Aside from the hullabaloo surrounding tariffs, ship owners and charterers are also facing the prospect of million dollar + punitive port levies on “Chinese vessels”.
Just like the tariff issues, the precise mechanics of how the punitive charges are supposed to work and when they will kick in is in flux. Container lines and operators are scrambling to get protective clauses into their contracts to make it clear that these additional levies fall on the charterers and are not costs relating the operation of the vessel which would normally fall on ship owners and be covered by the freight.
One of the big unknowns is how the US Trade Representative (USTR) proposes to define “a Chinese vessel”. Does this (as seems to have originally been suggested) cover all Chinese built vessels? If so, then that covers huge number of vessels currently on the water. How does one deal with vessels owned by offshore structures or leased from Chinese leasing companies but which fly the flags of other countries? Are those Chinese vessels? Many ships, particularly the ones bringing in high value cargoes, are subject to complex ownership structures. The vessel may be built in China, sold to an offshore SPV established by a leasing company (which may or may not be Chinese) and then bareboat chartered to a non-Chinese company and time chartered to another company who then operates it on the water earning freights under long term contracts. Many Chinese ship operators operate from countries like Singapore. Are they subject to this levy? Who makes the call on what is or is not a Chinese vessel”?
Moving beyond those problems, we anticipate huge potential impacts on port calls in the US if these levies come into effect. The indications are that the levies could range from US$1million to US$3.5million per ship per port call. Whilst that may not be huge across 24,000 twenty-foot containers, the cost is likely to be passed on to consumers in the form of additional freights charged by freight forwarders and logistics providers. It is also likely to lead to a reduction in the number of port calls. For example, container ships operating on the Asia – US west coast route may decide to no longer call at Seattle or Oakland preferring instead to use LA/ Long Beach. The same could happen on the East Coast with ports like Norfolk and Savannah being skipped in favour of New York. This could lead to additional complications getting boxes to and from ports for shipment and of course increased costs for US importers and US customers.
It is too soon to say if a reduction in port calls will lead to delays and claims for demurrage because we don’t yet know the impact of swingeing tariffs on China – US trade. Potentially we could end up with routes being mothballed and ports being very quiet. That has its own legal impacts for those involved in the container business and all those who depend on that business.
To sum up, we anticipate legal issues and claims will flow from this proposed levy if it ever comes into effect.
Nick Burgess
Partner
