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BIMCO: Shipping is increasingly caught in the crosshairs of a trade war

13 Sep 2018

The already long list of tariffed goods is expected to grow even longer if the US and China implement tariffs on a further USD 200 and USD 60 billion worth of goods respectively.  And the casualties in this trade war are the dry bulk, container and tramp segments.

BIMCO’s chief shipping analyst Peter Sand in a report Wednesday said the dry bulk shipping industry would be most affected in terms of volumes and that 2,002 Handymax loads are now affected.  This is equal to the impact on the container shipping industry which also sees 1.9% of total containerized seaborne trade affected.

With the trade war constantly developing andan end not in sight, the shipping industry is trapped between a rock and a hard place in an already troubled market place, Sand said.

Here is his analysis:

The US: Container shipping will be seriously hit by the next crossfire

From 23 August 2018, the second part of the USD 50 billion list, worth USD 16 billion, originally announced in late May, has been tariffed with commodities such as plastics and oil products targeted. The first list, worth USD 34 billion came into force on 6 July 2018 and targeted mainly machinery and electronic goods.

The US also published a list of goods worth USD 200 billion which it planned to add 10% tariffs to. They have later raised the proposed tariff levels to 25%. This list 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.

Of the goods which already face tariffs, namely the targeted steel and aluminium commodities and the USD 34 billion worth of goods, most are dry bulk and container goods. 23.3 million tonnes of the affected steel and aluminium commodities were imported by the US via the sea in 2018.

Dry bulk commodities will also be affected if the USD 200 billion list is implemented, with 4.1 million tonnes of the targeted commodities imported to the US from China in 2017, these goods include wood commodities and cements. In total the dry bulk goods affected by US tariffs are equivalent to 548 Handymax loads (50,000 DWT).

While containerized goods have already been targeted, by the USD 50 billion round, the biggest impact on these will come if the proposed USD 200 billion are implemented. So far, the tariffed goods total to 6.6 million tonnes of seaborne trade from China to the US in 2017.This is equivalent to 660,000 TEU (10 tonnes per TEU/global average), which amounts to 5.9% of US West Coast container imports in 2017.  If you assume a lighter/heavier cargo per transported TEU or FEU, naturally the number of containers change accordingly.

A further 22.4 million tonnes of seaborne containerized goods would be impacted by the US 200 billion list, which amounts to a further 20.1% of USWC imports in 2017, or 2.24 million TEU. In total, if this latest round of tariffs were also to be implemented, 1.5% of the global seaborne container trade would be affected.

China: Running out of Ammunition

The Chinese USD 16 billion list also came into force on 23 August 2018, a modified list compared to the original publication, with the removal of crude oil an important development. This revised list contains wood commodities as well as some coals and metals.

Following the publishing of the USD 200 billion list by the US, China responded by releasing four lists worth in total USD 60 billion, to be tariffed between 5% and 25%.

However, the trade war has now reached a stage where China is unable to respond equally as it imports much less from the US than it exports.

The dry bulk shipping industry remains by far the most affected by Chinese tariffs in terms of volumes. The largest ‘one commodity’ targeted by the trade war are US soybeans which as of 6 July 2018 face 25% tariffs when imported into China, but the impact of these on Chinese buyers may be limited.

A fall in the price of US soybeans since the tariff’s implementation, has resulted in US soybeans being 21% cheaper than Brazilian soybeans (Source: Bull Positions), the second largest exporter of soybeans to China, thus eroding much of the added costs brought about by the tariffs.

The proposed USD 60 billion would also affect the dry bulk industry the most, with 10.5 million tonnes of listed dry bulk commodities shipped from the US to China. In 2017, 72.2 million tonnes of the involved commodities (both with tariffs implemented and proposed) were imported via the sea by China from the US. This represented 1.4% of total seaborne dry bulk trade in 2017 and is equivalent to 1,454 Handymax loads (50,000 DWT).

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.

Photo credit: Pixabay
Published: 13 September, 2018

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