VLCCs Most Affected by China’s Port Fees
QTrade flows will definitely be disrupted due to widespread trade tensions in the shipping market. In its latest weekly report, shipbroker Gibson said that “on October 14, both the US and China imposed prohibitively expensive port charges on tonnage tied to the other. operated by a US company or individual; vessels owned or operated by entities in which a U.S. company, organization, or individual directly or indirectly holds 25 percent or more of the equity (voting rights or board seats); American-flagged ships; and US-built ships. There are two important exceptions: first, ships built in China are excluded; and secondly, ships arriving in ballast solely for repairs are likewise excluded. The fee levels are extreme – around $6 million per call for the VLCC and around $750,000 for the MR – clearly designed to make an impact.”
According to Gibson, “on the tanker side, U.S. shipowners are few, and the tonnage of U.S.-flagged or U.S.-built deepwater vessels is insignificant. However, the U.S.-operated fleet is quite large because major oil companies and refiners typically have large charter fleets. The real challenge lies in screening for the 25 percent U.S. equity control test. Many public company owners have complex structures, and beneficial ownership can fluctuate over time. Some are major owners non-US, particularly in Greece and Scandinavia, listed on the NYSE or Nasdaq, further blurring the line between “US-related” and “international” for the purposes of the rule.”
The shipbroker added that “when all US-listed companies are included, the share of vessels captured by Chinese tariffs increases. For tankers, the average charge is around 17% once Chinese-built vessels are excluded, although this varies by size class. It should be stressed, however, that this figure is still a general estimate. Some large US-listed owners, particularly those not based in the US, may fall below the 25% threshold and thus be excluded. On the other hand, some companies that do not have clear ties to the US may still have a US equity stake of or above 25%.
Source: Gibson Boat Brokers
Gibson notes that “VLCCs are the most exposed, as China is the largest destination for this class, accounting for approximately 38% of VLCC trade by export volume last year. Other classes will also feel the impact, albeit to a much smaller extent, given their more diversified trade patterns and lower dependence on China. In the short term, uncertainty over who is safe to trade to China could fuel volatility additional shipping. The VLCC market is already very tight, supported by increased OPEC+ crude oil production, refinery maintenance, reduced direct crude burn for power generation in the Middle East, and a larger draw of Atlantic Basin crude oil eastward during September.”
“Trade flows will inevitably be disrupted. Without prior warning, some tankers impacted by China’s policies were likely already en route to China when the announcement was made. More ballast miles are expected as owners and charterers reshuffle tonnage. The need for additional documentation checks could also lead to greater congestion at ports. In the long term, the market will adjust. Companies that are slightly above the 25% US ownership threshold may explore structural options to limit their trade flows. exposure, although this may take time and may impact their share price. However, the broader picture is that this mutual tit-for-tat at the terminal will have economic consequences for both countries when other shipping sectors are taken into account. This raises the inevitable question: are negotiations in the works, and can this impasse be resolved over time, with port fees ultimately waived or significantly reduced?”, Gibson concluded.
Nikos Roussanoglou, Worldwide Hellenic Shipping News
