A KEY assumption on the US Trade Representative’s plan to charge port fees on Chinese-built ships and operators with Chinese newbuild orders is that added costs would be passed along to cargo shippers via surcharges.

But another scenario would arise if ocean carriers, for whatever reason, were prevented from passing these costs along: Carriers would remove some of their services to the US.

Soren Toft, chief executive of MSC and chairman of the World Shipping Council, outlined the worst-case scenario when speaking at the TPM25 conference in Long Beach, California, on Monday.

How USTR port fees could alter US services

“When I look at the proposed rules, I see a significant impact if it’s pushed through as it is laid out right now,” he warned.

“If we look at a service going from Asia to the US east coast, most carriers are deploying 8,000- to 15,000-teu tonnage and calling at four ports. At $1m per call, that’s $4m. If you move an average of 10,000 teu, that’s $400 per teu or $800 per feu. The CCFI [China Containerized Freight Index] is around $3,500 per feu, so that’s a 20-25% increase. That’s significant.

“If you look at the transatlantic, it’s even worse, because we’re moving maybe 4,000-5,000 feu [per voyage] and we also call at four ports on the US east coast when we come from Northern Europe. That’s $1,000 per teu [$2,000 per feu], and I would bet that more or less eliminates the freight rate.”

Toft emphasised that the port fees “would either have to be added on top [of freight], and the consumer would have to pay, or we would have to revise our network. We would probably have to withdraw some tonnage, because certain trades would simply be uneconomical if we weren’t able to pass on the additional cost.

“We would have to look at other trades that are more attractive,” he said. “Capacity would be redeployed to where it makes the most sense for us, because that’s the nature of our network given the size and breadth we have.”

There would be another severely negative consequence beyond capacity lost to US supply chains. The remaining capacity would be concentrated in fewer ports, because carriers would be penalised for every call in the string.

“The other thing that would happen immediately is that all of the marginal ports will have to be re-examined. Here in California, we are typically calling in LA/Long Beach and then we proceed to Oakland. But we can’t proceed to Oakland if it costs another $1m to do another 1,000 moves when we do 12,000 moves in LA/Long Beach.

“We also have smaller ports on the east coast. A lot of the peripheral ports will be at risk.”

That would, in turn, push more capacity to the main gateways like LA/Long Beach and New York/New Jersey, creating congestion. “I think it could happen very quickly,” said Toft. “The system is still very fragile. It takes very little to destabilise it.”

If ships were pulled from secondary ports, the main ports would receive more imports “and immediately those ports will not be able to handle it”, he predicted.

The hope is that the USTR proposal does not move forward, or if it does, it would be modified. “The timetable for providing comments on this is through the end of March and I think that some sanity will prevail. At least, that’s what I expect.

“I would also hope that if a regulation is passed, it doesn’t look in the rearview mirror,” Toft said, referring to the fact that the USTR proposal would charge port fees to operators with ships already on order at Chinese yards.

“We all have ships built in China. We all have Chinese ships on order. Let’s at least make it forward-looking and not penalise us for mistakes we made in the past because we didn’t know they were mistakes.”

Tariffs and inflation

Toft sounded much less concerned about tariffs than the USTR port fee plan.

“If we look back at the first round of tariffs, that didn’t really change much. That’s probably because the things being imported on containers will probably not end up being produced in the so-called Western world. Maybe we don’t have the skill sets. Maybe our costs are too high. Maybe we don’t have people who want to do this type of job.”

The result of more tariffs, he believes, will be that “the supply chain will continue moving from being concentrated to being more distributed — but goods will still need to be shipped. They will just need to be shipped from different places around the world.”

He acknowledged there are “some concerns” about US demand — with consumer confidence dipping amid the recent uncertainty — but he noted that global containerised cargo growth is still rising. He pointed to ongoing growth in China, Southeast Asia, India, Saudi Arabia, Brazil and parts of Africa.

“Right now, we all get so preoccupied with the stress and the drama, but we’re still looking at a world that’s still growing this year.”

Asked how worried he is about inflationary impacts in the US from tariffs and port fees, Toft replied, “I’m moderately worried.” The reason he’s not more worried “is there is a presidential administration that’s very focused on inflation”.

“I hope we can explain that some of the proposals that are out there are not helpful to inflation, and if they were done in a slightly different way, we would not see the same effect.”