KUALA LUMPUR (Apr 12): Container and, to some extent, dry bulk would probably be the shipping segments most affected by the recently announced US and China tariffs, according to Fitch Ratings.

In a statement on ite website yesterday, Fitch however said the degree of impact will depend on the final terms of the tariffs, and the potential flexibility of shipping companies to divert some volumes to other destinations and the ultimate tonne-mile demand.

It said a more pronounced and wider sector impact potentially affecting all shipping segments could result if the planned tariffs lead to escalating retaliatory protectionist measures.

To recap, the US recently announced potential tariffs on steel and aluminium imports.

Subsequently, it proposed an additional duty of 25% on certain products imported from China, including medicaments, machinery and chemicals, with a total value of about US$50 billion.

In response, China proposed a 25% tariff on a range of imported products from the US including soybeans, chemicals and selected aircraft.

Fitch said the immediate impact of potential tariffs may be manageable for both container and dry-bulk shipping.

It said some of the goods under the proposed tariffs are likely to continue to be imported by the US or China due to the limited substitutes.

The rating agency said some of the volumes could be diverted to other countries, potentially affecting distances travelled and putting tonne-mile demand in focus.

“The proposed value of about US$50 billion of goods subject to tariffs accounts for only about 10% of US imports from China and slightly over 2% of China's total merchandise exports.

“In addition, soybeans and steel represent a limited share of the dry-bulk shipping market,” it said.

Fitch said the key risk to shipping is if protectionist measures escalate into a trade war damaging the prospects for global trade and gross domestic product growth.

It said global trade growth is an important stimulator of demand in container shipping, while China remains the key driver for dry-bulk commodity imports and trade.

“We believe the supply side is key to achieving the supply-demand balance and a long-term sustainable recovery in the sector, but further slowdown in volume growth in the short term may put further pressure on freight rates.

“Volume growth has moderated for both container and dry-bulk shipping in recent years. This again emphasises the necessity of prudent capacity management in the sector, which has been plagued by overcapacity,” it said.