US oil industry warns against proposed fees on Chinese ships

The American Petroleum Institute warned that proposed US port fees on Chinese vessels could harm the US' position as one of the world's largest oil exporters, with freight costs set to rise under such a scheme.

Based on a Section 301 investigation of "China's targeting of the maritime, logistics, and shipbuilding sectors for dominance," the US Trade Representative has proposed charging up to $1.5 million per entrance to US ports on ships built by Chinese yards or operated by Chinese firms.

The fees associated with this proposal could make it more challenging for US energy companies to export oil, LNG, and refined products, Alex Padilla, API's vice president of corporate policy, said in testimony at a hearing before the US Trade Representative and other US government officials March 26, arguing the action could also hinder US crude oil imports needed for domestic refining.

Padilla told the hearing the proposed fees would make US exports less competitive globally and undermine US President Donald Trump's oft-stated goal of making US energy dominant in the global market.

If the proposed fees were implemented, Padilla argued, they could result in additional costs of up to $30 billion annually to US consumers, with exports of crude oil and natural gas declining by up to 18.5% and by 5.19%, respectively.

"We need to start from the beginning and draw up something completely different, something that would be a much more strategic and much more likely to be successful approach to incentivize the reshoring of US competitiveness in (shipbuilding)," Padilla said.

"We need to consider very carefully all the trade-offs and not undermine our own economic competitiveness and our own geopolitical advantages, especially in energy exports," Padilla said.

Crude impacts

In 2024, one in every five barrels of oil moving in or out of the US was transported by a Chinese-built tanker, with US aggregate international trade flows for crude and refined products reaching 12.3 million b/d, according to S&P Global Commodity Insights analysts.

"Expect reduced competitiveness of US oil importers and exporters, particularly for short-haul charters and smaller vessels due to the additional tanker constraints," Commodity Insights analysts wrote. "The impact will be more significant for crude imports from Latin America and West Africa, where cargoes are often transported on smaller vessels."

For refined products, the analysis shows that out of 3.2 million b/d of waterborne oil product loadings, 560,000 b/d were carried by Chinese-built tankers. The Port of Houston, as the largest loading port, handled nearly 30% (940,000 b/d) of total loadings, with Chinese-built tankers contributing 190,000 b/d.

An analysis from Drewry's Maritime Research argued that the use of Chinese-owned vessels for large crude tankers would be economically unfeasible and redundant to the US crude industry, as "even the smallest product tanker will have to pay staggering fees, close to $10 million, which can go up to $105.3 million for a VLCC per port call."

Commodity Insights analysts suggested the policy could create a two-tier tanker market, with non-Chinese-built vessels commanding a premium for operations in US ports. In extreme cases, analysts wrote, this might lead to dedicated non-Chinese-built shuttles for ship-to-ship transfers near US waters, circumventing fees.

Investigation and action

The USTR's proposal comes as China's share of global shipbuilding has surged, while US shipbuilding produces only five ships per year to China's 1,700. The USTR estimates that China's share of the shipbuilding market has grown from less than 5% in 1999 to more than 50% in 2023.

As of March 26, more than 500 comments had been submitted to the USTR regarding the port fee proposal, in addition to 14 panels of testimony given at a two-day hearing at USTR headquarters this week.

The USTR's investigation was triggered by a petition from five national labor unions -- including several sections of the AFL-CIO as well as the International Brotherhood of Electrical Workers, the International Brotherhood of Electrical Workers, the International Association of Machinists, and United Steelworkers -- requesting an investigation into "the acts, policies, and practices of China targeting the maritime, logistics, and shipbuilding sectors for dominance."

In a release, the USTR said it decided to move forward with the actions after its investigation found "China's targeting for dominance unreasonable because it displaces foreign firms, deprives market-oriented businesses and their workers of commercial opportunities, and lessens competition and creates dependencies on the PRC, increasing risk and reducing supply chain resilience."

To avoid fees, the current proposal would require operators to be based outside of China, have fleets with fewer than 25% of Chinese-built vessels, and no China-based shipyard orders or deliveries scheduled in the next two years.

Widespread worries

Some of the hearing's witnesses praised the proposed fees.

Aaron Smith, president of the Offshore Marine Service Association, said his organization's members were "harmed by Chinese-built vessels on a daily basis." Samuel Giberga, executive vice president and chief counsel at Hornbeck Offshore, a provider of US offshore oilfield services, urged the USTR to move forward with the action and cited the prevalence of Chinese-built and Chinese-owned vessels conducting offshore energy activities on the US Outer Continental Shelf.

"As a consequence of [cheaper Chinese-built vessels], US owners and operators, such as Hornbeck Offshore, are given the Hobson's choice to be uncompetitive against foreign competition on the USOCS or build in foreign yards," Gilberga said.

However, most of the testimony at the hearings was critical of the proposed action. Witnesses representing a variety of industries and firms reliant on overseas trade pleaded with the USTR to consider the current lack of alternatives to Chinese-built vessels for imports and exports of agricultural commodities, retail goods, minerals, chemicals, energy products, construction materials and more.

Farmers and agricultural trade groups warned of reduced market access for US goods. The Renewable Fuels Association, a large ethanol group, noted record 2024 exports and said in a letter the fees "would be devastating to our marketplace." RFA said commodity prices and export plans had already been negatively impacted by the uncertainty surrounding the proposal.

Veronika Shime, vice president of the National Mining Association, said member companies have already had export contracts reduced or revised under the threat of the proposal's implementation.

"While these fees are directed at the ocean carriers, the (shipping) industry has made it clear that the costs will be passed along to the cargo owners," said Jonathan Gold, vice president of the National Retail Federation. "The fees will result in cost increases of hundreds of dollars per container."

US fleet operators who rely on Chinese-built vessels also urged against the policy, arguing that shipbuilders in Japan and Korea would struggle to meet demand in the years or even decades US shipyards would need to rebuild capacity. Cary Davis, president of the American Association of Port Authorities, warned that fees of up to as much as $3 million per port call would not only raise the cost of goods but divert calls to Canada and Mexico or larger US ports, removing domestic labor from the transport chain and leading to supply chain congestion and disuse of smaller ports.

Jennifer Chen, strategic operations lead at Balsa Research, a non-profit think tank, told the USTR that the proposal as written could reduce US exports to 14% or less by year seven if phased in -- or to 10% or less of current volumes if instituted immediately.

Alongside many witnesses, Padilla agreed with the goal of reshoring US shipbuilding and maritime logistics, but advocated for a broader, longer-term approach, including public-private incentives for US shipbuilding -- particularly of complicated vessels required to ship LNG and other chemicals.

"We are here as partners for you to work on a better approach," Padilla said. "But the proposed actions are not the best approach and not the way that we suggest that you should go forward."