[By GuanchaNet Columnist Zuo Qianhu]
Another "shoe has dropped!"
On April 17, the Office of the United States Trade Representative (USTR) released an announcement revealing the results of the Section 301 investigation on China's shipping, logistics, and shipbuilding industries, as well as公布了针对中国航运企业及中国造船舶的收费标准.
·Implementation Details
The USTR held two closed-door hearings on March 24 and March 26, respectively. This release can be seen as implementation details, with specific measures divided into two phases, the main contents are as follows:
In the first phase, which will take effect 180 days later, fees will be charged for vessels owned or operated by Chinese shipping companies and non-Chinese shipping companies using Chinese-built ships. The billing standards for the two types of vessels differ slightly but are basically calculated in the same way, based on net tonnage, charged at the first port under U.S. Customs jurisdiction, up to five times per year, with rates increasing over time. Additionally, foreign-built vehicle carriers (vehicle/car carriers) will also be included in the charging range.
In the second phase, which will take effect after three years, fees will be charged for non-U.S.-built liquefied natural gas carriers docking at U.S. ports—so-called U.S. natural gas carriers refer to those built in the U.S., registered in the U.S., and operated by U.S. companies—with rates increasing annually. There are also some exemption clauses.
Compared to the initial proposal, the main changes in the latest version are: an additional 180-day grace period has been added; charges for non-Chinese-built vessels docking at U.S. ports in fleets that own Chinese-built ships have been removed; the scope of charging vessels at the fleet level has been narrowed, with increased targeting towards China; all non-U.S. ships will be charged for vehicle carriers and liquefied natural gas carriers, strengthening exclusivity towards non-U.S. ships.
In the interval between the publication of the two proposals, many industry insiders within and outside the United States have successively expressed opposition to the implementation of this bill. For example, Andrew Abbott, CEO of Atlantic Container Line (ACL), bluntly stated that if the bill is implemented, his company would have no choice but to exit the U.S. market. This is because all vessels in their fleet were built in China between 2015 and 2016.
Although ACL's situation is somewhat special, it should be noted that the rise of China's shipbuilding industry has mainly occurred over the past decade. The usage cycle of ships is usually several decades long, and the global second-hand ship trading market is large. Therefore, the proportion of ships currently built in China in the existing fleet is not very high.
Proportion of container ships built in China by leading container shipping companies
According to statistics from Clarkson, in the global fleet, ships built in China account for 23%, Japan 20%, South Korea 8%, Indonesia 7%, the United States 4%, and others 38%.
From the perspective of different types of ships, ships built in China account for 39% of container ships, 48% of dry bulk carriers, and 28% of tankers; in the global order backlog, ships built by Chinese shipyards account for 66%. In short, although the number of container ships built in China in the world fleet is not yet large, the increase is significant. It is worth noting that in 2024, the order share of Chinese container ships is 69%, South Korea 23%, and Japan 6%, meaning that China, Japan, and South Korea almost completely monopolize the container shipbuilding sector.
In addition, China stands out in the environmental protection field, undertaking approximately 71.7% of the orders for environmentally friendly green-powered ships globally; Europe still dominates only in niche areas such as cruise ships.
From the perspective of actual operational models, container ships typically adopt a fixed route weekly regular service model, similar to bus operations, stopping at multiple ports in sequence according to a predetermined order; while dry bulk carriers and oil tankers more often use voyage chartering or bareboat chartering models, without fixed routes, similar to the service modes of ride-hailing or chartered vehicles. Due to the frequent docking of container ships at multiple ports, involving staged charges, and the need to allocate freight costs between the origin and destination ports, if the U.S. Section 301 bill adjusts the routes, the operating costs and adjustment difficulties of container ships will significantly exceed those of other ship types.
·Russian Market as a Mirror
For example, taking the U.S. container shipping market as an example, analyze the possible impacts of the bill.
According to comprehensive statistics from the U.S. Customs and Clarksons and other institutions, the U.S. annual container maritime export volume is about 13.9 million TEUs, imports 34 million TEUs, and the total global container maritime trade volume is 212.7 million TEUs, with the U.S. market accounting for about 22.5%.
If calculated based on the scale of vessels operating on U.S. routes, carrying capacity, docking frequency, etc., when implementing the bill, if a single charge mode is used, the cost per TEU for the West Coast and East Coast routes will increase by $450-$550 and $200-$300 respectively, accounting for 30%-45% and 12%-17% of the current freight rates; if a cumulative 4-5 times charging mode is adopted, the cost increase may reach 100%-300%.
These increases are lower than the sharp rise in maritime freight prices during the pandemic from 2020 to 2022, but historical experience shows that shipping companies are likely to directly pass on the new costs to freight rates—just like during the pandemic when freight rates soared due to a shortage of capacity, and companies could hardly adjust their routes. The U.S. raising shipping costs through legislation may push its domestic market back to the "pandemic state," while freight rates in other regions globally will tend to stabilize.
However, there are differences compared to the pandemic: shipping companies have sufficient capacity to adjust their routes. So how will shipping companies adjust? What changes will occur in the market? Are there any real-world cases to reference?
Actually, yes, it’s the current Russian market.
From a market principle perspective, the problems facing the U.S. market are similar to what the Russian market has experienced since 2022, both being caused by external market forces pushing up the cost of market access, resulting in supply shortages.
The U.S. has raised shipping companies' operating costs through legislation. Although some companies have threatened to exit the market, most analyses suggest that the supply in the U.S. market will not face such extreme situations. However, following the outbreak of the Russia-Ukraine conflict in 2022, major European and American shipping companies collectively withdrew from the Russian market, which is already a fact—it actually provides an upper limit reference for potential changes in the U.S. market, i.e., the maximum impact the bill could cause.
What is the current reality of the Russian market? Has maritime transportation been completely interrupted? After personally visiting Russia for two weeks, I found that the reality differs sharply from external perceptions. Moscow and St. Petersburg streets are mostly normal except for sporadic recruitment advertisements, with life proceeding as usual and almost no sense of war atmosphere. This phenomenon evokes memories of China's self-defense counterattack against Vietnam from 1979 to 1989 and the Two Mountains War era—border regions engage in border wars with military proxies, while the rest of the country focuses on economic construction, promoting reform and opening-up, integrating into another stronger and more developing global supply chain system.
The Russian container shipping market differs from the U.S. market in two aspects:
Firstly, the difference in scale.
The U.S. handles nearly 50 million TEUs annually, accounting for 22.5% of the global market; whereas Russia's port container throughput was 5.26 million TEUs in 2021, dropped to 3.91 million TEUs in 2022 due to the Russia-Ukraine conflict, data for 2023 is missing, and by September 2024, it had recovered to 3.433 million TEUs, with a full-year estimate reaching 5.3 million TEUs, basically returning to pre-war levels, approximately one-tenth of the U.S. (Note: Russia only has port throughput data, as the number of transshipment containers is small, its import and export data roughly corresponds to throughput).
Secondly, the difference in scale directly affects route planning.
U.S. cargo volumes can support independent route operations. U.S. ports are mostly deep-water ports capable of docking large vessels; whereas due to limited cargo volume, Russia’s largest port, St. Petersburg, exists only as a feeder port for the Asia-Europe route, requiring transshipment to connect with trunk lines. Using railways as an analogy, U.S. ports are similar to Beijing and Shanghai hubs that can independently operate originating trains; whereas Russian ports are akin to smaller stations like Jiangyin and Zhenjiang, which depend on larger stations for transshipment. Shipping companies, akin to railway departments, will not open dedicated routes for limited transport demand.
Before the outbreak of the Russia-Ukraine conflict in 2022, the main players in Russia's container shipping market were similar to those in other coastal countries worldwide, consisting primarily of the top ten global shipping giants and regional feeder shipping companies. The sanctions imposed by Europe and America following the conflict led major global shipping giants, including COSCO Shipping, to exit the Russian market due to the limited size of the Russian market and the primary revenue sources of these giants being from European and American clients, resulting in a drastic change in the structure of Russia's container shipping market.
However, there are exceptions: the world's largest container shipping company, Mediterranean Shipping Company (MSC), continues to maintain service on the St. Petersburg route via transshipment at Antwerp, Belgium, ignoring various sanctions from Europe and America, and keeping various anti-Russian media silent.
Mediterranean Shipping still shows schedules to St. Petersburg, Russia on its website
In addition, the fifth-ranked Evergreen Marine of Taiwan, China, has not completely withdrawn from the Russian market. Recently, at the Russian Logistics Exhibition, some service providers still recruited customers under the Evergreen brand, indicating that Evergreen Marine has maintained its presence in the Russian market through certain means.
Evergreen Marine (EVERGREEN) logo appeared at the recent Russian Logistics Exhibition
The current largest share of the Russian market is now occupied by newly established small and regional shipping companies. These companies were previously little known and mostly established after the sanctions. Their operational vessels are generally older, smaller-capacity ships acquired through secondary market transactions.
These small companies focus on non-European and non-American markets and leverage legal structures to avoid sanctions risks from Europe and America—the common "single-ship company" model in the shipping industry provides a mature solution for this. However, limited by economies of scale, their per-container transportation costs are significantly higher than those of large ships operated by global carriers. From the perspective of corporate backgrounds, the main entities filling the void left by European and American enterprises are Russian domestic companies and Chinese enterprises.
In terms of transportation routes, cargo from Europe to Russia still exists, but it needs to be transshipped via ports such as Dubai and China's coastal areas; however, St. Petersburg's role has undergone subtle changes: previously dependent on trunk line hubs as a feeder port, now some new routes directly set it as the destination port, objectively enhancing its industry status. At the same time, some shipping companies extend free container usage periods at ports near Russia to provide road/rail transfer time for Russian customers, indirectly maintaining service capabilities.
After all these adjustments, the cost is the decline in market efficiency: detouring through transshipment, high costs of smaller ships, and compliance risk premiums ultimately drive up Russia's maritime freight rates. This result confirms the basic law of "administrative intervention in the market"—the cost of policy intervention will ultimately be borne by consumers in the target market.
Based on the experience of the Russian market and the differences between the U.S. and Russian markets, the following changes may occur after the implementation of the bill:
Firstly, global shipping giants will not withdraw from the U.S. market, and regional small companies cannot compete with the scale advantages of large companies. As Andrew Abbott pointed out: compared to large liner companies, smaller shipping enterprises struggle to absorb additional costs due to their scale disadvantages, "we might have to charge our customers an additional fee of $2,000 to $2,500 per two standard containers, while large companies only need to charge $800, which is enough to force us out of the U.S. market." However, the threat of withdrawal is more of a warning statement; small and medium-sized enterprises are more likely to act as "compliant shell" companies to fill the market gap created by the implementation of the bill.
Based on the requirements of the bill, routes involving the U.S. will face route adjustments and vessel replacements.
For example, in the traditional model of the trans-Pacific route from China to the U.S. West Coast, the route traditionally goes directly from China's coastal ports such as Shanghai to the U.S. Los Angeles; now, to avoid the cost of the bill, the route may be split into two segments: the first segment, "China's coastal ports to Vancouver, Canada," will still be operated by global shipping enterprises using any large vessels, including those built in China; the second segment, "from Vancouver, Canada, to Los Angeles, USA," will be undertaken by newly established small companies specifically formed for compliance, using Japanese or Korean-built vessels or second-hand ships (U.S. civilian shipbuilding accounts for only 0.2% of global shares, with high costs and limited capacity).
Regional transshipment hubs will form around the U.S.: the East Coast may rely on Montreal or Toronto in Canada, the Gulf of Mexico points to the Colon Free Zone in Panama, and even the newly developed Cañete Port by COSCO Group may participate in competition. This will downgrade all direct trunk ports in the U.S. (such as Los Angeles and New York) to feeder ports, extending the logistics chain, increasing costs, and driving up freight rates. At the same time, it makes the U.S. policy ironic: while St. Petersburg in Russia upgraded to a trunk port due to sanctions, U.S. ports have regressed to feeder ports due to the bill.
Since the entire transshipment process requires close collaboration between global shipping giants and newly established small companies, and the sources of goods are in the hands of global shipping giants. Newly established small companies will inevitably have invisible close ties with global shipping giants, and in some cases, they can be considered as the "shell" of former large shipping enterprises, with employees of both sides possibly having been colleagues before.
Mediterranean Shipping can now continue to operate in the Russian market despite EU and U.S. sanctions, and in the future, it can find ways to make everything "compliant" with U.S. laws. This will lead to a large demand for "compliance" and "lobbying" within the U.S. There are examples from the pandemic: at that time, the U.S. Food and Drug Administration (FDA) refused to approve the entry of protective products made in China, but then-President Trump's son-in-law, Kushner, could use the "air bridge plan" to import protective products from China, and the retail price of masks in the U.S. was dozens of times higher than in China at that time.
At that time, The Washington Post published a commentary titled "Save Us from Kushner"
History shows that policy interventions not only fail to achieve their goals but also sow the seeds for rent-seeking and efficiency losses. Administrative intervention in the market distorts price signals and causes resource misallocation—Hayek said so.
·Opportunities Amidst Challenges
Although the U.S. Section 301 bill targets China's shipping and shipbuilding industries, it is not entirely bad for China.
Historical experience shows that a market pattern formed through free competition can only be disrupted by strong external factors. For example, the withdrawal of international shipping companies including COSCO Shipping due to EU and U.S. sanctions on Russia has quickly been filled by local Russian and other Chinese enterprises. This is beneficial for China as a whole.
In the downstream comprehensive logistics market, the trend is even more pronounced. At the 28th Russia International Logistics Exhibition TransRussia held in Moscow, there were a total of 583 exhibitors, of which 398 were Russian domestic enterprises and 185 were foreign exhibitors, with more than 100 Chinese enterprises among them. Among foreign enterprises in the Russian logistics sector, more than half are from China.
Therefore, the U.S. market has long been dominated by European and American enterprises, and if the 301 bill triggers changes in the market structure, it may contain strategic opportunities for China.
For enterprises, the key is to seize the market restructuring opportunities brought by the bill to expand market share; for the country, systemic solutions to deep-seated challenges in the industry are needed.
This Section 301 bill targets the shipping and shipbuilding industries. For the shipping industry, the bill exposes the failure of the existing international shipping governance system, including international shipping organizations and treaties. Previous EU and U.S. sanctions on Russia have already led to 12% of global oil tankers being deregulated.
For the shipbuilding industry, the U.S. market accounts for 22.5% of global maritime traffic, restricting the use of Chinese ships will depress the market price of Chinese-built ships, giving a competitive edge to non-Chinese ships. Since international shipbuilding is currently monopolized by China, Japan, and South Korea, ships built by other countries are merely part of the market stock. Therefore, the focus should be on reducing the competitive advantage of Japanese and Korean shipbuilding, while recognizing that Japanese and Korean shipbuilding includes much technology and components from Europe and America, making them part of the European and American supply chain, protected by European and American trade, finance, insurance, and legal systems.
All aspects of China need to respond simultaneously to challenges in the shipping and shipbuilding sectors, but the core strategy is not equivalent retaliation but rule upgrades to correct discriminatory practices in the market, maintain fair competition, and "optimize" the existing international framework for industry health.
The U.S. uses its market share as a tool, seemingly forgetting that more ships dock at Chinese ports, where China holds a larger share and has overwhelming advantages in technology, environment, and industry.
Given the current situation, it is recommended that relevant Chinese parties take some measures, such as building a full-chain standard system in areas such as environmental protection, technology, finance, law, and insurance based on China's shipbuilding technical advantages and the characteristics of competitors like Japan and South Korea. Specific requirements can include:
Using RMB settlement when signing shipbuilding contracts, financing must be through loans from Chinese banks, and audited by Chinese accounting firms;
Design drawings must comply with the environmental standards of China Classification Society, parts must be purchased from within China or from Chinese enterprises, and the vessel must be inspected and certified by the China Classification Society (CCS) upon completion;
During operation, insurance must be purchased from Chinese insurers, and consulting services must be obtained from Chinese data companies;
In case of commercial disputes, arbitration must be applied for through the China Maritime Arbitration Commission, and legal proceedings must be under the jurisdiction of the Shanghai Maritime Court;
Pledging future support for China's proposed solutions in international consultations regarding shipbuilding and shipping.
The above standards will apply equally to all vessels docking at Chinese ports, including those belonging to Chinese shipping enterprises such as COSCO, and differentiated fees will be charged based on compliance levels. For example, contracts not settled in RMB will incur a 1.5% handling fee; vessels not meeting China's environmental standards will be charged daily environmental handling fees. This is not targeted at specific countries but sets unified rules for port regulation based on sovereign principles, just as the EU requires ships entering its waters to pay carbon taxes.
·Conclusion
Domestic public opinion often voices arguments like "the financial and legal industries are the headquarters of the 'anti-China party,'" though this statement seems extreme, it has its economic background: the high-end positions in fields such as finance and law still depend on European and American standards and multinational corporate demands, and the career paths of practitioners are objectively deeply tied to the Western system. This "reliance on foreign bread" is essentially the result of an extended industrial system.
Building an autonomous shipbuilding and shipping rule system in China is precisely to break this one-way dependence. By mandating RMB settlement, local insurance terms, and CCS certification, it will force complementary service industries such as finance, law, and insurance to become localized, directly creating high-value-added jobs. Of particular importance is that these positions have a high demand for skills such as drafting legal documents, international arbitration, and green finance, effectively alleviating structural employment contradictions in humanities and social sciences.
"The bowl of rice in the hands of Chinese people must always be firmly held in our own hands," this saying applies not only to the grain sector but also to other key fields.
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