US port and intermodal proponents worry newly threatened tariffs from the Trump administration on ship-to-shore (STS) cranes and containers will dampen investment and productivity, as the recent escalation of tariffs raises chassis production costs higher.
Port officials worry placing a 25 percent tariff on cranes, which cost $10 million to $15 million each, will slow investments in terminal upgrades. These capital projects are critical to handling an increasing number of 14,000-TEU vessels traveling through the Panama Canal to ports on the US Gulf and East Coasts.
After the Trump administration raised tariffs on chassis from 10 percent to 25 percent earlier this month, beneficial cargo owners (BCOs) will also be more likely to see daily rental rates on chassis used for merchant haulage to rise. A basic chassis will now cost about $12,500 — $10,000 for the equipment plus a $2,500 duty. If a chassis provider has a capital budget of $50 million, for example, it can only purchase 4,000 units, as opposed to 5,000 a year ago.
Domestic intermodal providers are concerned about tariffs on 53-foot containers, which cost about $15,000 each. The extra $3,000 to $4,000 would be passed onto rail shippers, according to J.B. Hunt Transport Services and Schneider National.
If all of this seems familiar, you’re right. This exact case was debated on July 25 and Aug. 24, 2018.
The American Association of Port Authorities (AAPA) lobbied against duties on STS cranes. Trucking and intermodal operators J.B. Hunt Transport Services and Schneider National testified on containers, and the Institute of International Container Lessors (IICL) fought against tariffs on containers and chassis. They were successful in getting containers and cranes removed from the list, but lost on chassis.
Now it’s back to square one, with hearings scheduled to begin June 17 in Washington.
Last summer, the debate over tariffs on STS cranes and containers revolved primarily around whether importers could replace Chinese sources with domestic manufacturers.
There are only two major companies currently manufacturing STS cranes — Shanghai Zhenhua Heavy Industries Company (ZPMC) and Konecranes. Even though the latter is a Finnish company, it manufactures many of the cranes in Shanghai, the company has said publicly.
“Several US ports have Chinese cranes on order, with a cost of up to $14 million per crane. The 25 percent in additional tariff would cost each of these ports millions of dollars and reduce US ports’ competitiveness with Canadian and Mexican ports vying for US cargo,” the AAPA testified last August. “Currently, there is no US manufacturer for these cranes and in the case of low-profile cranes that are required for ports near airports.”
None of these facts have changed since August. There are still several ports with Chinese cranes on order, a process that takes a few years, and there are still no US manufacturers.
Tariffs on containers would apply to 20-foot, 40-foot, and 53-foot units. A tariff on international boxes would have no impact on US importers but rather would apply to the sale of used containers discarded by ocean carriers. Comparatively, there will upward pricing pressure on domestic shippers using J.B. Hunt, Schneider, Hub Group, XPO Logistics, Swift Transportation, or COFC Logistics containers. It would also apply to containers owned by the Class I railroads, including UMAX and EMP boxes, and Jones Act carriers such as Crowley Maritime and Trailer Bridge.
“Any of those new costs to acquire the equipment is going right to the shippers and other customers. But since there are no US producers of domestic commercial containers, it’s not like we’re currently harming any US manufacturers,” said Steven Blust, president of the IICL.
Kent Delozier, director of maintenance with J.B. Hunt, explained how this happened in his testimony last July.
“[Between 2000 and 2004], J.B. Hunt shifted from aluminum containers to DuraPlate® containers made by Wabash. The DuraPlate containers are made of two thin layers of steel plate bonded in the middle by a plastic core,” he said. “The Chinese producers welded their containers, which means that mechanical fasteners such as rivets and bolts were no longer needed. These new steel containers also featured reduced box weight and a wider interior than the DuraPlate containers.”
In response, US manufacturers ceased production rather than innovating, according to Delozier.
The increase in tariffs on 20-, 40-, and 53-foot chassis earlier this month harms the international shipper more because of the chronic equipment shortages.
Frank Sonzala, president of CIMC Intermodal Equipment, which manufactures chassis primarily out of China, told JOC.com that chassis orders have already been flat in 2019 because of the 10 percent tariff. With the increased duty, Sonzala is concerned full-year order volume will decline.
“Every one of our customers tells us they need ‘X’ amount of chassis, but they will only buy ‘Y’ because they don’t know if there will be a 25 percent, 10 percent, or zero percent tariff when [the chassis] arrive in the US. If there is a deal around the corner, why would they want to pay 25 percent today rather than wait?” he said.
Cheetah Chassis, a US manufacturer, successfully pushed for the tariffs last August. But it’s unclear whether US producers such as Cheetah Chassis will increase production enough to satisfy the needs of TRAC Intermodal, Direct ChassisLink Inc., Flexi-Van Leasing, and other chassis providers.
These companies are under considerable pressure to resolve equipment shortages that caused BCOs to pay thousands in demurrage penalties and incur weeks of delays in Chicago and Memphis this past winter. Chassis shortages have been a chronic problem in Memphis, Savannah, and Charleston in prior years, too.
Unless chassis providers can buy enough equipment, however, and refurbish older units, BCOs are likely to see shortages recur.