October Holds Potential to Dramatically Reshape Future of Shipping
The shipping industry is poised at a critical crossroads, and no matter what decisions emerge in October, they will dramatically reshape the future of the industry. Not only is the International Maritime Organization (IMO) seeking member adoption of its decarbonization framework, but the United States is poised to take a series of actions to support its merchant marine that will have wide-ranging ramifications globally.
Speaking at the 60th meeting of the Houston Marine & Energy Insurance Conference this week, Jeanne M. Grasso, Partner at the prestigious Blank Rome law firm, outlined the myriad of issues scheduled to reach critical decision points in the coming weeks. She advised the audience to stay tuned and pay close attention, as many unresolved issues should be coming to critical points.
Grasso notes that shipping has come to the forefront and is gaining new visibility “like never before” as the U.S. administration has pursued its tariff policy along with Western nations' efforts at sanctions against the shadow fleet of tankers. She notes that despite playing a critical role in global commerce, the shipping industry is mostly invisible to the broader public and lawmakers except during high-profile casualties or the supply chain crisis during the COVID-19 pandemic.
Among the issues scheduled to reach inflection points are the fees announced by the U.S. Trade Representative for Chinese-built, owned, or operated ships, as well as the continuing overhang of tariffs on the shipping industry. The IMO meets in mid-October, where member States will vote on its Net-Zero Shipping Framework. In addition, delivery of the first of the reports on shipping specified by Donald Trump in his Executive Order on Restoring America’s Maritime Dominance is due in October, followed by a second one in November, while the U.S. Congress has had the SHIPS for America Act before it, but has yet to start hearings. In addition, the Federal Maritime Commission is pursuing two investigations, which may result in potential remedial actions, looking at the impact of flag of convenience states on U.S. trade, and the major ports and regions that are choke points and how they potentially impact U.S. trade.
The shipping industry is beginning to take steps to adapt to the USTR’s fees for Chinese-owned ships, Chinese-operated ships, or Chinese-built ships, as well as the fees on all foreign-flag car and vehicle carriers. Grasso notes, however, that the final interpretations and clarifications of the rules have not been released three weeks ahead of when the fees are due to begin. She said the USTR and U.S. Customs and Border Protection (CBP) have promised publication of an FAQ and other information documents, which are eagerly anticipated.
Grasso notes a lot of confusion and questions among clients over the rules as they wait for clarification. Large carriers have reported they are shifting fleet deployments where possible, and Grasso notes some companies are considering restructuring based on the details released, such as the definition of “Chinese-owned” at 25 percent Chinese investment.
There have been rumors of legal challenges to the USTR, and especially complaints that the regulations on vehicle carriers are an overreach beyond the authority Congress gave the USTR. So far, no challenges have been filed.
Equally critical is the IMO push for adoption of the decarbonization framework, which addresses operating targets and a global fee structure for failing to meet the targets. Many parts of the shipping industry have called for a pause to resolve issues within the framework, but Secretary-General Arsenio Dominguez, speaking two weeks ago at the presentation of the DNV Maritime Outlook, expressed confidence that the adoption will proceed.
The U.S. came out strongly opposing the decarbonization efforts. Trump has threatened additional tariffs or other penalties for countries if the framework is adopted. Grasso highlights the questions over what the U.S. might do and how it could impact global trade if adopted. Also, could individual countries act to create a fragmented regulatory environment if the framework is not adopted?
Trump gave his departments of Commerce, Transportation, Defense, and Homeland Security 180 days to complete a report following his executive order on maritime dominance. The order also requires a Maritime Action Plan within 210 days. His effort, however, also dovetails with the SHIPS for America Act, which, while it has broad bipartisan support, has not proceeded in the U.S. Congress.
Grasso notes other challenges to the U.S. initiatives to rebuild the merchant marine. The Maritime Administration still does not have a new administrator appointed by the Trump administration and confirmed by the U.S. Senate. This month, the administration nominated two people to fill vacancies on the board of the Federal Maritime Commission, but they require Congressional approval, and the administration has not yet designated a chairman for the commission after the end of Louis Sola’s term on June 30.
Highlighted repeatedly during the two days of presentations at the Houston conference was that the shipping industry does not like uncertainty and a lack of stability. Right now, there is a broad range of uncertainties overhanging the industry, but some clarity could appear in October. Grasso notes that the varying issues will need to come together to provide clarity and to advance the U.S. agenda of restoring its commercial shipping industry.