July 16, 2025 • 25 mins
The decline in US shipbuilding and China's global dominance has Washington worried. Last year, the US built just seven commercial vessels, compared to more than 1,000 for China. This has also become a national security issue, with US shipyards struggling to meet the demands of the navy, facing production delays of up to 36 months. In response, President Donald Trump has proposed levying fees on Chinese built ships entering US ports.
These measures likely won't be enough to revive the industry, so what else can the government do? What role can defense allies South Korea and Japan play? And how will these levies impact shipping companies and global trade? Adam Farrar, senior geo-economics analyst at Bloomberg Economics and Kenneth Loh, shipping and logistics analyst for Bloomberg Intelligence, join John Lee and Katia Dmitrieva on the Asia Centric podcast.
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Speaker 1 (00:01):
China dominates the global shipbuilding industry, controlling more than seventy
percent of the audiobook for key segments like container ships
and tankers. The US is far behind, constructing less than
one percent of global commercial ships, and that gap is
raising concerns in Washington about competitiveness and national security.
Speaker 2 (00:21):
President Trump has pledged to revive the industry. As part
of that goal, he's proposed fees on Chinese built ships
entering US sports. The critics say these measures are far
from enough to challenge China's dominance in the sector. So
what else could the government do? What role could South
Korea and Japan play?
Speaker 3 (00:43):
And in the.
Speaker 2 (00:43):
Meantime, how will these new fees impact the global shipping industry.
You're listening to Asia Centric from Bloomberg Intelligence. I'm Katy
Dmitrieva in Hong Kong.
Speaker 1 (00:54):
And I'm John Lee, also in Hong Kong. Here to
discuss these issues is Adam Ferer. He is the senior
geoeconomics analyst for Asia Pacific at Bloomberg Economics based in Washington, DC,
and Kenneth Low shipping and logistics analysts but Bloomberg Intelligence
dialing in from Singapore. Adam and Kenneth, Welcome to the show.
Speaker 4 (01:15):
Great to be here.
Speaker 2 (01:16):
You just to set the scene. Adam wondering if you
can tell us why we're even talking about shipbuilding, Why,
why is it so important? Why is Trump focusing on
trying to get the US more dominant in this space?
Speaker 4 (01:33):
So, to start with, as you led in the intro,
the United States has fallen significantly behind in shipbuilding since
basically the end of World War Two. The United States
has progressively lost its footing as a primary builder of
commercial ships in the world, forfeiting that position to emerging
powers in the Indo Pacific, in particular Japan and Korea,
(01:54):
initially but eventually China, which has increasingly risen as the
primary point of production for both commercial ships and arguably
the fastest producers of naval vessels now on Earth, almost
entirely for the People's Liberation Army Navy. Now, the concerns
about shipping our bipartisan here in the United States and
are long running, but it is clear that President Trump
(02:17):
has somewhat been bitten by the shipping bug and has
taken this issue head on and is trying to use
the power of the office to force the industry to
change significantly and drive investment in the United States to
push out both commercial shipping developments and potentially naval developments
as well. And that's really where it comes down to
this core question of the US national security and how
(02:39):
shipbuilding kind of relates to it. Overall, you have this
question of the commercial benefits of a ship being built
in the United States, jobs and technology development, all of
those things. But for Trump and for this administration, it's
all about national security and ensuring that the United States
has the tools it needs in a crisis scenario. So
(03:01):
on one front, it is the tangible question of military construction.
For those who follow any of this closely, we all
know that the United States is struggling to meet the
demands of the United States Navy and has progressively been
seeing its dominance on the seas questioned, and that has
been partially due to the fact that it simply cannot
move and build ships as fast as it wants to
(03:22):
and is unable to actually expand the size of the
Navy as they see it today. The delays right now
on major shipping could range between twelve and thirty six
months on major production, all because the US shipbuilding facilities
lack kind of basic infrastructure are dated in their technology
and are unable to compete. And with that as well,
(03:43):
you have this question of merchant ships and the need
to be able to marshal a large number of merchant
ships in the event of a crisis, particularly one as
far away as as something in the Indo Pacific, maybe
a Taiwan contingency or a North Korean contingency where you're
going to need to move large number of troops and
equipment quickly. But if the United States does not have
(04:04):
enough ships that it owns and operates and can build,
it feels that it could be at a disadvantage, and
particularly in a China scenario, that the Chinese could use
that against them.
Speaker 2 (04:14):
So if Americans aren't building ships, then who's making the
ships for the US right now?
Speaker 4 (04:22):
So naval vessels are still produced in the United States,
They're just produced slowly and at a rate that not
meeting needs merchant ships. Though while the US does have
a very small production capability, we're talking about the production
of about five large ocean going vessels a year, which
is ministry compared to other producers. When we compare that
(04:43):
just to one of China's major shipping organizations. They produced
over two hundred and fifty vessels in twenty twenty four,
which just for context, is more than the United States
produced in all of World War Two by tonnage, and
so the numbers are not even close. When it comes
to ships that enter and exit the United States bring
(05:05):
all the goods the US consumes. Those ships are made
all around the world, but particularly in Korea, Japan and
now increasingly China.
Speaker 1 (05:13):
Asia Centric is produced by Bloomberg Intelligence. We're more than
five hundred experienced analysts and strategists work around the clock
to bring you timely, world class research. Our coverage spans
two hundred market industries, currencies, commodities, and industries, as well
as over two thousand equities and credits. To learn more
about Bloomberg Intelligence, visit BI go on the Bloomberg terminal.
(05:36):
If you like what you're hear, don't forget to subscribe.
And Shair Adam, do you need a strong commercial shipbuilding
industry to also have a strong navy? Are they complementary
to each other?
Speaker 4 (05:48):
So they absolutely are complementary, and you know, as we've
seen over the past several decades, the answer at the
core is no. You can build out a navy and
a quite advanced one without a significant commercial ship industry,
but you lose those complementary benefits that you were alluding
to at the beginning, without the ability to build out
(06:09):
a large workforce, to leverage the acquisition of large amounts
of supplies, expand production facilities. All of these things are
benefits that the Chinese benefit from on a day to
day basis and the United States does not. For example,
many Chinese shipyards produce both commercial and naval ships right
next to each other, with individual experts moving between ships
(06:30):
day to day. And that's something the United States simply
can't do.
Speaker 2 (06:33):
So, Kenneth, maybe i'll bring you in here. The Trump
administration has tried to target this issue of the lack
of shipbuilding within the US by adding fees onto Chinese
built ships that enter the US. So what do you
see will be the impact of that on shipping? And
you know, you look at logistics for example, how is
this going to impact people's ability to get their goods
(06:55):
in the US.
Speaker 3 (06:57):
You know, the proposed US levees that's going to be
put in place by the US TRIDE Representative and the USTR,
and the target date for implementation is October this year.
You know, Bi, we have developed our own in house
on the dative model to project the impact of these
levees on the shipping and ship building industries. So based
(07:19):
on our calculations, we estimate that the US levees should
sum up to somewhere around ten billion dollars annually. And
what's notable is more than forty percent of that amount
comes from Chinese Costco Group alone. That is not surprising
given that the levees are aimed squarely at leveling the
(07:40):
playing field between the US and Chinese shipping players and shipbuilders.
Perhaps what's more surprising or less obvious to people outside
of the industry is that the levees are set to
penalize shipping companies outside of China as well. So based
on our calculations, actually Switzerland's MS Mediterranean shipping company, they
(08:03):
are second in place, right behind Costco in terms of
the expected levees to be paid in total per year.
So you know, this shows that while the proposal aims
to punish or you know, in a way imposed a
levee on Chinese shipping and stribulers, they do go much
further than that, and everyone in the industry in consumers
(08:26):
will feel the impact as well. However, our model also
suggests that it's not the end of the world for
shipping companies and consumers, So even Costco group themselves, they
could potentially reduce the impact of the proposed levees significantly
by basically spreading out the levees that they aim to
(08:48):
recoup across all container cargoes that they transport globally, rather
than just those bounds for US pots, which would you know,
attract the levees in the first place. We submit that
the percentage incremental cost per container is actually somewhere around
one hundred dollars per teu, just north of that figure,
(09:11):
and in percentage terms, you know, if I compare to
average prevailing phavores, that's only just under six percent. It's
not insignificant, but not quite what you would expect to
see in terms of the hum done to consumers and inflation.
Speaker 2 (09:26):
Basically, it sounds like the US is trying to target
China with this, but there are all these kind of
side effects because other countries are using Chinese built ships
as well, right, so other countries will also face issues.
So are there other moves that the Trump administration can
take to short up US shipbuilding.
Speaker 4 (09:47):
I think we should definitely see these fees as the
initial shot across the bow of Chinese shipbuilding. I think,
as we've seen so far from the Trump administration, they
are focused and willing to escalate to achieve their objectives.
Now I can't say whether they will, but nonetheless I
think once they've got a better sense for how these
fees are working, I think there's certainly a chance that
(10:10):
we could see these fees increase and other efforts evolve
based on how effective they think they are. Another thing
I'd point out is that there are several pieces of
legislation in moving around Congress right now that relate to this.
There's a specifically a shipbuilding they'll call the Shipbuilding and
Harbor Infrastructure for Prosperity Act, otherwise known as SHIPS. It's
(10:32):
the Ships Act, and it's a bipartisan arrangement that is
designed to address many of the core issues that we've
already started to discuss. It includes tax credits, loans, guarantees,
all designed to push for more commercial shipping to be
produced in the United States to help build out and
expand commercial shipyards. As we've seen in doing so, help
(10:54):
with naval construction as well. Specifically, an interesting part of
that is also the establishment of something they called the
Strategic Commercial Fleet, which would be two hundred and fifty
US built vessels that would serve that purpose of being
in reserve an event of a US crisis, and the
orders that the United States puts in and pays for
that would come out and hopefully revitalize commercial shipping. But
(11:17):
none of that is guaranteed. We haven't seen that move
through Congress yet, and it is a lot of money
that would be required there, and given increasing concerns about
the debt, notwithstanding the passage of the most recent budget bill,
I think there are questions on whether that will actually
move forward.
Speaker 1 (11:34):
Adam, it seems to me that it's a very indirect
way of trying to revive US shipbuilding by taxing Chinese
built ships entering into the US. Like, why wouldn't a
Shuman company say just buy a ship or order a
ship from Career or Japan. It doesn't necessarily mean that
they're going to buy a US built ship.
Speaker 4 (11:55):
Right now, what we are seeing is exactly what you said,
is the movement of orders partially out of China into
Korea and Japan. And not into the United States because
of the way the fees are currently constructed, they don't
penalize vessels constructed elsewhere, and as a result, the most
capable and potent shipping industry available on Earth right now
outside of China is Korea in Japan. But maybe Kenneth
(12:17):
can talk a little bit about how they had hoped
to incentivize the construction of US Belt vessels.
Speaker 3 (12:23):
Oh, so where do we begin. This is a very
interesting and huge topic. So for starters, simply put, why
the shipping companies are turning to South Coin and Japanese shipyards.
There are multiple aspects to this problem. Number one is
of course cost generally speaking, an average large ocean going
(12:44):
container vessel, that's going to cost you probably five times
as much to order that from Ubers shipyard compared to
a self Coin shipyard. And the second aspect is in
terms of the delivery timeline, it's just going to be
a lot more efficient to order from a shipyard that
(13:05):
you know could deliver in three to four years time
with certainty, because you know there's economies of scale and
expertise that's required to service the needs of global shipping
companies in South COREA and Japan. And we are not
talking about China here because we're talking about the impact
of the levees targeted at the Chinese industry peers. But
(13:28):
you know, if you consider time and cost, it definitely
makes sense to order from the South Covins and the
Japanese rather than the American shipyards. And the levees are
not here to while they would like to see orders
that US shipyards increase as a reason of the levees,
they're not here solely to drive orders towards UB shipyards.
(13:49):
So under the proposal, there are conditions that incentivize new
orders from US shipyards. For instance, if you currently operate
Chinese built but you put in a new order with
the US shipyard, under certain conditions, there will be exemptions
available to you as a shipping company. So if you
(14:10):
place a new order with the US shipyard within the
next three to five years, for instance, then that might
basically reduce the amount of levies you will pay over
that same period until you take delivery of the US
ship But there's nothing actually stopping shipping companies from pivoting
toward the South Kurrerents and the Japanese instate, So essentially
(14:31):
the proposal is here to stop shipping companies from going
straight to the Chinese. You know, in the long run,
that is done with the intention of basically funneling orders
away from the Chinese shipyards and reducing their dominance in
the industry, which, as John mentioned at the beginning of
the podcast, they control more than seventy percent of critical
(14:55):
segments such as containerships and tanker vessels.
Speaker 2 (14:58):
So the fees that are going to be implemented for
Chinese built ships, they're not going to actually slow the
number or the amount of goods coming into the US. Basically,
you have one hundreds of thousands of container ships going
into the US each year delivering everything from car parts
(15:18):
to consumer goods. Suddenly, if they have a Chinese built ship,
they're going to have to pay a fee. Is that
going to make these shipping companies think twice about potentially
sending those goods over into the US? Is there potentially
going to be more air shipping for example, could there
be more goods coming through Mexico? Like, how would it
(15:40):
impact the shipping routes themselves.
Speaker 3 (15:44):
Thankfully, there are multiple options for companies such as even
China's cost Group Group to reduce the impact of these levees.
As I mentioned earlier, one is what be for them
to try to recoop the levees that they incur by
collecting a search charge a form of search charge across
all container volumes transport globally rather than just those bound
(16:06):
for the US. Another way is they could work with
their alliance partners, so in container shipping, you know the
three larger shipping alliances at the moment, and for Costco Group,
they could potentially work with their alliance partners ever Green
from Taiwan and CMAC GM from France, and what they
could do between the two of them would be too
(16:28):
deferred or re deploy the Chinese build vessels on two
routes that do not involve US podcorns, and that would
effectively reduce the total levees incurred by Chinese Cosscoal Group annually.
And also they could potentially reduce the levees further by
just adding a certain number of orders with the US
(16:51):
shipyards as intended. So there are multiple options of the
vary in terms of viability and commercial value, but there
are multiple options available and exemptions as well under this
proposal that they could leverach.
Speaker 4 (17:06):
So one thing I would just add is that at
Bloomberg Economics we also ask the question, what does this
look like if they don't get around it and they
have to pay everything, right, and we see almost ten
billion dollars and increasing year by years the fees actually
go up on a fee schedule, what's the impact? And
what we actually found was that when you look at
(17:28):
the value of the goods that are actually being transported
and look at that in comparison to the fee, you're
actually talking about only a point seven percent increase in
total costs, or, if you want to think about it
from a tariff perspective, because that's what we do, a
point seven percent tariff, and given where we are in
(17:49):
the tariff picture today with over forty percent tariffs currently
on Chinese goods, zero point seven percent just really doesn't
change calculus. So we very well might see our drop
in shipments to the United States, but that's going to
be driven by those broader trade talks with China and
the tariff rates that exist, rather than the fees themselves.
And so you know, certainly an individual company, as our
(18:13):
reporting indicates, if Costco paid the full fee, they would
actually take a large hit on their profits, but they
have the ability likely to pass that on to a
variety of different entities within the supply chain or the process,
the logistics process of shipping in a manner that most
folks will be willing to pay. And you know you
mentioned airshipping, but the costs are so drastically different between
(18:37):
the two, with ship bound goods being just so much
cheaper that it just won't make a big difference.
Speaker 2 (18:45):
So not a huge impact, especially when we look at
the comparison with tariffs and the huge impact that that'll have.
So consumers shouldn't be too worried I guess come October
at least about these shipping.
Speaker 3 (18:58):
Yeah, I would like to just chooin youm figure for
comparison for context, So if we're talking about Chinese Costco Group,
which would be the one attracting the largest levies under
the proposal, but it's on our calculations that's only going
to come up to one hundred and eighteen dollars per
TEU per twenty foot equivalent unit. You know these standard
containers that you see, and for context, you could stuff
(19:20):
anywhere between one hundred and fifty to three hundred thousand
T shirts in such a container. So that's one hundred
and eighteen dollars divided by two hundred thousand T shirts.
It's not even going to show up as a decimal point.
Speaker 2 (19:35):
Yeah, some good context, Adam.
Speaker 1 (19:37):
I wanted to just take a broader view on America's
efforts to revive its super building sector. Now, you alluded
to the fact that America really hasn't been competitive in
this space since did you say World War Two?
Speaker 3 (19:51):
Like?
Speaker 1 (19:51):
How difficult? And I know we've touched on it, but
how difficult will it be for America to really start
challenging China's dominance in this sector?
Speaker 4 (20:00):
To be frank, I don't think anybody's talking about the
United States challenging China's dominance in this sector, but rather
America significantly improving its ability to produce ships and put
itself in a position where it is a competitor at
all in the space, and moreover, where it could reach
the economies of scale that would allow it to produce
(20:21):
ships more efficiently, build out a workforce that is capable
of doing so, and again leverage that to improve its
naval capacity. The United States, there's a big deal right now.
During the Biden administration, there was a deal to work
with Australia and the United Kingdom on the construction of
(20:42):
nuclear submarines under something called Aucus. And this is all
built around the Virginia class nuclear submarine. And the entire
premise of this agreement was that by increasing the order
book for this submarine and increasing the amount of funds
flowing into the program, with Australia buying in and potentially
the United Kingdom as well, that the United States would
(21:04):
be able to improve its ability to produce ships because
it is falling woefully behind in producing these advanced submarines
that it needs for its strategic position in the Indo Pacific.
So the US is looking in every place to do this,
and the idea here is to just give even more
support and funding to drive that development.
Speaker 2 (21:27):
We talked a bit about it earlier, but the role
of South Korea, Japan, sort of America's allies in Asia,
how could they help with this US effort.
Speaker 4 (21:40):
So they're actually competing priorities here. If we're looking at
simply trying to improve US shipbuilding, we want to push
as much money and as many contracts as possible to
US shipbuilders and encourage foreign firms like those in Korea
and Japan to invest in the United States as they've
started to do. However, if the competing priority here is
(22:01):
to increase the size and efficiency of the US Navy
as fast as possible, and to do that, we actually need,
or at least folks are considering actually using the shipyards
in Korea and Japan to both do maintenance on our
current fleet and potentially actually construct elements of our current fleet,
and so there is this tension that exists between the
(22:21):
two objectives. Both Korea and Japan are very much aware
of how focused the United States is on this issue
and have already made large proposals in regards to how
they could help the United States build out and improve
the shipbuilding industry as part of these trade or tariff
negotiations that are ongoing.
Speaker 3 (22:41):
Now.
Speaker 4 (22:41):
We obviously haven't seen either of those come to fruition yet,
so we don't know what that looks like, but that
is absolutely on the table, and both sides hope that
that will be enough to help get them some reprieve
on reciprocal tariffs.
Speaker 3 (22:54):
So, from my perspective of revitalizing the US shipbuilding industry,
that's going to take much more, much more than just
the proposed levees targeting China. Again, China holds about sixty
four percent of the world's vessel or the book if
we look across all vessel types. This compares with less
than one percent of our market share that the US holds.
(23:15):
And the problem is constructing the shipyard, staffing with skilled workers,
and producing ships on a commercially viable skill. All these
things could easily take more than ten years. So while
the proposal by the US here they aim to finance
these investments using the levees collected, that still leaves the
issue of rapidly raising a huge pool of trained workers,
(23:36):
as Adam mentioned earlier, and this is something that's unlikely
to be accomplished under the proposal alone. So this is
where we think shipbuilders in South Korea and Japan they
are well positioned to come to the aid of the
US so to speak, since these two countries are in
the world's number two and number three largest shipbuilders after China.
And one way this could be done is to bring
(23:58):
in these shipbuilders to invest in US ship yards, such
as Hanwa Ocean, which invested one hundred million dollars into
Philly Shipyard. This was sometime last year twenty twenty four,
and you know, bringing these experts in they could help
make US shipyards commercially viable again, which also could be
very lucrative undertaking for these companies themselves. But yes, I
(24:21):
agree completely with Adam that you know, no one's really
looking to make the US one of the worst leading shipbuilders.
The idea is really to narrow the gap between China
and the rest of the world, so US and its allies,
and also to blunt the dominance of China shipbuilding industry
so that the entire world doesn't become so reliant on
(24:42):
the Chinese that they hold sway over what happens in
the industry, especially when due economic tensions on the rise.
Speaker 2 (24:52):
Kenneth Adam, thank you so much for joining us today.
Speaker 4 (24:55):
Thank you appreciate it. Thank you for having us.
Speaker 2 (24:59):
You've been listening to Centric from Bloomberg Intelligence. I'm Carti
Dmitrieva Hong Kong, and I'm.
Speaker 1 (25:04):
John Lee, also in Hong Kong. You can listen to
all our episodes on Spotify, Apple Podcasts, or where you
listen and this podcast was also produced and edited by
Clara Chen. Thanks for listening.
China dominates the global shipbuilding industry, controlling more than seventy
percent of the audiobook for key segments like container ships
and tankers. The US is far behind, constructing less than
one percent of global commercial ships, and that gap is
raising concerns in Washington about competitiveness and national security.
Speaker 2 (00:21):
President Trump has pledged to revive the industry. As part
of that goal, he's proposed fees on Chinese built ships
entering US sports. The critics say these measures are far
from enough to challenge China's dominance in the sector. So
what else could the government do? What role could South
Korea and Japan play?
Speaker 3 (00:43):
And in the.
Speaker 2 (00:43):
Meantime, how will these new fees impact the global shipping industry.
You're listening to Asia Centric from Bloomberg Intelligence. I'm Katy
Dmitrieva in Hong Kong.
Speaker 1 (00:54):
And I'm John Lee, also in Hong Kong. Here to
discuss these issues is Adam Ferer. He is the senior
geoeconomics analyst for Asia Pacific at Bloomberg Economics based in Washington, DC,
and Kenneth Low shipping and logistics analysts but Bloomberg Intelligence
dialing in from Singapore. Adam and Kenneth, Welcome to the show.
Speaker 4 (01:15):
Great to be here.
Speaker 2 (01:16):
You just to set the scene. Adam wondering if you
can tell us why we're even talking about shipbuilding, Why,
why is it so important? Why is Trump focusing on
trying to get the US more dominant in this space?
Speaker 4 (01:33):
So, to start with, as you led in the intro,
the United States has fallen significantly behind in shipbuilding since
basically the end of World War Two. The United States
has progressively lost its footing as a primary builder of
commercial ships in the world, forfeiting that position to emerging
powers in the Indo Pacific, in particular Japan and Korea,
(01:54):
initially but eventually China, which has increasingly risen as the
primary point of production for both commercial ships and arguably
the fastest producers of naval vessels now on Earth, almost
entirely for the People's Liberation Army Navy. Now, the concerns
about shipping our bipartisan here in the United States and
are long running, but it is clear that President Trump
(02:17):
has somewhat been bitten by the shipping bug and has
taken this issue head on and is trying to use
the power of the office to force the industry to
change significantly and drive investment in the United States to
push out both commercial shipping developments and potentially naval developments
as well. And that's really where it comes down to
this core question of the US national security and how
(02:39):
shipbuilding kind of relates to it. Overall, you have this
question of the commercial benefits of a ship being built
in the United States, jobs and technology development, all of
those things. But for Trump and for this administration, it's
all about national security and ensuring that the United States
has the tools it needs in a crisis scenario. So
(03:01):
on one front, it is the tangible question of military construction.
For those who follow any of this closely, we all
know that the United States is struggling to meet the
demands of the United States Navy and has progressively been
seeing its dominance on the seas questioned, and that has
been partially due to the fact that it simply cannot
move and build ships as fast as it wants to
(03:22):
and is unable to actually expand the size of the
Navy as they see it today. The delays right now
on major shipping could range between twelve and thirty six
months on major production, all because the US shipbuilding facilities
lack kind of basic infrastructure are dated in their technology
and are unable to compete. And with that as well,
(03:43):
you have this question of merchant ships and the need
to be able to marshal a large number of merchant
ships in the event of a crisis, particularly one as
far away as as something in the Indo Pacific, maybe
a Taiwan contingency or a North Korean contingency where you're
going to need to move large number of troops and
equipment quickly. But if the United States does not have
(04:04):
enough ships that it owns and operates and can build,
it feels that it could be at a disadvantage, and
particularly in a China scenario, that the Chinese could use
that against them.
Speaker 2 (04:14):
So if Americans aren't building ships, then who's making the
ships for the US right now?
Speaker 4 (04:22):
So naval vessels are still produced in the United States,
They're just produced slowly and at a rate that not
meeting needs merchant ships. Though while the US does have
a very small production capability, we're talking about the production
of about five large ocean going vessels a year, which
is ministry compared to other producers. When we compare that
(04:43):
just to one of China's major shipping organizations. They produced
over two hundred and fifty vessels in twenty twenty four,
which just for context, is more than the United States
produced in all of World War Two by tonnage, and
so the numbers are not even close. When it comes
to ships that enter and exit the United States bring
(05:05):
all the goods the US consumes. Those ships are made
all around the world, but particularly in Korea, Japan and
now increasingly China.
Speaker 1 (05:13):
Asia Centric is produced by Bloomberg Intelligence. We're more than
five hundred experienced analysts and strategists work around the clock
to bring you timely, world class research. Our coverage spans
two hundred market industries, currencies, commodities, and industries, as well
as over two thousand equities and credits. To learn more
about Bloomberg Intelligence, visit BI go on the Bloomberg terminal.
(05:36):
If you like what you're hear, don't forget to subscribe.
And Shair Adam, do you need a strong commercial shipbuilding
industry to also have a strong navy? Are they complementary
to each other?
Speaker 4 (05:48):
So they absolutely are complementary, and you know, as we've
seen over the past several decades, the answer at the
core is no. You can build out a navy and
a quite advanced one without a significant commercial ship industry,
but you lose those complementary benefits that you were alluding
to at the beginning, without the ability to build out
(06:09):
a large workforce, to leverage the acquisition of large amounts
of supplies, expand production facilities. All of these things are
benefits that the Chinese benefit from on a day to
day basis and the United States does not. For example,
many Chinese shipyards produce both commercial and naval ships right
next to each other, with individual experts moving between ships
(06:30):
day to day. And that's something the United States simply
can't do.
Speaker 2 (06:33):
So, Kenneth, maybe i'll bring you in here. The Trump
administration has tried to target this issue of the lack
of shipbuilding within the US by adding fees onto Chinese
built ships that enter the US. So what do you
see will be the impact of that on shipping? And
you know, you look at logistics for example, how is
this going to impact people's ability to get their goods
(06:55):
in the US.
Speaker 3 (06:57):
You know, the proposed US levees that's going to be
put in place by the US TRIDE Representative and the USTR,
and the target date for implementation is October this year.
You know, Bi, we have developed our own in house
on the dative model to project the impact of these
levees on the shipping and ship building industries. So based
(07:19):
on our calculations, we estimate that the US levees should
sum up to somewhere around ten billion dollars annually. And
what's notable is more than forty percent of that amount
comes from Chinese Costco Group alone. That is not surprising
given that the levees are aimed squarely at leveling the
(07:40):
playing field between the US and Chinese shipping players and shipbuilders.
Perhaps what's more surprising or less obvious to people outside
of the industry is that the levees are set to
penalize shipping companies outside of China as well. So based
on our calculations, actually Switzerland's MS Mediterranean shipping company, they
(08:03):
are second in place, right behind Costco in terms of
the expected levees to be paid in total per year.
So you know, this shows that while the proposal aims
to punish or you know, in a way imposed a
levee on Chinese shipping and stribulers, they do go much
further than that, and everyone in the industry in consumers
(08:26):
will feel the impact as well. However, our model also
suggests that it's not the end of the world for
shipping companies and consumers, So even Costco group themselves, they
could potentially reduce the impact of the proposed levees significantly
by basically spreading out the levees that they aim to
(08:48):
recoup across all container cargoes that they transport globally, rather
than just those bounds for US pots, which would you know,
attract the levees in the first place. We submit that
the percentage incremental cost per container is actually somewhere around
one hundred dollars per teu, just north of that figure,
(09:11):
and in percentage terms, you know, if I compare to
average prevailing phavores, that's only just under six percent. It's
not insignificant, but not quite what you would expect to
see in terms of the hum done to consumers and inflation.
Speaker 2 (09:26):
Basically, it sounds like the US is trying to target
China with this, but there are all these kind of
side effects because other countries are using Chinese built ships
as well, right, so other countries will also face issues.
So are there other moves that the Trump administration can
take to short up US shipbuilding.
Speaker 4 (09:47):
I think we should definitely see these fees as the
initial shot across the bow of Chinese shipbuilding. I think,
as we've seen so far from the Trump administration, they
are focused and willing to escalate to achieve their objectives.
Now I can't say whether they will, but nonetheless I
think once they've got a better sense for how these
fees are working, I think there's certainly a chance that
(10:10):
we could see these fees increase and other efforts evolve
based on how effective they think they are. Another thing
I'd point out is that there are several pieces of
legislation in moving around Congress right now that relate to this.
There's a specifically a shipbuilding they'll call the Shipbuilding and
Harbor Infrastructure for Prosperity Act, otherwise known as SHIPS. It's
(10:32):
the Ships Act, and it's a bipartisan arrangement that is
designed to address many of the core issues that we've
already started to discuss. It includes tax credits, loans, guarantees,
all designed to push for more commercial shipping to be
produced in the United States to help build out and
expand commercial shipyards. As we've seen in doing so, help
(10:54):
with naval construction as well. Specifically, an interesting part of
that is also the establishment of something they called the
Strategic Commercial Fleet, which would be two hundred and fifty
US built vessels that would serve that purpose of being
in reserve an event of a US crisis, and the
orders that the United States puts in and pays for
that would come out and hopefully revitalize commercial shipping. But
(11:17):
none of that is guaranteed. We haven't seen that move
through Congress yet, and it is a lot of money
that would be required there, and given increasing concerns about
the debt, notwithstanding the passage of the most recent budget bill,
I think there are questions on whether that will actually
move forward.
Speaker 1 (11:34):
Adam, it seems to me that it's a very indirect
way of trying to revive US shipbuilding by taxing Chinese
built ships entering into the US. Like, why wouldn't a
Shuman company say just buy a ship or order a
ship from Career or Japan. It doesn't necessarily mean that
they're going to buy a US built ship.
Speaker 4 (11:55):
Right now, what we are seeing is exactly what you said,
is the movement of orders partially out of China into
Korea and Japan. And not into the United States because
of the way the fees are currently constructed, they don't
penalize vessels constructed elsewhere, and as a result, the most
capable and potent shipping industry available on Earth right now
outside of China is Korea in Japan. But maybe Kenneth
(12:17):
can talk a little bit about how they had hoped
to incentivize the construction of US Belt vessels.
Speaker 3 (12:23):
Oh, so where do we begin. This is a very
interesting and huge topic. So for starters, simply put, why
the shipping companies are turning to South Coin and Japanese shipyards.
There are multiple aspects to this problem. Number one is
of course cost generally speaking, an average large ocean going
(12:44):
container vessel, that's going to cost you probably five times
as much to order that from Ubers shipyard compared to
a self Coin shipyard. And the second aspect is in
terms of the delivery timeline, it's just going to be
a lot more efficient to order from a shipyard that
(13:05):
you know could deliver in three to four years time
with certainty, because you know there's economies of scale and
expertise that's required to service the needs of global shipping
companies in South COREA and Japan. And we are not
talking about China here because we're talking about the impact
of the levees targeted at the Chinese industry peers. But
(13:28):
you know, if you consider time and cost, it definitely
makes sense to order from the South Covins and the
Japanese rather than the American shipyards. And the levees are
not here to while they would like to see orders
that US shipyards increase as a reason of the levees,
they're not here solely to drive orders towards UB shipyards.
(13:49):
So under the proposal, there are conditions that incentivize new
orders from US shipyards. For instance, if you currently operate
Chinese built but you put in a new order with
the US shipyard, under certain conditions, there will be exemptions
available to you as a shipping company. So if you
(14:10):
place a new order with the US shipyard within the
next three to five years, for instance, then that might
basically reduce the amount of levies you will pay over
that same period until you take delivery of the US
ship But there's nothing actually stopping shipping companies from pivoting
toward the South Kurrerents and the Japanese instate, So essentially
(14:31):
the proposal is here to stop shipping companies from going
straight to the Chinese. You know, in the long run,
that is done with the intention of basically funneling orders
away from the Chinese shipyards and reducing their dominance in
the industry, which, as John mentioned at the beginning of
the podcast, they control more than seventy percent of critical
(14:55):
segments such as containerships and tanker vessels.
Speaker 2 (14:58):
So the fees that are going to be implemented for
Chinese built ships, they're not going to actually slow the
number or the amount of goods coming into the US. Basically,
you have one hundreds of thousands of container ships going
into the US each year delivering everything from car parts
(15:18):
to consumer goods. Suddenly, if they have a Chinese built ship,
they're going to have to pay a fee. Is that
going to make these shipping companies think twice about potentially
sending those goods over into the US? Is there potentially
going to be more air shipping for example, could there
be more goods coming through Mexico? Like, how would it
(15:40):
impact the shipping routes themselves.
Speaker 3 (15:44):
Thankfully, there are multiple options for companies such as even
China's cost Group Group to reduce the impact of these levees.
As I mentioned earlier, one is what be for them
to try to recoop the levees that they incur by
collecting a search charge a form of search charge across
all container volumes transport globally rather than just those bound
(16:06):
for the US. Another way is they could work with
their alliance partners, so in container shipping, you know the
three larger shipping alliances at the moment, and for Costco Group,
they could potentially work with their alliance partners ever Green
from Taiwan and CMAC GM from France, and what they
could do between the two of them would be too
(16:28):
deferred or re deploy the Chinese build vessels on two
routes that do not involve US podcorns, and that would
effectively reduce the total levees incurred by Chinese Cosscoal Group annually.
And also they could potentially reduce the levees further by
just adding a certain number of orders with the US
(16:51):
shipyards as intended. So there are multiple options of the
vary in terms of viability and commercial value, but there
are multiple options available and exemptions as well under this
proposal that they could leverach.
Speaker 4 (17:06):
So one thing I would just add is that at
Bloomberg Economics we also ask the question, what does this
look like if they don't get around it and they
have to pay everything, right, and we see almost ten
billion dollars and increasing year by years the fees actually
go up on a fee schedule, what's the impact? And
what we actually found was that when you look at
(17:28):
the value of the goods that are actually being transported
and look at that in comparison to the fee, you're
actually talking about only a point seven percent increase in
total costs, or, if you want to think about it
from a tariff perspective, because that's what we do, a
point seven percent tariff, and given where we are in
(17:49):
the tariff picture today with over forty percent tariffs currently
on Chinese goods, zero point seven percent just really doesn't
change calculus. So we very well might see our drop
in shipments to the United States, but that's going to
be driven by those broader trade talks with China and
the tariff rates that exist, rather than the fees themselves.
And so you know, certainly an individual company, as our
(18:13):
reporting indicates, if Costco paid the full fee, they would
actually take a large hit on their profits, but they
have the ability likely to pass that on to a
variety of different entities within the supply chain or the process,
the logistics process of shipping in a manner that most
folks will be willing to pay. And you know you
mentioned airshipping, but the costs are so drastically different between
(18:37):
the two, with ship bound goods being just so much
cheaper that it just won't make a big difference.
Speaker 2 (18:45):
So not a huge impact, especially when we look at
the comparison with tariffs and the huge impact that that'll have.
So consumers shouldn't be too worried I guess come October
at least about these shipping.
Speaker 3 (18:58):
Yeah, I would like to just chooin youm figure for
comparison for context, So if we're talking about Chinese Costco Group,
which would be the one attracting the largest levies under
the proposal, but it's on our calculations that's only going
to come up to one hundred and eighteen dollars per
TEU per twenty foot equivalent unit. You know these standard
containers that you see, and for context, you could stuff
(19:20):
anywhere between one hundred and fifty to three hundred thousand
T shirts in such a container. So that's one hundred
and eighteen dollars divided by two hundred thousand T shirts.
It's not even going to show up as a decimal point.
Speaker 2 (19:35):
Yeah, some good context, Adam.
Speaker 1 (19:37):
I wanted to just take a broader view on America's
efforts to revive its super building sector. Now, you alluded
to the fact that America really hasn't been competitive in
this space since did you say World War Two?
Speaker 3 (19:51):
Like?
Speaker 1 (19:51):
How difficult? And I know we've touched on it, but
how difficult will it be for America to really start
challenging China's dominance in this sector?
Speaker 4 (20:00):
To be frank, I don't think anybody's talking about the
United States challenging China's dominance in this sector, but rather
America significantly improving its ability to produce ships and put
itself in a position where it is a competitor at
all in the space, and moreover, where it could reach
the economies of scale that would allow it to produce
(20:21):
ships more efficiently, build out a workforce that is capable
of doing so, and again leverage that to improve its
naval capacity. The United States, there's a big deal right now.
During the Biden administration, there was a deal to work
with Australia and the United Kingdom on the construction of
(20:42):
nuclear submarines under something called Aucus. And this is all
built around the Virginia class nuclear submarine. And the entire
premise of this agreement was that by increasing the order
book for this submarine and increasing the amount of funds
flowing into the program, with Australia buying in and potentially
the United Kingdom as well, that the United States would
(21:04):
be able to improve its ability to produce ships because
it is falling woefully behind in producing these advanced submarines
that it needs for its strategic position in the Indo Pacific.
So the US is looking in every place to do this,
and the idea here is to just give even more
support and funding to drive that development.
Speaker 2 (21:27):
We talked a bit about it earlier, but the role
of South Korea, Japan, sort of America's allies in Asia,
how could they help with this US effort.
Speaker 4 (21:40):
So they're actually competing priorities here. If we're looking at
simply trying to improve US shipbuilding, we want to push
as much money and as many contracts as possible to
US shipbuilders and encourage foreign firms like those in Korea
and Japan to invest in the United States as they've
started to do. However, if the competing priority here is
(22:01):
to increase the size and efficiency of the US Navy
as fast as possible, and to do that, we actually need,
or at least folks are considering actually using the shipyards
in Korea and Japan to both do maintenance on our
current fleet and potentially actually construct elements of our current fleet,
and so there is this tension that exists between the
(22:21):
two objectives. Both Korea and Japan are very much aware
of how focused the United States is on this issue
and have already made large proposals in regards to how
they could help the United States build out and improve
the shipbuilding industry as part of these trade or tariff
negotiations that are ongoing.
Speaker 3 (22:41):
Now.
Speaker 4 (22:41):
We obviously haven't seen either of those come to fruition yet,
so we don't know what that looks like, but that
is absolutely on the table, and both sides hope that
that will be enough to help get them some reprieve
on reciprocal tariffs.
Speaker 3 (22:54):
So, from my perspective of revitalizing the US shipbuilding industry,
that's going to take much more, much more than just
the proposed levees targeting China. Again, China holds about sixty
four percent of the world's vessel or the book if
we look across all vessel types. This compares with less
than one percent of our market share that the US holds.
(23:15):
And the problem is constructing the shipyard, staffing with skilled workers,
and producing ships on a commercially viable skill. All these
things could easily take more than ten years. So while
the proposal by the US here they aim to finance
these investments using the levees collected, that still leaves the
issue of rapidly raising a huge pool of trained workers,
(23:36):
as Adam mentioned earlier, and this is something that's unlikely
to be accomplished under the proposal alone. So this is
where we think shipbuilders in South Korea and Japan they
are well positioned to come to the aid of the
US so to speak, since these two countries are in
the world's number two and number three largest shipbuilders after China.
And one way this could be done is to bring
(23:58):
in these shipbuilders to invest in US ship yards, such
as Hanwa Ocean, which invested one hundred million dollars into
Philly Shipyard. This was sometime last year twenty twenty four,
and you know, bringing these experts in they could help
make US shipyards commercially viable again, which also could be
very lucrative undertaking for these companies themselves. But yes, I
(24:21):
agree completely with Adam that you know, no one's really
looking to make the US one of the worst leading shipbuilders.
The idea is really to narrow the gap between China
and the rest of the world, so US and its allies,
and also to blunt the dominance of China shipbuilding industry
so that the entire world doesn't become so reliant on
(24:42):
the Chinese that they hold sway over what happens in
the industry, especially when due economic tensions on the rise.
Speaker 2 (24:52):
Kenneth Adam, thank you so much for joining us today.
Speaker 4 (24:55):
Thank you appreciate it. Thank you for having us.
Speaker 2 (24:59):
You've been listening to Centric from Bloomberg Intelligence. I'm Carti
Dmitrieva Hong Kong, and I'm.
Speaker 1 (25:04):
John Lee, also in Hong Kong. You can listen to
all our episodes on Spotify, Apple Podcasts, or where you
listen and this podcast was also produced and edited by
Clara Chen. Thanks for listening.
Hosts And Creators
John Lee
Tom Corbett
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