Posted on January 9, 2025
Tensions between the US and China are likely to persist, say shipping analysts, following the recent blacklisting of Chinese shipping giant Cosco by the US Department of Defense (DoD)
The US has added Cosco, along with other prominent Chinese shipping and shipbuilding entities, to its list of “Chinese military companies” operating within the United States. While this list does not automatically impose sanctions or penalties, it serves to discourage US businesses from engaging with these companies.
“Updating the Section 1260H list of ’Chinese military companies’ is an important continuing effort in highlighting and countering the People’s Republic of China’s (PRC) Military-Civil Fusion strategy. The PRC’s Military-Civil Fusion strategy supports the modernisation goals of the People’s Liberation Army (PLA) by ensuring it can acquire advanced technologies and expertise developed by PRC companies, universities, and research programs that appear to be civilian entities. Section 1260H directs the Department to begin identifying, among other things, Military-Civil Fusion contributors operating directly or indirectly in the United States,” the DoD said in a release.
According to Section 1260H of the William M (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021 (Pub. L. 116-283), the US Secretary of Defense is required to annually publish a list of “Chinese military companies” until 31 December 2030.
Cosco’s response
In response to this blacklisting, Cosco contested the US designation, asserting that none of the listed companies are “Chinese military companies.”
The shipowner further clarified that this designation does not entail sanctions or export controls, and global operations will continue as usual. “We will engage with US authorities to clarify this matter,” Cosco noted.
Cosco also emphasised its commitment to legal compliance in all international operations.
“We remain committed to facilitating global trade and providing high-quality commercial shipping and logistics services to clients worldwide, including agricultural producers, manufacturers, energy firms, retailers, and exporters in the United States,” Cosco said in a 7 January announcement.
Impact on shipping
With Cosco’s enormous fleet—1,154 vessels in total, including both on-the-water and under-construction tonnage—the blacklisting has sparked widespread analysis of potential market effects across various sectors, including bulk carriers, tankers and container vessels.
According to BRS Shibrokers data shared with Riviera Maritime, Cosco’s fleet consists of 567 bulk carriers, 316 container vessels, 191 tankers and other types of vessels.
“This development underscores the reality that tensions between the two nations, particularly as Donald Trump prepares for a second presidential term, will likely become the new normal rather than an exception,” Wilson Wirawan, head of dry bulk research at BRS Shipbrokers told Riviera.
“Shipping is just one of the many industries that will be affected, along with technology and other sectors,” he added.
When it comes to the potential impact on the dry bulk market, Mr Wirawan noted that the geopolitical nature of the situation makes it difficult to predict whether the latest development will be a headwind or a tailwind. “Disruptions in trade are the physical manifestation of geopolitical tensions,” he remarked.
Potential impact on VLCCs and LR1s
Shifting focus to tankers, Nikolas Zannikos, shipping analyst at AXSMarine, noted that Cosco’s previous run-ins with the US—particularly in 2019, when the company was targeted over its involvement in transporting Iranian oil—led to significant rate increases.
However, these rate hikes were temporary, with the market quickly readjusting. According to Mr Zannikos, the length of time the current blacklisting remains in effect will be crucial in determining its impact on the tanker market.
AXSMarine data indicates that the two most likely segments to be affected by the sanctions are VLCCs and Panamax/LR1 vessels. Cosco and its affiliated companies’ VLCC fleet represents 5% of the total vessels currently in operation, while their Panamax/LR1 fleet accounts for 7% of the global market.
“If Asian demand increases and Cosco’s fleet needs to be replaced with non-sanctioned tonnage, we could see rates increase in the VLCC and LR1 segments,” Mr Zannikos explained.
