The recent proposal by the U.S. Trade Representative (USTR) is likely to result in significant repositioning of tanker fleets, particularly concerning Chinese owned and operated vessels. According to Gibson, the tariff structure distinguishes between vessels based on their ownership and operation, setting an initial fee of $50 per net tonne for Chinese owned or operated tankers per U.S. port call. This fee will increase over the next three years, but ambiguities regarding the definitions of “vessel owner” and “vessel operator” persist. There is confusion surrounding the process of identifying ultimate Chinese ownership, particularly in cases involving lease financing.
Law firm Watson Farley & Williams points out that under Chinese lease financing, the lessee is often regarded as the beneficial owner, which complicates the implementation of USTR’s measures. If many vessels are deemed Chinese owned, it could result in widespread refinancing challenges. Given the substantial fees that will be applied to these vessels, it is likely that Chinese owned or operated tankers will cease trading to the U.S. With an average net tonnage of 105,000 for Very Large Crude Carriers (VLCCs), the potential fee could reach $5.25 million for each port call, which can occur multiple times a year. For vessels built in China but not owned or operated by Chinese interests, various exemptions exist.
A tanker arriving in ballast or under certain size limitations may avoid fees. However, any vessel over 80,000 deadweight tonnes that does not meet these requirements will face charges, suggesting that the fees will primarily impact dirty tankers. Gibson estimates that 15% of tankers are Chinese owned or operated, while 22% are Chinese built, and this number is anticipated to increase as newbuilds are ordered. Should these measures proceed as planned, a significant reshuffling within tanker fleets is expected.
Non-Chinese owners of Chinese built vessels might look to reallocate their fleets to minimize costs, with many already having the necessary diversification to shift Chinese vessels away from U.S. trade. Additionally, though the U.S. incentivizes domestic shipbuilding, the current lack of competitiveness and capacity in U.S. shipyards suggests limited short-term changes can be expected.