While dry bulk shipping has borne the brunt of U.S. and Chinese tariffs to date, BIMCO is warning higher tariffs by China and the United States will increasingly affect container shipping.
Peter Sand, the chief shipping analyst for BIMCO, explained that as the next rounds of tariffs come into play, more of the targeted commodities are transported in containers.
Sand said that “85.3 percent of Chinese seaborne imports from the U.S. and 58.5 percent of U.S. seaborne imports from China could become affected by the trade war, if the U.S. and China implement tariffs on a further $200 [billion] and $60 billion worth of goods, respectively.”
Thursday morning CNN reported, “China has welcomed an offer from the Trump administration to talk trade,” quoting Chinese Commerce Ministry spokesman Gao Feng as saying, “The escalation of trade conflicts doesn’t benefit either side’s interests.”
Last Friday President Trump told reporters on Air Force One that “the $200 billion we’re talking about could take place very soon, depending on what happens with them. To a certain extent, it’s going to be up to China. But we’ve taxed them $50 billion — that’s on technology. Now, we’ve added another $200 billion. And I hate to say this, but, behind that, there’s another $267 billion ready to go on short notice, if I want.”
The Trump administration first announced a 25 percent tariff on steel and 10 percent tariff on aluminum in March — with exemptions for Australia, Brazil, Argentina and South Korea. Temporary exemptions for the European Union, Canada and Mexico were removed June 1.
The U.S. imposed tariffs on $50 billion worth of imports from China in two stages this summer. Sand said the tariffs that came into force on July 6 on products valued at $34 billion were mainly machinery and electronic goods. The tariffs that came into force on Aug. 23 on products valued at $16 billion included plastics and oil products.
China retaliated with tariffs on $50 billion of U.S. goods and announced counter tariffs on an additional $60 billion of U.S. products in early August.
The dry bulk industry has been the shipping sector most affected by the tariffs, said BIMCO. But the dry bulk industry is very large and it said, “The whole trade war still impacts only 1.9 percent of total dry bulk trade in 2017, equivalent to about 2,000 handymax loads (A handymax ship having capacity of about 50,000 dwt.)
But that could change if the $200 billion in tariffs are imposed.
Sand said the list of commodities “covers more consumer goods than previously seen, varying from bicycles to fish and Christmas lights, and will undergo further review before a decision is made about possible implementation.” Initially the U.S. said it would impose a 10 percent tariff on those items, but later raised the proposed level to 25 percent.
“While containerized goods have already been targeted by the $50 billion round, the biggest impact on these will come if the proposed $200 billion are implemented. So far, the tariffed goods total to 6.6 million tonnes of seaborne trade from China to the U.S. in 2017,” said BIMCO. This is equivalent to 660,000 TEUs, it said, assuming that a container carries 10 tonnes per TEU, which it says is the global average. That works out to 5.9 percent of U.S. West Coast container imports in 2017. (BIMCO noted the TEU count changes, depending on assumptions about the weight of cargo in each container.)
If tariffs are imposed on an additional $200 billion of U.S. imports from China, an additional 22.4 million tonnes of seaborne containerized goods would be impacted, which amounts to 20.1 percent of U.S. West Coast imports in 2017, it said.
In an analysis by Chris Rogers, a director at Panjiva said The initial round of 545 U.S. export products targeted by China were focused on the agricultural sectors (particularly cereals, fish, fruit and vegetables) and automotive industries,” and that “the second round, applied from August 23, are concentrated on the energy and chemicals industries.”
“The biggest impact in absolute terms has been on sorghum (zero imports in July vs. $127 million a year earlier) which was partly due to earlier duties being applied. For other agricultural goods the biggest declines were in soybeans (55.6 percent lower) and corn (99.7 percent lower),” said Panjiva.
In manufacturing, Panjiva said “the automotive industry bore the brunt of the downturn in manufacturing with an overall reduction of U.S. vehicle exports to China of $315 million or 39.2 percent in July vs. a year earlier. Electric vehicles, including Tesla, saw the largest proportional impact with an 82.8 percent slump.” It said the impact on U.S. exports in the second round of product where duties were applied from August 23 will likely only become clear in September’s trade data.
China’s ability to respond to U.S. tariffs may be limited, said BIMCO.
“For the first time in this trade war, the latest round has seen China unable to respond equally to the $200 billion measures announced by the U.S. With China importing much less than it exports to the U.S., if the trade war continues to unfold, China will have to look away from tariffing imports to find its retaliatory measures.”
“The next steps are likely to see China using new ‘weapons,” said Sand, “for example, including service sectors or targeting U.S. investments in China. The next steps from the U.S. are set to morph too. The impact on the global shipping industry will depend on the measures taken.”
BIMCO noted, “The dry bulk shipping industry remains by far the most affected by Chinese tariffs in terms of volumes.”
Soybeans are the largest bulk commodity targeted by the tariffs. But BIMCO said the impact of these on Chinese buyers may be limited because the price of U.S. soybeans has fallen, resulting in them in being 21 percent cheaper than Brazilian soybeans. Brazil is the second-largest exporter of soybeans to China. The price reduction has eroded much of the added costs brought about by the tariffs, said Sand.
“While the narrowly measured amount of impacted cargoes may seem small in perspective of the entire market — the impact is the opposite,” said Sand. “The shipping industry is trapped between a rock and a hard place in an already troubled market place.
“In the tramp shipping market, uncertainty about where the next cargo will come from makes it very difficult to reposition your ship after discharge. For the liner shipping market, matching deployed capacity on trade lanes with actual demand becomes even harder,” said Sand. “Poorer service offers to customers and lower profitability seems inevitable.”
BY CHRIS DUPIN