Westports, MISC caught in US fee storm

THE world is experiencing increased barriers to open trade at a pace that hasn’t been seen in decades, since US president Donald Trump came to power.

Vehicles, steel and aluminum, electronics, clothing and household items from China have been slapped with tariffs.

The shipping sector has not been spared from the onslaught of the trade war.

Trump’s plan includes imposing million-dollar fees on vessels made or owned by China whenever they dock in the United States, in order to make American shipbuilding great again.

To avoid the fees completely, vessel operators must be based outside of China, have fewer than 25% of their fleets built in China, and have no Chinese shipyard orders or deliveries scheduled within the next two years.

The United States proposed three levels of fees against certain vessels on Feb 21 in an effort to curb China’s maritime and shipbuilding dominance.

The first proposed fee is intended to be charged to all Chinese Maritime Transport Operators, which will include COSCO Shipping and Orient Overseas Container Lines (OOCL).

This means that container shipping companies will be penalised if they are deemed to be Chinese-owned.

The second proposed fee is intended for all Chinese-built vessels entering any US port.

The fee may depend on the proportion of Chinese-built vessels in the container shipping liners’ individual fleets.

This fee does not affect liners that do not have any Chinese-built vessels in their fleet, or those that do not deploy their Chinese-built vessels to the United States.

As such, if liners use their non-Chinese-built vessels for US port calls, they are not likely to be affected.

The third proposed fee is intended to hit all operators that have an orderbook at Chinese shipyards to probably discourage liners from ordering their ships at Chinese yards.

The first, second, and third proposed charges would affect COSCO and OOCL when their ships call on US ports.

Non-Chinese competitors may only be impacted by the second and/or third proposed charges.

Hence, Ocean Alliance (OA) members may be negatively affected by a relatively competitive position, according to CGS International Research. (CGSI Research)

Four carriers make up the OA, including two Chinese carriers, COSCO Shipping and OOCL. CMA CGM Group of France and Evergreen Marine Corp of Taiwan are the other two.

There are no Chinese liners in the other two alliances, Gemini Cooperation and Premier Alliance, while Switzerland’s Mediterranean Shipping Company SA and Israel’s Zim Integrated Shipping Services Ltd operate independently.

The research house believes the competitive position of OA could be negatively affected in the long run if those liners pass on the extra fees to shippers.

“The volume of transshipment boxes passing through Westports on the way to the United States may be affected as the OA is its single largest customer,” it adds.

Westports Holdings Bhd executive chairman Datuk Ruben Gnanalingam is unperturbed with the latest tariff move.

“In general, our direct exposure to US cargo is very small. This is more relevant to North Asian ports and European ports,” he tells StarBiz 7.

Similarly, CGSI Research does not expect any significant impact on Westports since Asia-America’s trade route contributed only 9% to Westports’ total container volumes in the fourth quarter of 2024.

According to the research house, Westports’ key customer is the OA, contributing more than 50% of the former’s total container volume in 2024.

“We believe that the Ocean Alliance operates three transpacific services that call at Westports,” it says.

Near-term volume uplift

Instead, the research house believes there could be some near-term volume uplift for container shipping.

There will also likely be port congestion if container liners re-juggle their vessels to avoid sending China-built ships to the United States.

As such, some ports in South-East Asia, including Westports, will stand to benefit from higher ad hoc volumes and a rise in container yard storage demand.

On the other hand, near-term volume uplift for container shipping might also cause port congestion.

Will the competitive position of OA be negatively impacted in the long run if those liners pass on the extra fees to shippers?

“It is way too complex for us to analyse OA’s Asia-US and Europe-US and South America-US trades. In general, how it affects OA should be similar to how it affects other groupings too,” says Gnanalingam.

While the port fee on Chinese vessels may not impact Westports’ business, the implication of escalating trade war will inevitably affect global businesses, which may slow demand for goods and services.

“We do not expect any immediate impact but in the long term, it depends on how it affects consumption and trade globally.

“If consumers can absorb the additional costs, then consumption should not be affected. It also depends on which countries’ tariffs are imposed on and which ones will counter with their own tariffs.

“We might be able to derive possible scenarios going forward if we have more specifics on tariffs,” says Gnanalingam.

The trade war is something beyond Westports’ control and what it can do is to continue focusing on Intra Asia and Intra South-East Asia growth as these represent more than 60% of its cargo.

“We believe trades in the region still show strong potential growth going forward,” he adds.

Impact on MISC’s tanker segment

Meanwhile, there are concerns that the port fees will have an impact on MISC Bhd, which owns and operates tanker ships under subsidiary AET Tanker Holdings Sdn Bhd.

Under the proposed rules, AET may be charged the highest level of the third proposed fee of up to US$1mil for each of its US port calls. MISC did not respond to questions sent by Starbiz7.

CGSI Research points out that in April 2024, AET signed new building contracts with China’s Dalian Shipbuilding for two ammonia dual-fuelled aframax tankers. These are its only outstanding orders and 100% of its orderbook is from Chinese shipyards.

“Under the proposed rules, AET may be charged the highest level of the third proposed fee of up to US$1mil for each of its US port calls even if it calls using its South Korea-and Japan-built ships.

However, CGSI Research believes once AET’s two orders are delivered in 2027, it will no longer be liable to pay the third proposed fee, and if it avoids deploying its future China-built aframaxes to US ports, it will also not be liable for the first or second proposed fees.

Essentially, fears of Trump port fees on Chinese vessels may have rocked the global shipping industry but Malaysian port and shipping businesses will be relatively sheltered.