It is a well-known fact that China is the 800-pound gorilla when it comes to dry bulk trade volumes and shipbuilding. That said, the US is no small pushover. In 2024, it was simultaneously the world’s fifth largest drybulk exporter (at 311.6 mln mt) and seventh largest importer (at 124.9 mln mt). Moreover, China was the top destination, accounting for 16.9% of total US drybulk exports last year. For context, the EU (including UK) account for approximately 10.9%, followed by Japan and India at 9.3% apiece.
This dynamic illustrates why the recent proposed clampdowns* from US Trade Representative (USTR) regarding Chinese-built ships or with Chinese connections for US port calls has caused such a stir within the shipping markets, including dry bulk. As seen in the above chart, across the size spectrum, Chinese-built dry tonnage was extensively deployed for US export cargoes, with Overpanamax, Kamsarmax, Ultramax segments hauling more than 50% of US exports carried by that segment. In segments that Chinese-built tonnage had a smaller market share, it tends to be centred around older models like Panamaxes, Supramaxes and Handysizes.
A similar case can be made for US dry bulk imports, with AXSMarine data showing that in many segments, Chinese-built ships transport most dry bulk commodities unloaded at US ports.
Collectively speaking, this is a microcosm of the prowess of Chinese shipyards in building dry bulkers, a segment which they mastered before moving into more complex ship types such as tankers and container liners. To shed further light on Chinese shipyards’ dominance, let’s use the mid-sized bulker segment (68-100,000 Dwt) as a prime example. If we look at this sized segment, Chinese-built ships account for 43.8% of the active fleet but when we zoom into the incumbent orderbook, that proportion spiked to 80%.
*These proposals can be deemed as a direct reaction to Chinese shipbuilding dominance which has caught the eye of Washington, following petitions from US labour unions. These includes port charges of up to $1 million per visit for Chinese-owned ships (or a charge of $1,000/mt of a ship’s cargo capacity), a charge of up to $1.5 million per visit for non-Chinese companies operating a Chinese ship and a staggered scale of port charges for companies whose fleets include Chinese-built ships. However, it must be noted that these remain proposals and there will be a hearing on 24 Match where these will be debated.
Legal context: Law is a Precise Endeavour
Currently many aspects of the proposals remain uncertain and are thus causing concern amongst shipping market participants. Indeed, the proposals are framed as a summary of potential measures, with no certainty regarding their eventual implementation.
Key areas of uncertainty include the precise definition of a "Chinese operator," specifically whether the proposed restrictions would apply to:
1. Subsidiaries / Joint-Ventures of Chinese companies (does minority stakes count, and to what extent),
2. Vessels under sale-and-leaseback arrangements (given Chinese leasing firms’ outsized role in contemporary shipping finance as European lenders retreated), or
3. Ships managed by Chinese entities (technical managers) but owned by non-Chinese firms - or vice versa, non-Chinese managers overseeing vessels owned by Chinese entities.
Additionally, the status of Hong Kong-based companies (or Hong Kong flagged vessels) under these potential regulations remains ambiguous. This is critical consideration as the very basis for US’ early concern over the control of Panama Canal can be traced to Hutchison Ports, a subsidiary of CK Hutchison Holdings, which operates key ports at both ends of the Panama Canal - Balboa (Pacific side) and Cristóbal (Atlantic side). This subsequently led to $22.8 billion deal, whereby the Hong Kong-based conglomerate is divesting control to a US consortium led by BlackRock Inc.
Commercial context: What if this is bull-doze through
Should these proposals be implemented abruptly, their associated costs and negative consequences have been widely discussed by the industry stakeholders. The consensus opinion is that they would disrupt or curb US trade volumes and could result in muted dealmaking transactions or a 2-tier freight market.
That being said, as food for thought, it is worth considering the potential beneficiaries of such a policy shift. A few key groups that may stand to gain include:
1. Small, non-Chinese shipyards given Japanese shipyards (the only yards outside of China which build dry bulkers) are already operating at full capacity through 2028.
2. Japanese-built vessels (even the older ones) may command a premium in the time charter market to load ex-Nopac and USG. And in the event of a severe freight correction, these ships might not head to the scrapyards as previously thought as demand and secondhand prices for non-Chinese bulkers should be supported.
3. Enterprising ship operators offering “non-Chinese” freight solutions, akin to the way some operators have marketed “green” freight solutions amid the decarbonization movement in recent years.
4. Proliferation of US-oriented transshipment businesses whereby China-affiliated vessels are handling port operations in neighbouring countries and leaving non-Chinese vessels to handle the final leg of the journey. However, would it be that simple for the shipping industry to circumvent the proposals and not expect the current US administration to respond with additional measures? It’s been well reported that US is now targeting intermediate countries who are perceived as a ‘backdoor’ for Chinese goods to avoid tariffs.
Meanwhile, it is crucial to distinguish between liner and tramp shipping. In theory, liner companies can pass additional port duties (or expenses) on to end customers as surcharges. This has already been seen on previous occasions in the form of the Peak Season Surcharge (PSS) and Bunker Adjustment Factor (BAF). However, this is not the case for tramp shipping, where shipowners and operators do not necessarily always possess direct contractual relationships with cargo interests.
Conclusion: Clash of the Titans
To take an educated guess, if revitalizing the US shipbuilding industry is the purpose behind Trump's administration, this could be an incredibly challenging task. The US simply lacks the domestic, skilled workforce needed. Indeed, US is coping with a lack of workers, which will likely be compounded when large waves of illegal migrants are deported later. In Japan, even locals are reluctant to work in shipyards, thus forcing shipyards to rely on foreign workers to fill the gap. Even Chinese shipbuilding will also have to face the inevitable challenges of an aging population. Lastly, South Korea has struggled to remain competitive in the dry bulk carrier construction market over the past decade.
The consolidation of global yard capacity has been happening way beforehand. However, if there is anyone that can move immovable mountains, maybe it could be the new Sheriff in Town? After all, when Trump mentioned his then intention for US to exert control over the Panama Canal, many express scepticisms that were well-founded.
Rising above the noise and chatter, the USTR’s proposal is simply affirmation that the US-China rivalry is now deeply structural - rooted in geopolitics, economic competition, and national security concerns. Unless there’s a significant U-turn in policy, the US will likely continue hitting China across multiple fronts - trade, technology, finance, and even logistics and infrastructure (as seen in the Panama port case). And unlike past US administrations, this one will likely impose greater scrutinization (down the road) on any ‘loopholes’ that want to sidestep the initial intended outcomes.
Some measures will succeed, while others may falter, but the overall trajectory remains confrontational, further highlighting the case that shipping is not for the faint-hearted.