Oil Shippers Face Hefty Fees After China Port Levies
China’s Retaliatory Fees Contribute to Delays, Cancellations and Spiraling Freight Costs
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China’s retaliatory port levies are exposing oil shipping companies to hefty fees, making them scramble for relevant paperwork, and contributing to delays, cancellations and spiraling freight costs.
The penalties, announced by Beijing on Oct. 10 and taking effect Oct. 15, have prompted shipowners to review their corporate structures to reduce shareholdings by U.S. entities or individuals, according to traders and ship brokers, who asked not to be named due to the sensitivity of the issue. Some companies with more than 25% American ownership have started to remove China and Hong Kong from the list of destinations they’re willing to sail to, they said.
A two-tier market for vessels that will and will not go to China is emerging, with the former group seeking higher premiums and the latter considering creative arrangements such as ship-to-ship transfers of cargoes mid-voyage, the traders and shipbrokers said. Some vessels with full loads were idling off Chinese ports as of Oct. 15.
The Chinese fees, which were in a response to a similar move by Washington, have upended Asian oil trading as shippers and traders try to assess their exposure to charges and find out more about carve-outs and exceptions. The levies translate to more than $6 million in fees for oil supertankers per voyage to China, a staggering amount that will hurt American shipowners and, ultimately, the Chinese consumer.
China announces countermeasures against 5 U.S.-linked subsidiaries of Hanwha Ocean — China Xinhua News (@XHNews)
Even after excluding China-built ships and sanctioned tankers, about a sixth of the world’s fleet of 877 VLCCs may be impacted by Beijing’s measures, said Anoop Singh, global head of shipping research at Oil Brokerage Ltd., adding the proportion may change as the industry gets more clarity. “It’s not just the dearth of China-compliant ships, it’s also uncertainty of what is a China-compliant ship that’s driving up freight costs in the near term.”
Beijing’s decision to penalize US-linked vessels is prompting a rush for documents to prove that ships arriving at Chinese ports are owned by companies with less than 25% American holdings, the traders and ship brokers said. This has caused congestion at Chinese ports, with charterers rushing to cancel or swap out affected tankers, they said.
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The plan jolted freight prices across various shipping markets, with very-large crude carrier among the most impacted due to China’s position as the world’s biggest importer of unprocessed oil. Unipec, the trading arm of China’s state-run oil major Sinopec, was the world’s single-largest spot charterer for vessels carrying crude and fuel oil last year, according to an analysis from shipbroker Poten & Partners.
VLCC chartering costs from the Middle East to China have already surged 49% since the Chinese announcement, Baltic Exchange data show. Those going from the U.S. Gulf are 11.5% higher.
