IF CHINESE shipyards are feeling uneasy right now, it’s perfectly understandable. Last month, in an effort to revive its nearly non-existent domestic shipbuilding industry, the United States Trade Representative’s office unleashed its most potent tax weapon yet against Chinese ships.

The US plans to levy exorbitant port fees — in some cases, over a million dollars — for every US port call by Chinese operators, China-built ships, all operators that have any ships on order at Chinese yards, and according to one interpretation of the proposal, based on a presidential draft order obtained by Lloyd’s List, all operators with any China-built ships in their fleets.

If the goal is to revive the US commercial shipbuilding sector, these port fees may have a very limited impact, at least in the short term. Historically, overly aggressive reforms often fail due to a lack of execution or a systemic collapse caused by excessive shock. However, if the aim is to undermine China’s dominance in the global shipbuilding industry, the effects may become apparent much more quickly.

Brokers have already reported that China-built ships are losing their appeal in the long-term charter market, simply because of the possibility they may not be able to visit the US in the future. This also highlights the problem faced by China-built ships isn’t as simple as avoiding the US market and turning to other destinations.

Losing the ability to go to the US means that these ships, especially those used for tramp trade, have reduced applicability in the charter market, which will inevitably be reflected in their charter rates. And if charter rates are discounted relative to more widely applicable Japan- and South Korea-built vessels, that discount will also inevitably be passed on to the value of newbuildings.

In a nutshell, the products of Chinese shipyards will depreciate due to a loss of competitiveness. And the worst-case scenario is that they will have to give up at least some of their market share to their foreign competitors. It’s fair to say that those from South Korea and Japan, the world’s second- and third-largest shipbuilding nations respectively, are probably eagerly awaiting this opportunity.

The US port fees could be a “game changer” in reshaping market dynamics for the global shipbuilding industry.

This week's edition of the podcast features: 

• SM Kim, executive director of Korea Equity Research, JP Morgan

• Dimitris Roumeliotis, head of research, Xclusiv Shipbrokers

• Rob Willmington, markets editor, Lloyd’s List