 million levy on Chinese ships."
If only it were as straightforward as the headlines suggest. The proposal is much broader and has far-reaching consequences for the entire industry.
Four key elements of USTR 301
The USTR 301 proposal consists of four main elements. In simplified terms, these are:
- Levy on Chinese shipping companies. Chinese shipping companies must pay $1 million each time one of their vessels calls at a U.S. port.
- Levy on ships built in China. Shipping companies operating vessels built in China will be subject to a charge of up to $1 million per port call, even if some of their fleet consists of ships built elsewhere.
- Levy on companies with orders at Chinese shipyards. Shipping companies that have placed new ship orders with Chinese shipyards will be required to pay a levy ranging from $0.5 million to $1.5 million per port call for all vessels in their fleet, regardless of where they were built.
- Mandatory shift of U.S. exports to U.S.-flagged ships. Initially, 1% of U.S. export cargo must be transported on ships flying the U.S. flag. This percentage will gradually increase, reaching 15% by year seven. Additionally, 5% of U.S. export cargo must be carried on vessels built in U.S. shipyards.
My estimate is that the first three elements combined will cost approximately $24 billion per year if no changes are made. Other analyses place the impact between $20 billion and $30 billion. If these costs are evenly distributed across all import and export cargo, it would translate to an additional burden of around $1,000 per FFE.
For element 4, feasibility remains a major question mark. It is unclear how the required ships could be built within the given timeframe in the United States. The current U.S. shipbuilding capacity appears to be insufficient to meet these requirements.
Future challenges and strategies
If this bill is passed,the deadline for comments is March 24,shipping lines will likely undergo major network restructuring to mitigate the impact of the new levies and obligations.
Since the charge applies per port call, regardless of ship size or the number of containers handled, it is highly likely that carriers will drastically reduce the number of U.S. port calls. Smaller ports, in particular, risk being dropped from sailing schedules, as shipping lines will likely concentrate on a smaller number of strategic gateway ports to minimize costs.
On the opening day of TPM, MSC’s CEO, Søren Toft, was asked directly on stage what would happen if USTR 301 were implemented. His response was exactly as expected: fewer port calls and the avoidance of smaller ports.
A key factor to consider is that transatlantic services will be more severely affected than transpacific routes. This is because ships on Atlantic trade lanes tend to be smaller and make more frequent port calls, making them more vulnerable to per-call charges. As mentioned earlier, this remains a proposed bill, with the consultation period open until March 24.
At TPM, there was near-unanimous concern about USTR 301 behind the scenes. Given the current political climate in the U.S., no one was willing to rule out the proposal entirely. There is a real possibility that it will be enacted.
Importers and exporters trading with the U.S. should closely monitor these developments. Beyond the significantly higher costs, the fundamental restructuring of shipping services to and from the U.S. will likely create new bottlenecks, not just in major U.S. ports, but also in Canada and Mexico, as cargo may be rerouted to bypass U.S. levies.
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