CARGO preference rules may be coming to the US. If it happens, it will be an administrative nightmare.

The US Trade Representative’s decision on April 17 requires a gradually increasing percentage of liquefied natural gas exports to be carried on US-built ships over the coming decades.

The SHIPS for America Act, reintroduced on Wednesday, proposes a similar cargo preference rule for LNG exports, as well as mandates for US crude exports and US imports from China.

The rationale is that the US needs to revive commercial shipbuilding and, for that to work, those very expensive newbuildings need guaranteed cargo.

How would this play out in practice? Poten & Partners senior adviser Gordon Sheerer called the USTR LNG export cargo preference rules “to put it mildly, challenging — and, to put it more bluntly, impossible to achieve”.

But let’s suppose that US shipyards actually do build LNG carriers, crude tankers and containerships by the first year US shippers are required to use them (an admittedly far-fetched scenario).

If a portion of LNG and crude exports are subject to cargo preference rules, does that mean every individual exporter must put the required percentage of its volumes on US-built tankers?

How would that work, given that there will be a limited number of US-built ships in the very best-case scenario, that each exporter ships volumes to different destinations — and, in the case of LNG, under long-term supply contracts?

Regarding containerised imports from China, each US importer would have to meet the required percentage, from Walmart down to a shipper of just a few boxes per year.

According to the latest Census Bureau data, there are more than 240,000 importing companies in the US; 40% of these have fewer than 20 employees.

Most use freight forwarders. Not all of them source in China, but it’s safe to say that tens of thousands more US companies would be affected by the import cargo preference rules than on the export side.

Each of these companies would be required to calculate the percentage of its China-sourced cargo volume that moved on US-built versus non-US-built containerships over the course of each year. And, presumably, someone in the US government would have to verify all of that data.

Revitalising US shipbuilding is a laudable goal, but the devil is in the details.

Greg Miller
Senior maritime reporter, Lloyd’s List