Summary
Shipping is like dark matter in the Universe. It keeps things expanding smoothly. It runs hypothetically in the background of world affairs like dark matter and energy in the universe. It prevents (stellar or earthly) bodies colliding in chaos! It is the Unobservable State– bigger than most states. Now it is disrupted.
The US the biggest importer in the world (13% of world total). It has no way of delivering seaborn goods to market (US ships carry 0.6% of global seaborn freight). The US is a vast maritime power without a merchant marine.
That makes US strategic autonomy a myth. Imported supply accounts for the 14% of US GDP. The ships that carry it are largely controlled by the US’s most likely enemy, China. Neither does the US have the logistical capacity provided by a merchant navy needed to project power in the case of open hostilities.
Unsurprisingly, the US wants to grab back shipping power. This will be done with three tools:
- punitive port tariffs (set to top actual shipping costs) on foreign ships and carriers;
- strictures on the use of foreign ships (LNG);
- interdicting the upgrade of the world’s merchant fleet to zero emissions under the International Maritime Organization.
Eight effects of the disruption of global shipping:
- US Port Tariffs on Chinese built and operated vessels will increase container shipping costs by 80% this year rising to 220% in 2028. Tariffs per large container vessel will start at US$ 16mn and hit US$ 45 mn by 2028. China has of course retaliated (details in the report).
- US Port Tariffs can add between 2% and 8% to high & low-end product price inflation in the US by 2028. This is poorly captured in current economic studies of tariff induced US inflation.
- Shipping rates to the US will rise as all Chinese-built ships (irrespective of ownership) avoid the US but the US fails to build ships fast enough to replace them.
- Rising premiums for non-Chinese-built ships of all categories
- Decline in ships being build in China and an increase in orders for Japan, Korea, India and Finland.
- Rising demand for existing LNG carriers and New Builds (Korea)
- Rising premiums for non-sanctioned tankers shipping ME oil to Asia.
- Potential for further shipping rate volatility due to geopolitical disruption of choke points or resolution of existing issues (e.g. Straits of Taiwan closure (BAD) or Red Sea/Bar el Mandeb opening (GOOD) could increase container ship supply by 12-13%).