Date: Monday, February 1, 2021
Source: Wall Street Journal
The global shipping industry is hoping that President Biden’s “America is back” declaration means the U.S. is returning to free-trade principles, and away from Trump administration protectionist policies that often dragged ocean vessels into efforts to enforce sanctions.
The long-running trade dispute with China and sanctions on big oil producers like Iran and Venezuela have left shipping companies navigating a complicated and fast-changing web of financial and operating restrictions.
This has left dozens of fully loaded ships idled for extended periods and their owners forced to scrap delivery contracts and pay high legal fees to avoid U.S. punitive actions.
“What we hope for in the new administration is some form of consistency and logic in the policies dealing with China and predictability. That has been missing,” said Hamish Norton, president of Star Bulk Carriers Corp., a Marshall Islands-incorporated, Nasdaq-listed company with more than 100 dry-bulk vessels.
Shipowners were shocked in the fall of 2019, when the White House blacklisted more than half of the fleet at Cosco Shipping Energy Transportation Co., the tanker unit of China state-owned shipping giant Cosco Group, for allegedly moving Iranian oil in violation of sanctions. The ban triggered a spike in oil transport costs as crude producers, fearing U.S. penalties, immediately stopped using any ships associated with Cosco. The Chinese carrier’s tanker business operates 120 vessels.
The ban was lifted in January 2020 but ended up costing Cosco millions of dollars in lost business. It also alarmed dozens of mostly European shipowners who feared U.S. penalties.
“Every country has the right to push the trade policies it wants, but this was like carpet bombing without any prior warning,” a senior executive of a Chinese state carrier said. “The Cosco ships became pawns in the trade war and that’s unacceptable.”
Shipping is a volatile and capital-intensive industry, and operations are highly sensitive to changing patterns in supply and demand.
Dry-bulk ships, which move the world’s iron ore, coal, grains and other big, industrial-scale goods, saw overall volumes fall last year as a bigger share of those trade flows headed to China to help feed the country’s reviving economy. The market for the dry-bulk sector’s biggest ships “has always been volatile, but in the past two years this has been amplified,” said Peter Sand, chief shipping analyst at Denmark-based trade body Bimco.
Container lines have been in deep troughs in recent years but are now enjoying record high freight rates as U.S. retailers race to restock after the government imposed lockdowns to contain the spread of Covid-19. Tankers are faring more poorly as the pandemic restrictions cut global oil demand by 8.9% in 2020 from the year before, according to the U.S. Energy Information Administration.
ndustry executives don’t expect a fast resolution of the trade differences between the U.S. and China under President Biden. But they hope the administration will avoid the harsh rhetoric that has flown across the Pacific and will work quietly to normalize relations.
“No single country has all the natural resources or can produce everything, and tariffs increase costs,” said Angeliki Frangou, the chief executive of three U.S.-listed companies under the group name Navios that operate a combined 200 vessels.
Shipowners also hope that sanctions against Iran, one of the world’s main oil producers, eventually will be lifted if Washington engages again with Tehran in an attempt to halt the Iranian nuclear program.
They believe rapprochement in the U.S.-China trade relations would be a boon for vessel construction, and they point to the potential impact on liquefied natural gas carriers as an example.
China is a major buyer of LNG, and its purchases of U.S. oil and natural gas have helped fuel a boom in American energy exports and in ship orders.
But according to the EIA, U.S. LNG exports to China fell from 103 million cubic feet in 2017 to 6.8 million cubic feet in 2019, as trans-Pacific trade relations grew more heated.
“America has become a top LNG exporter and only ships can move it,” said Greek shipping magnate George Prokopiou, who owns a fleet of 124 tankers, gas carriers and dry cargo movers. “Changing the selling policy to China creates a huge problem because LNG can’t be stored and it evaporates.”
Mr. Prokopiou said trade bans prompt buyers like China to source LNG from other producers.
“Your ships are purpose-built to move huge American cargoes across the Panama Canal and chartered by U.S. exporters on a long-term basis,” he said. “But suddenly your contracts are canceled with the stroke of a pen and you are left footing a huge bill. We’ve navigated through trade embargoes in the past, but nothing like this.”
Some shipping companies have profited from the turmoil in global commodities. The collapse in oil prices last year, the bans on the Cosco tankers and sanctions on oil producers Iran and Venezuela were a boon for operators like the U.S.-listed Tsakos Energy Navigation Ltd., which saw tanker freight rates skyrocket..
But Nikolas Tsakos, the company’s founder and chief executive, prefers open seas with predictable sailings.
“We are the truck drivers of the sea and the fewer trade barriers and protectionism, the better it is for shipping,” he said. “I like Mr. Biden’s motto that America is back. A bigger U.S. engagement with the rest of the world will cut barriers and open up trade. We certainly want to be part of that.”