MSC plans to pull out of U.S. shipping as customers and carriers can’t afford the extra costs

The Trans-Pacific Maritime Conference (TPM), an influential industry conference in the shipping sector, is usually held in February and March each year.

It covers representatives from the entire industry chain, including shipping lines, port and rail operators, freight forwarders, trailer companies, and retail giants (e.g., Walmart, Kmart, Amazon).

The Office of the U.S. Trade Representative (USTR) plans to impose port charges on Chinese-built ships and operators ordering Chinese newbuildings.

Soren Toft, CEO of MSC and chairman of the World Shipping Council, pointed out at the Transpacific Maritime Conference (TPM) in Long Beach, Calif:

If customers can’t accept the extra fees and shipping companies can’t afford the costs, there is a fear that US line capacity will be drastically reduced.

Freight rates soar, capacity shifts

Toft warned: “Take the Asia – U.S. East route as an example, most liner companies deploy 8,000 to 15,000 TEU ships, calling at four ports.

If each call charges $1 million, the total cost of a single voyage amounted to $4 million. According to the average single voyage transportation of 10,000 TEU, the cost of each TEU increased by 400, and the cost of each FEU increased by 800.

The current CCFI is about $3,500 per FEU, which means that freight rates will rise by a staggering 20-25%.”

“The situation is even worse on the transatlantic routes. The Scandinavia-USEast route carries about 4,000-5,000 FEUs on a single voyage, also calling four ports. The cost per FEU will increase by $2,000, which will eat up almost all of the freight revenue.”

Toft emphasized, “The added costs will either be passed on to consumers through tariffs or force shipping lines to adjust their networks.

If costs cannot be passed on, certain routes will be forced to withdraw capacity due to unprofitability.

We will have to reassess the network and deploy capacity to more economically efficient trade lanes – a necessity for the scale and flexibility of the global shipping network.”

Secondary Port Crisis and the Risk of Congestion in Primary Ports

Chain reaction 1: Loss of U.S. supply chain capacity

Toft predicts that if the policy is implemented, liner companies will be forced to scale back capacity on U.S. routes.

More critically, the remaining capacity will be concentrated in a small number of main ports, as the current proposal charges a fee for each call, forcing shipping lines to cut back on the frequency of calls.

“When we have done 12,000 loads and unloads in Los Angeles/Long Beach and then have to pay an additional $1 million to handle 1,000 loads and unloads if we continue to call on Oakland, this cost structure will force the abandonment of secondary ports.

Smaller ports in the U.S. East are similarly at risk of marginalization.”

Chain Reaction 2: Main Port Pressure and System Vulnerability

“Concentration of capacity towards main ports such as Los Angeles/Long Beach and New York/New Jersey will quickly trigger congestion. The current supply chain system is still very fragile and the slightest disturbance could lead to imbalances.

If secondary ports lose ship calls, the main ports will be flooded with more imports and their handling capacity will be instantly challenged.” Toft said bluntly.

Don’t penalize past business decisions

Toft called for the USTR proposal not to be retroactive:

“There is no shortage of Chinese-built vessels in our existing fleet, and newbuilding orders include Chinese shipyards. The policy should at least look forward, not penalize past business decisions.”

He is cautiously optimistic about the public comment period, which closes at the end of March:

“I believe the voice of reason will prevail. If the policy is finally implemented, it is hoped that the program will be adjusted to reduce the impact on the industry.”

Port fees worse than tariffs

Toft is less concerned about the impact of tariffs than port charges:

“The first round of tariffs did not change the trade landscape, as many containerized imports are difficult to produce locally in Western countries – cost, technology, and labor willingness are all barriers.

More tariffs will only push the supply chain away from centralization to decentralization, but the demand for global cargo transportation will not go away.”