China shipbuilding boom triggers talk of tariffs

Container freight rates

The quantity of supply of new ships is very important in determining container freight rates. The strength of the supply of new ships has enabled prices to remain, if not low, then moderate in the face of disruptions to traffic through the Suez Canal.

Whilst the anxiety of major container shipping lines to sustain capacity and market share in 2020-2022 was the major cause of the wave of new ships hitting the market today, there were also supply-side reasons as well. In particular, the Chinese shipbuilding sector has been offering the market low-cost products delivered quickly.

For example, reports from China cite figures from the China Association of the National Shipbuilding Industry that assert that Chinese yards have seen a 59% increase year-on-year in production in the first quarter of 2024. Chinese shipbuilding now accounts for more than half of completed ships and possibly 70% of new orders. 40% of completed ships were container vessels, whilst container vessels make up 12% of new orders. The largest proportion of ship types, built and on order, are tankers and bulk vessels. 

However, this growth in Chinese shipbuilding is drawing the sector into the trade frictions between China and its trade partners. The American government and major ship-building nations of South Korea and Japan have been discussing some form of protection from Chinese ship production. The Americans have been suggesting to the South Koreans that they invest in yards in the US, although this appears to have few implications for the market for large merchant vessels. More importantly, there appears to be a suggestion that tariffs could be placed on Chinese-built ships. This would benefit South Korean yards in particular as it is they who provide the most significant competition to the Chinese for very large container, bulk, and LNG vessels. 

Although at one time such a notion would have seemed unlikely, such are the levels of tension between China and much of the rest of the world that tariffs on any product cannot be dismissed. The medium-term implications of all of this may be that the cost of new ships may increase. Although it will be hard to implement tariffs on all vessels from China, the major shipping lines may come under pressure to change their procurement policies.

Author: Thomas Cullen

Source: Ti Insight

Supply chain strategists can use GSCi – Ti’s online data platform – to identify opportunities for growth, support strategic decisions, help them stay abreast of industry trends and development, as well as understand future impacts on the industry.

Visit GSCI subscription to sign up today or contact Michael Clover for a free demonstration: [email protected] | +44 (0) 1666 519907