With U.S. port fees on Chinese-built ships coming, ocean freight carriers scramble to avoid surprise financial hit

With U.S. government port fees on Chinese-made freight vessels scheduled to go into effect next week, confusion is widespread among ocean carriers about whether the U.S. Trade Representative rules could result in ship financing terms identifying their vessels as Chinese and subject them to a big financial hit.

In addition to China’s rise as a manufacturing hub for shipbuilding, Chinese lessors are also becoming more involved in managing the commercial aspects of ship operations. Ship owners and freight carriers often use vessel financing structures as an alternative to traditional bank loans and to diversify their debt and equity. China-based financing firms can offer vessels a variety of services, including acquisition and financing, sale-and-leaseback (SLB) financing for new builds, import leases, operating leases, cross-border leases, and time charter arrangements. Those deals can work for a variety of vessel types, including dry bulk carriers, containerships, and tankers.

“Confusion is definitely the right term to use to describe the current industry perception of the impending application of USTR fees,” shipping financier James Lightbourn of Cavalier Shipping wrote in an email to CNBC. “Western shipowners who otherwise have no Chinese ownership and who have financed non-Chinese-built vessels with Chinese lessors are indeed looking to refinance or restructure those transactions,” he stated.

According to a recent blog post from Lightbourn, Chinese lessor portfolios have approximately $100 billion of shipping assets, accounting for more than 15% of the global ship finance market. As China’s role in ship financing has grown, European banks, especially in Greece, have begun to offer more aggressive and competitive debt terms, leading some shipping companies to pivot. But Lightbourn says ship owners still face a tough choice in many cases: with three years left in the current administration, committing to more expensive financing of five years or longer could look foolish in hindsight.

“These deals are happening opportunistically, meaning that shipowners are not going to increase the cost of their financing in hopes of minimizing their USTR fees because there is lingering uncertainty as to how long they may be in effect,” he wrote.

Brian Maloney, a partner in Seward & Kissel’s maritime & transportation group, said there is definitely confusion, and potential risks, around how to define Chinese ownership or control relative to the new port fees and relationships with Chinese financing firms. Maloney says just because ship financing is not detailed in the USTR language, it does not mean shipowners are exempt. “Because of the lack of clarity, we have clients reviewing all of their ship financing deals and making decisions to seek non-Chinese ship financing to remove any exposure,” he said.

This question hangs heavy over the industry as the USTR fees are set to begin October 14 and be paid before a vessel can be allowed to enter a port.

Maloney said USTR has not provided any guidance on whether they are going to issue an amendment to clear up the confusion. “If you’re a shipping company that uses a Chinese leasing structure to finance your fleet, what do you do?” he said.

USTR declined to comment.

China leads the world in shipbuilding, followed by South Korea and Japan. The three countries collectively make 90% of the world’s fleet. China commands more than 62% of that.

On Friday, the Chinese government began charging “tit for tat” retaliatory port fees on U.S.-flagged ships entering Chinese ports. Back in September, the Chinese government enacted a law that allows for the imposition of retaliatory fees or port access denials for vessels from countries that take discriminatory actions against Chinese vessels or carriers.

While the Chinese retaliatory fees are the focus now, U.S.-flagged vessel lines that call on Chinese ports tell CNBC they are concerned vessels could be barred in the future based on the language of the rule.

Ship owners contacted by CNBC declined to comment.

How port fees are charged

The new U.S. port fees for most Chinese-linked vessels are broken down into two tranches, one for vessels owned or operated by a Chinese entity, and one for Chinese-built vessels. 

If a company has links to China and owns vessels built in China, they are in the first fee category.

Links to China include a company headquarters’ location or principal place of business (or that of their parent company) being in China, Hong Kong or Macau, or where the Chinese government or other Chinese entity has at least 25% voting interest, board interest, or equity interest, among other factors.  

These shipowners and ocean carriers have to pay $50 per net ton of the cargo-carrying capacity of a vessel calling the port. There is no breakout by container in this fee structure. All shipowners or ocean carriers can be charged up to five times in a single year. By 2028, the fee is maxed out to $140/net ton.

China State Shipbuilding Corporation, and ocean carriers OOCL and COSCO fall under this category.

Vespucci Maritime estimates that a 13,000 twenty-foot equivalent unit (TEU) COSCO container vessel has an estimated net tonnage of 65,000.

“This means the vessel operator would be charged a fee of $3.25 million per rotation,” Maloney said. “That equals a fee of approximately $250 per TEU if the vessel is fully loaded. Multiply that by five and you are looking at a total of $16,250,000 in fees per year,” he added.

By 2028, that same vessel would be charged $9.1 million per rotation or $700/TEU if the vessel is fully loaded, with the total annual charges running up to around $45.5 million.

The second tier of fees covers non-Chinese ocean carriers operating Chinese-built vessels. These fees are lower. Under this tier, shipowners and carriers would be charged $18 per net ton or $120 per container (whichever is the higher of the two).

“A typical large container ship carries 15,000 TEUS, so you are looking at around $2 million in fees,” Maloney said. As with the first tier, fees increase over the next three years to 2028, where fees top out at the higher of $33 per net ton or $250 a container.

The incentive to refinance a Chinese lease financing will come down to who the vessel operator reports as the “owner” of the vessel on U.S. Customs and Border Protection Form 1300, according to Lightbourn.

On the U.S. Customs form, a vessel operator reports the “owner” of the vessel and under the present rule, “the burden for determining if a vessel owes the fee is on the operator, not CBP,” he said.

“These fees need to be paid by the shipowner before the vessel enters the port, and there needs to be clarity on the Chinese lease financings,” Lightbourn said.

Clarkson Research Services data shows that ship financing makes up as much as 40% of some Chinese lessors’ portfolios.

Petrofin Bank Research estimates the Chinese leasing portfolio at $148 billion, according to data it has been able to access and shared with CNBC. “This included existing fleet, as well as vessels to be delivered and was reportedly provided by 80+ Chinese leasing houses,” wrote Ted Petropoulos, founder and head of Petrofin Bank Research. He added that at the Marine Money conference in November 2024 in Shanghai, research shared by shipping finance expert Berlin Li indicated that there were 31 Chinese leasing houses active in leasing in U.S. dollar-terms to both domestic and foreign ship owners, and 22 Chinese leasing houses owned shipping portfolios with foreign ship owners.

Petropoulous said ship financing has always been a difficult area to assess, given the reluctance of leasing providers and ship owners to publish the information. He added that since the announcement of the USTR port fees, he has seen an initial slowdown in Chinese leasing for non-Chinese companies, followed by a switch from Chinese leasing to traditional bank finance, mainly from Western banks. There have also been reports of Chinese leasing houses looking to convert some ship leases to loans from their parent banks and moving shipping departments to other countries.

Lightbourn said that moving forward, Western capital providers could regain market share lost to the Chinese lessors who attracted shipowners by offering a lower cost of capital. This migration out of Chinese lessors to other capital providers could be a threat to the Chinese lessors.

He pointed to recent moves by Chinese lessors to get regulatory approval to transition their lease portfolios to senior secured loans as a signal that these USTR fees “are an issue they’re looking to get in front of.” Lightbourn explained the parent company of the Chinese lessor could be protected from potential losses by not having a Chinese Special Purpose Vehicle (SPV) in the vessel ownership structure.

Some companies have been changing their finance structures and headquarters away from China. Greek group Okeanis Eco Tankers announced new ship financing deals earlier this year to replace Chinese sale and leaseback deals on three VLCCs (very large crude carriers). The $195 million in lending is now with non-Chinese banks.

Seaspan recently moved its headquarters from Hong Kong to Singapore. The ocean carrier is also reportedly reflagging its ships to Singapore. Petropoulos also pointed to recent reporting about a ship financing arm of Japanese bank Sumitomo Mitsui Trust increasing its presence in Singapore as China-based business has slowed down.

But Lightbourn stressed there are still a lot of questions that could give ship owners pause before refinancing Chinese lease financings.

“If a shipowner can get as good as or better a financing deal outside of China, then by all means they should, but it becomes a less clear-cut decision if it would result in having to absorb a higher interest burden,” he said.

There are some vessel categories exempt from the fees.

U.S.-owned or flagged vessels in maritime programs, vessels under 4,000 TEUs for containers, 55,000 deadweight tonnage for bulk, empty vessels arriving, and vessels engaged in short-sea shipping under 2,000 nautical miles do not have to pay the fees. Other exemptions include liquefied natural gas (LNG) tankers and specialized vessels for chemical substances in bulk liquid forms. 

There is also a fee remission option for purchasing U.S.-built vessels that are equal in size to the vessels currently being used. But currently, the U.S. does not build container ships, and under current shipbuilding initiatives for limited domestic manufacturing capacity, Navy vessels, LNG, tanker vessels, and polar vessels are the priority, not container vessels.

Peter Sand, chief shipping analyst at Xeneta, told CNBC that the price tag of a Chinese-made vessel is estimated to be around $295 million. “Depending on the size and type of vessel, a U.S.-made vessel can be approximately two to four times more expensive,” Sand estimated.

Ocean carriers have told CNBC they have been preparing for the new fees, and if possible, Chinese-made vessels were rotated out of their U.S. routes to mitigate the fees and put on other trade routes. Maersk and other ocean carriers have also notified customers that they would not be passing on these fees.