U.S. agricultural exporters and smaller ports in the crosshairs of U.S. policies

Intended or not, smaller U.S. ports and U.S. agricultural exporters are likely to be the big losers if the Trump administration goes ahead with assessing penalties on ocean carriers sailing on Chinese-built ships calling at U.S. ports. Carriers who own Chinese-built vessels could be subject to penalties as part of the U.S. Trade Representative (USTR) Section 301 investigation resulting in penalties. The reason is alleged Chinese unfair shipbuilding practices, according to Lars Jensen, CEO of Vespucci Maritime, based in Copenhagen.

In an interview with AJOT, Jensen said that the Trump administration’s support for the USTR 301 proposed penalties on ocean carriers could total to as much as $1.5 million per port call.

Section 301 Penalties

Jensen said the premises of the Trump administration’s Section 301 action and a parallel Presidential Executive Order were nonsensical: “I have been very clear when I read the USTR 301, that this is written by people that have zero understanding of how the containerized supply chain works. They don't, because if they did, they would never have come up with something such as this.”

At the Trans-Pacific Maritime (TPM) conference in Long Beach, in early March, Soren Toft, Chief Executive Officer, MSC (Mediterranean Shipping Company) said that one likely impact of the proposed Trump administration penalties would be for ocean carriers to focus on port calls at bigger ports because the impact will be less on a per container basis than utilizing a mega container ship at a large port for unloading and loading as opposed to a smaller container ship at a smaller port:

“If I come into Los Angeles to discharge, I have maybe 8,000 boxes and then have another 1,500 for Oakland. If it is going to cost me a million dollars per port call, why on earth would I then call on Oakland which is going to be prohibitively expensive to come in on a per container basis?”

Jensen noted that “We are going have to wait until the hearing on March 24^th (to discover the decision by USTR on penalties) … If you have Chinese built vessels, and it is not just a fee on the Chinese built vessels, if you have a lot of them, even if the ship you arrive with is not Chinese built, you still get penalized because you have got other Chinese built ships. … The fees are fixed fees, and it depends on which one of these … it is … At the high end, it is a $1.5 million per port call, irrespective of vessel size, irrespective of the amount of cargo being handled. Your 15,000 TEU ship will call multiple ports to start with. And let us keep in mind most ships are not 15,000 TEU especially not into the U.S. I think the median size into the U.S. West Coast is about 8,000 TEU vessels. On the Atlantic (the ships) are down at 4,000 TEU, 5,000 TEU, 6,000 TEU range or smaller when you come from South America ... This fee is the same irrespective of vessel size. You pay the same for a 15,000 TEU as you do for a 1,000 TEU vessel … So, the largest ports will suddenly get inundated. You can be guaranteed. You are going to get massive congestion problems. The easiest thing is to switch the ships to these larger ports. The ports may be able to handle it on the seaside, but rest assured they will not be able to handle it on the land side. This cargo needs to go by truck and rail to somewhere else.”

Impact on U.S. Agricultural Exporters

Jensen said U.S. agricultural exporters could be major losers if these penalties are imposed: “It's going to be potentially hard also on the U.S. exporters … I think the E.U. has concluded they don't have a trading partner that acts rationally that they can talk to … So however much the U.S. decides to ratchet this one up, I'm sure, I'm sure the E.U. will follow, but the E.U. is doing it a lot more targeted tariffs because it appears that a lot of the items, they're now targeting seems to be goods that are produced in predominantly Republican states. If I were over in the agricultural sector, I would spend whatever efforts I could in trying to make sure this one didn't happen because this is extremely dangerous for agricultural exporters. They are very sensitive to the price of shipment out of the U.S. and USTR 301 is going to hit them on multiple fronts. First of all, it's going to cost them money in terms of the fee. Sure, some of the fee will be disproportionately put in the importers, but the exporters will get some of it.”

Proposed Harbor Maintenance Tax Hike

An additional proposal in President Trump’s recent Executive Order would raise the current Harbor Maintenance Tax by up to 10% to penalize carriers who have diverted services to Mexico and Canada to avoid U.S. tariffs on Chinese goods by landing them in Mexico and Canada and then delivering the products to U.S. end users: “The Americans are somewhat angry that these vessels are then avoiding U.S. ports and taking U.S. cargo through foreign ports, notably Canada and Mexico. So, the idea is right now you have got a Harbor Maintenance Tax which is 0.125% of cargo value … The idea is then if you have cargo coming into the U.S., but it is discharged in Canada, that is not a good thing. So, if it comes in through Canada, they should pay not 0.125% They should pay 10% in Harbor Maintenance Tax … But basically, it is a tax on importers ...”

Weaponizing the FMC?

On March 14^th, the Federal Maritime Commission (FMC) stated that: “Based on available information, it appears that constraints on transits through the English Channel, the Malacca Strait, the Northern Sea Passage, the Singapore Strait, the Panama Canal, the Strait of Gibraltar, and the Suez Canal may have created shipping conditions that call for careful consideration by the Federal Maritime Commission (Commission) in connection with the determination of its policies and the carrying out of its duties.”

The maritime news service GCaptain’s John Konrad praised the Federal Maritime Commission, which regulates ocean carrier rates and practices in the United States, for its decision to investigate global maritime chokepoints and possibly assess penalties against foreign flag carriers whose nations restrict U.S. trade at these strategic points: “The FMC’s mandate under Trump is to determine how foreign regulations, laws, and corporate policies create artificial constraints on U.S. trade. The commission is gathering testimony from shipping executives, bulk cargo operators, port authorities, and national security officials, looking for patterns of intentional trade disruption—whether through strategic slowdowns, hidden fees, or backroom agreements that grant Chinese and Russian interests’ preferential access to vital trade lanes.”

Jensen says that the Trump administration’s utilization of the FMC is misguided: “What I see here … the FMC wanted to be part of Trump's political process to be quite blunt … When you are saying maritime chokepoints when you look at the chokepoints … Suez Canal. Okay, fine. I buy that one. Panama Canal? I can kind of see why that would be on the list, even though right now they solved the water problem. Then they have something like the English Channel, which is a problematic choke point right now. I do not get that one …Then you have got places that are glaringly absent such as the Straits of Hormuz and the Taiwan Strait… The Strait of Hormuz is not a maritime choke point. They are not worried about the Taiwan Strait and not the South China Sea …”

Jensen’s conclusion: “I would rather say, this is to me a clear example that the FMC has become more politicized than what it has been for decades.”

Ocean Carrier Profitability

Larsen says ocean carriers should do well in 2025 unless there is a downturn in the U.S. economy: “There are several different factors for talking in … favor of the carriers including the Red Sea crisis which now appears to be on track to continue most of this year with the new escalation of hostilities and the complete breakdown of the ceasefire in Gaza. So, the Red Sea crisis is back to square one. So realistically, we are looking at least six months. So that works in the carrier's favor. But the major wild card here is if consumption in the U.S. suddenly takes a nosedive, that is the major risk factor that could pull everything down.”