Indictments, Tariffs, Truces, & International Trade with China

When I first started writing about international shipping more than 15 years ago, a rollercoaster was the best metaphor to describe the industry, with its volatile, up-and-down freight rates for shippers. And China was the amusement park of choice, dominating as the top country of origin from which to import goods. Looking at trade with China over the last handful of years, shippers have been on a ride that feels like it was designed either by a mad genius or an economist on crack. Every time it looks like the rollercoaster is returning to manageable ups and downs, a new loop and twist appears.

Many shippers have gotten so motion sick, they’ve gone to different parks, sourcing from other countries in Asia or nearshoring from Mexico for their imports. There’s also domestic sourcing, something President Trump’s tariff policies and trade deal negotiations have aimed to increase. Of course, China – still the world’s second largest economy – hasn’t gone away as a trade partner, but tariff-hiking trade wars is just the tip of the iceberg (oh no, now I’m mixing metaphors)…

Currency manipulation, IP theft, state-sponsored cyber espionage, anti-competitive industrial policy, discriminatory legislation, massive state subsidies, forced labor, and control of global shipping equipment is a handful of the trade complications from China.

China’s Shipping Container Control

Even when shippers move sourcing away from China to avoid high, volatile tariffs or the just-listed issued, negative impacts often still hit their shipping. And not just from the complicated web of global trade where shipping factors in one part of the world impact shipping throughout the world. Sometimes without shippers even realizing it, China can directly come into play through transshipment laundering and absolutely comes into play with its near-monopoly on shipping containers.

China controls 95% of the international shipping container market.

How shipping containers, as well as chassis, are distributed around the globe has an enormous financial impact on businesses that import and export goods. Maldistribution played a major role in the supply chain crisis that hit during the COVID-19 pandemic. Long-time, regular readers of Universal Cargo’s blog likely remember stories like U.S. agricultural exporters being denied shipping containers, so empty containers could be shipped back to China quicker for the more lucrative westbound trans-Pacific routes. But again, that’s only scratching the surface, as indictments from the U.S. Department of Justice (DOJ) against the four biggest shipping container manufacturers this week show….

DOJ Indicts Chinese Shipping Container Manufacturers

A week after the Beijing summit between Presidents Trump and Xi, the DOJ called out the four Chinese-state-linked companies as being a shipping container cartel, accusing them of engineering artificial container scarcity and price-fixing during the pandemic. The U.S.-China trade summit is being credited as resulting in a truce but not a breakthrough, as an article from the Epoch Times puts it, but the battle seems to be shifting more from tariffs to “logistics warfare” with this indictment hitting a week later.

Keith Wallis shared some of the details from the indictment in an article published by the Journal of Commerce yesterday:

In details about the alleged conspiracy, the DOJ said executives from CIMC, Dong Fang, and CXIC, as well as an alleged unnamed co-conspirator, met at CIMC’s headquarters in Shenzhen in November 2019. The executives allegedly agreed to four measures limiting output of dry freight containers, including restricting the number of shifts and hours each factory worked, installing surveillance cameras on all production lines to ensure the agreed-upon limitations were not exceeded, and not building any new container-making factories.

DOJ alleges the executives later refined the pact to restrict how many dry containers the companies would manufacture for particular customers, including container lessors, shipping lines and logistics companies in the US, Europe, China and elsewhere, while also capping total container production.

This shipping container price-fixing and manufacturing squeeze would have played into the astronomical freight rates of the “supply chain crisis.”

The timing of this indictment may show that the Trump Administration has little confidence in China following through on the massive spending commitments it made for U.S. goods during the summit in Beijing. The country failing to follow through has been a major issue with deals made with China in the past.

China has put years into being the producer and seller of goods to other countries rather than the consumer of them from those countries. It hasn’t only worked at controlling the supply of goods, it’s also worked to control the means of how those goods are sent out into the world. In other words, China doesn’t just make the goods you want to buy; China controls the physical infrastructure required to move those goods over the ocean. As the U.S. pushes back on that, it moves us from an all-out trade war like we’ve seen of tariff-hiking battles to something of a logistics cold war.

Where Does This Leave Shippers?

As an active importer, you probably already know it’s not so simple to move sourcing away from China. Moving an assembly line to Southeast Asia or Latin America doesn’t just decouple a company from China. Many of the raw materials, complex sub-assemblies, and specialized components needed in, say, Vietnamese or Mexican factories – wether metal components in electronics or engineered wood and hardware fittings in a dresser – still originate in mainland China. Businesses often aren’t avoiding the Chinese supply chain; they’re just paying to route goods through an extra stamp in a passport.

And if customs sees it as trying to cheat on tariffs, importers have a whole new set of problems to deal with.

Plus, when the underlying shipping infrastructure, including vessels, ports, and containers, remains highly concentrated under state-subsidized influence, geographical diversity only solves part of the problem for shippers.

To properly protect themselves, shippers need to dive deep into their supply chains, ideally tracing their suppliers’ suppliers to make sure the raw materials of their goods don’t create a risk in the geopolitical climate of international shipping. Shippers don’t want to fall into a transshipment trap. It’s better to import from China, calculating tariff costs while being prepared for volatility and hikes in those rates, than unwittingly be part of dodging tariffs on Chinese-originated goods.