‘Where will this end?’ Trump's 20% Hormuz fee plan slammed as ‘fundamentally wrong’ by shipping industry

The tension between the US and Iran sharply escalated after US President Donald Trump announced that Washington would resume its blockade of Iranian ships passing through the Strait of Hormuz while proposing a 20% fee from all other cargo vessels using the vital shipping route. Declaring that America would become the waterway's "guardian," Trump has revived a dispute with Tehran over the status of the crucial shipping passage

The president posted on social media that the strait “will remain OPEN, with or without Iran.” While Iran’s ships would be blocked from entering or leaving, other nations’ vessels could cross. But the US “as a matter of FAIRNESS, will be reimbursed, at the rate of 20% on all cargo shipped,” the president wrote.

Trump said “the process and formation” of his plan “will begin immediately.” The White House did not provide other details on Trump’s proposal, including how it would be administered or whether it had been communicated to US allies in the Gulf.

The proposal drew sharp criticism from shipping companies and maritime experts.

More than 10 people involved in shipping markets, including a handful whose ships have passed through Hormuz in recent weeks, told Bloomberg they were blindsided by the announcement of a potential fee on cargoes crossing the waterway. They said it was too early to know what the plan might look like in practice and how it would shape their decisions about transit.

‘Fundamentally wrong…’

Germany's Hapag-Lloyd, the world's fifth-largest container shipping company, on Tuesday, told Reuters, "It would be fundamentally wrong to levy fees for passage through international waters."

The German Shipowners' Association (VDR) said such a measure would be legally impermissible and would undermine the principle of free passage through international waters.

"Today it's the Strait of Hormuz, tomorrow the Strait of Malacca, and the day after tomorrow the next international strait. Where will this end?" VDR head Martin Kroeger told business magazine Wirtschaftswoche in an interview on Tuesday.

Civilian commercial shipping must not become a pawn in geopolitical conflicts, he added.

‘Increased cost will discourage ships from using the Strait’

Any US-imposed tariff could further discourage ships from using the Strait of Hormuz, where traffic has already slowed sharply in recent days, according to the Baltic and International Maritime Council, the world's largest shipping association.

“While the proposal to fund security through a levy on cargo transiting the Strait of Hormuz is innovative and well-intentioned, the increased cost will constitute a further disincentive to transiting the Strait, which can only be outweighed by a significant reduction in the threat from Iran,” Jakob P. Larsen, BIMCO’s chief safety and security officer, told CNBC on Tuesday.

‘Fee makes the route too expensive’

Noting that there is still no clarity on how the fee would be calculated, John McCown, a senior fellow at the Centre for Maritime Strategy, told CNN, “Is it 20% of what our cost on the blockade is, somehow divided by the number of ships?”

“Other possibilities include 20% of the costs the US Navy incurs to escort cargo or a 20% charge on the value of the goods being transported.”

Normally, shipping fees are around 2%-3% of the cargo's value. Raising that to 20% would dramatically increase costs, making the route too expensive for many businesses, McCown pointed out.

Iran sees any challenge to its authority in the strait as a breach of the interim peace agreement it struck with the US. The deal provided for toll-free commercial shipping during a 60-day negotiating window and required Tehran to “make arrangements” to ensure the safe passage of vessels. The country has continued to insist that ships must obtain permission and follow approved routes.