The blacklisting of the world’s largest yard group, China State Shipbuilding Corp (CSSC), and some of its affiliates has surprised the shipbuilding community and raised concerns that it could raise costs for US shipping. CSSC, China Shipbuilding Trading Co (CSTC) and Guangzhou Wenchong Shipyard were singled out by the US Department of Defense for alleged links to the Chinese military, along with giant Chinese shipowner Cosco.
The companies have not been sanctioned, with the initiative designed to discourage US companies from conducting business with the listed entities.
Multiple shipbuilding players told TradeWinds they believe there will be little impact on CSSC’s commercial shipbuilding activity, although there could be wider consequences for the wider shipping industry over time. One source interpreted that even if CSSC, CSTC and Wenchong were sanctioned, the only impact would be to block the purchase of “critical” equipment from any US company. “But shipbuilding companies in China including shipyards under the control of CSSC do not buy equipment from the US,” he said. Shipbuilding players are baffled why Guangzhou Wenchong has been singled out when there are more than 10 shipyards that come under the control of CSSC.
Several of them are also engaged in building military and navy vessels. One shipowning company with newbuildings on order at CSSC’s shipyards said it was not too worried for now. It said legally the moves did not affect shipbuilding contracts but added that it was monitoring the impact of the actions, especially the ripple effects, with corporates taking preemptive actions.
The US action on CSSC sparked a spike in the share price of South Korean shipbuilders and China’s privately owned Yangzijiang Shipbuilding. HD Hyundai Heavy Industries saw its share price shoot up by more than 5% to KRW 304,000 ($208), while Singapore-listed Yangzijiang rose more than 3% and reached an all-time high of SGD 3.07 ($2.24).
Banchero Costa analyst Ralph Leszczynski said restrictions of this kind tend to end up being bullish for freight rates and ship values and create inefficiencies. He said if soybeans from the US can only be carried by Japanese or South Korean-built bulk carriers, freight rates would skyrocket to $100,000 or $200,000 per day. “I find it hard to believe that they would end up targeting all vessels ‘built by CSSC yards’, as the majority of currently trading vessels of any type are built by them,” said Leszczynski.
He added that such a move would result in a huge increase in the price spread between South Korean and Chinese-built vessels.
He said: “Some small family-owned shipowners would be happy to continue ordering at CSSC shipyards and have lower breakevens, while US owners will be forced to bid for scarce slots in South Korea.” Leszczynski thinks if shipping companies shun building ships at CSSC shipyards, it would create another two-tiered market in the shipping industry akin to the shadow fleet that is serving Russian trades.
The Dubai-based shipping analyst thinks the US action may easily backfire on US shipowners and exporters if it drives them to higher costs than the rest of the market. This is especially true when compared to Brazilian soybeans, which could still be easily carried on Chinese ships.“This would drive up inflation in the US if only selected container ships are allowed to import containerised goods into the USA,” he added.“With the changes in the playing field, suddenly an order at a CSSC shipyard could be a hot potato while those holding orders at South Korean yards are winners as those slots are now suddenly worth more.
“If this plays out like that, it also opens a window of opportunity for ‘something new’ like Vietnamese yards or Turkish yards or Indian yards, given the limited scope for South Korea and Japan to expand their shipbuilding capacity.
