AJOT Insights

‘Patently unfair’ tariffs imperiling U.S. port infrastructure advances

Sep 11, 2018

Beyond projected depression of trade volumes with Asia, U.S. ports are facing a less-publicized but equally real threat related to tariff imposition: High duties on container cranes and other cargo-handling infrastructure.

“Patently unfair” was one term used by Steven M. Cernak, chairman of the American Association of Port Authorities, in talking with AJOT about potential impacts of steel tariffs of as much as 25 percent on container crane units brought in from the Shanghai-based global leader in port crane manufacturing.

“Ports, by our very nature, promote trade, and we should be viewed as an asset and not a detriment,” said Cernak, speaking not only from his AAPA leadership role but also as chief executive and port director at South Florida’s Port Everglades, where such duties could significantly add to costs of as many as six big ship-to-shore gantries to come from China.

In a separate interview with AJOT, the Virginia Port Authority’s chief executive officer and executive director, John F. Reinhart, noted that much of the concern stems from the fact that China-based Shanghai Zhenhua Heavy Industries Co. Ltd., known as ZPMC for short, typically is the only manufacturer in the world capable of sufficiently meeting qualifications in U.S. port bids for ship-to-shore gantries. (Finland-based Konecranes also makes ship-to-shore cranes, but their steel structures are made in China.)

“This issue will impact any port that wants to expand its contingent of ship-to-shore cranes, because nobody makes them in the United States, and most of the superstructures are done in China,” Reinhart told AJOT.

The Port of Virginia has four such ZPMC gantries on order, at a combined delivered cost of $41 million, approved by the VPA board in August 2017, well before contemplation of import duties that could add between 10 percent and 25 percent to their total price tag.

“So you’re talking about an order of magnitude of unanticipated cost of $4 [million] to $10 million on the purchase of four ship-to-shore cranes,” Reinhart said, adding that fabrication of the cranes is now almost complete, with the units to be ready to go in the water in October for delivery in January.

“It was not anticipated,” Reinhart continued. “We are just one of the ports that currently has a large order coming in that could be adversely impacted by that tariff. Across the country, there are 12 to 20 cranes a year that might come in at all ports, so everybody would be having an issue if they don’t exempt the cranes, because they’re really just an instrument of trade. They aren’t something that is consumed here.”

Rather than being goods for consumption, the super-post-Panamax units, able to handle mega-containerships of carrier super-alliances, are seen as backbones of what VPA officials tout as the nation’s largest containerport infrastructure initiative, to a total tune of $700 million.

Super-post-Panamax cranes in the final stages of construction at China’s Shanghai Zhenhua Heavy Industries Co. Ltd. are destined for delivery to the Port of Virginia – perhaps with a 25 percent tariff slapped on their cost.
Super-post-Panamax cranes in the final stages of construction at China’s Shanghai Zhenhua Heavy Industries Co. Ltd. are destined for delivery to the Port of Virginia – perhaps with a 25 percent tariff slapped on their cost.

Indeed, Reinhart testified in Washington before the U.S. Trade Representative on Aug. 24, seeking such exemption, stating, “The imposition of a 10 percent or 25 percent duty on such high-cost infrastructure capital equipment has the potential of causing a delay to the project schedule and increasing its cost, thereby adversely impacting the project’s benefit to the national economy.”

In his interview with AJOT, Reinhart expounded, “This tariff could delay our project, could jeopardize the delivery of the cranes to our project or ultimately increase the cost of the project in a way that was unanticipated.”

Reinhart noted that the U.S. Trade Representative in August waived the tariff on steel cargo containers, most of which are made in China, because they were construed as instruments of trade as opposed to consumable goods.

“It’s counterintuitive that the United States is trying to get the port infrastructure modernized across this country to be more competitive with the global standards,” he said, “and here you slap a tariff with the unintended consequences that you’re going to make it more expensive or maybe cancel or delay projects that need to be done.”

Cernak, in his interview, pointed out that, because of its proximity to Fort Lauderdale-Hollywood International Airport, Broward County’s Port Everglades has a particular requirement that the new cranes crucial to much-needed expansion of Southport container facilities be low profile in nature.

Steven M. Cernak, left, chief executive and port director of Port Everglades and chairman of the American Association of Port Authorities, discusses cranes with Zhu Lianyu, chairman of Shanghai Zhenhua Heavy Industries Co. Ltd., during the latter’s summer visit to the South Florida seaport.
Steven M. Cernak, left, chief executive and port director of Port Everglades and chairman of the American Association of Port Authorities, discusses cranes with Zhu Lianyu, chairman of Shanghai Zhenhua Heavy Industries Co. Ltd., during the latter’s summer visit to the South Florida seaport.

Thus, in response to its widely circulated solicitation, Port Everglades received bids from just two companies – well-qualified ZPMC and an Italian firm entirely lacking experience with fabrication of such low-rise units but demanding a higher price. So port commissioners approved in 2017 an order totaling $41.4 million with ZPMC for the first three new low-profile, super-post-Panamax cranes for Southport, to be delivered in fall 2019, with an option for three more.

“To have to pay a tariff on something that’s not available from a U.S. provider is patently unfair, and it should be exempted,” Cernak said. “We did go out and try to get bids in good faith, and there were no bidders from the United States.”

Not unlike Reinhart, Cernak described a ship-to-shore gantry as “a tool of promoting trade,” adding that Port Everglades has made a decision to buy American for raw reinforcement steel for a related undertaking.

“So where we could do it [to buy American], we’re doing it,” Cernak said. “Where we can’t do it, to be faced with a tariff is not good policy.

“All of our customers here, the container operators, the terminal operators, are all clamoring for these cranes,” he continued. “They can’t get here soon enough.

“We have to have them, and, if there’s a 25 percent tariff, we’re responsible for it,” Cernak added, noting that port payment of unplanned impositions by government agencies is in the contract. “It’ll come out of our coffers and affect our ability to do other infrastructure projects.”

Testifying Aug. 24 before the U.S. Trade Representative, in addition to Reinhart, was Kurt J. Nagle, president and chief executive officer of the American Association of Port Authorities, who, in citing broad-ranging tariff concerns, honed in on potential impacts related to acquisitions of cranes and other port infrastructure enhancements.

Nagle said Section 301 tariffs on Chinese commodities combined with China’s retaliatory actions loom to detrimentally impact 8.4 percent of trade value through U.S. ports, with further harm to American manufacturers, farmers and businesses relying on ports to handle raw materials, supplies and semifinished components, potentially imperiling millions of U.S. jobs.

Kurt J. Nagle, president and chief executive officer of the American Association of Port Authorities, is concerned about tariffs threatening ability of U.S. ports to buy new ship-to-shore cranes and other trade-supporting infrastructure.
Kurt J. Nagle, president and chief executive officer of the American Association of Port Authorities, is concerned about tariffs threatening ability of U.S. ports to buy new ship-to-shore cranes and other trade-supporting infrastructure.

“AAPA and its U.S. members are also greatly concerned about the impact of specific tariff increases on U.S. ports’ ability to make needed investments in port infrastructure to meet the significant growth in trade volumes and enhance our international competitiveness, a stated priority of this administration,” Nagle testified.

“There is considerable pressure to make ports more efficient, enhance environmental performance and reduce the impact of port operations on local communities,” he continued. “In response, U.S. ports and their private sector partners plan to invest significantly in improving port infrastructure by spending $155 billion between 2016 and 2020.

“As business leaders, however, they are concerned about making these sizable investments in an unstable trade environment,” Nagle went on to testify. “In addition, the proposed new tariffs would dramatically increase the costs of key aspects of port infrastructure investments.”

Nagle said containerports especially would be negatively impacted by the new tariffs, saying, “The 25 percent in additional tariff would cost each of these ports millions of dollars and reduce U.S. ports’ competitiveness with Canadian and Mexican ports vying for U.S. cargo.”

AAPA is formally requesting that cranes used in port operations, as well as port yard equipment, be exempt from the tariffs.

Author Photo

For more than a quarter of a century, Paul Scott Abbott has been writing and shooting images for the American Journal of Transportation, applying four decades of experience as an award-winning journalist.
A graduate of Northwestern University’s Medill School of Journalism, with a master’s magna cum laude from Trinity Evangelical Divinity School, Abbott has served as president of chapters of the Propeller Club of the United States, Florida Public Relations Association and Society of Professional Journalists.
Abbott honed his skills on several daily newspapers, including The Cincinnati Enquirer, The Richmond (Va.) News Leader, Albuquerque Journal and (South Florida) Sun-Sentinel, and was editor and publisher of The County Line, a weekly newspaper he founded in suburban Richmond, Va.
A native Chicagoan, he is a member of American Mensa and an ever-optimistic fan of the Chicago Cubs.

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