Proposed US port fee on China ships sparks owners-charterers slugfest

Owners with China-built tankers in their fleet are proposing a contingency clause in their charter party agreements to prepare for any eventuality that may arise if the US imposes fees on such ships calling at its ports, market participants said March 28. However, they are facing stiff resistance from the charterers.

Some of the owners are trying to sell off the China-built ships in their fleet while shipping analysts have cautioned that the US move can hurt not only Chinese shipyards and operators but also US businesses. One cannot underestimate the probability of an upheaval, said Edward Finley Richardson, a Bordeaux-based shipping analyst with Contango Research.

The clause that owners want inserted in the CPAs says charterers shall be liable to pay any charges, of any category or terminology that arise if a ship that has any connection with China enters a US port, several sources involved in such chartering activities said.

The connection with China could be of any kind, flag, registry, ownership, or operations, but the liability should be of charterers, according to the proposed clause, sources said on the sidelines of the Singapore Maritime Week.

However, charterers are proposing that such liabilities should be borne by the owners and that they need to offer an all-inclusive freight quotation when negotiating a spot deal, said a chartering executive with a global commodities trading company. He cited the example of carbon emission charges when moving oil cargoes to the EU that are not billed separately to the charterers.

Talks to sell ships

It is normal for China-built tankers to regularly call on US ports since the country exports more than 10 million b/d of crude and refined products combined and imports over 8 million b/d, according to US government estimates. Tanker owner DHT, which controls more than 20 VLCCs, is in talks to sell two 2011-built China-built supertankers, the DHT Peony and the DHT Lotus, said two brokers tracking the developments.

The DHT Peony is currently bunkering in Singapore after having discharged Gabonese crude in Dalian and will thereafter leave for Corpus Christi to load its next cargo, they said. The DHT Lotus is carrying US crude to Taiwan and is expected to reach Kaohsiung around mid-April, they added.

Analysts point out that if DHT succeeds in selling the two VLCCs, its VLCC fleet will be fully South Korean. The company will get delivery of at least four more VLCCs next year, two each from Hanwha and Hyundai shipyards.

While companies such as Okeanis Eco Tankers have no owned or operated vessels built in China, shipping analysts and brokers point towards International Seaways as more than half of its leased-in, or controlled 11 VLCCs are linked to China.

Frontline's almost entire fleet of 18 Aframaxes, and LR2s are of Chinese origin and close to half of its 22 Suezmaxes were built in China, they said. Around half of Teekay's combined fleet of 39 Aframaxes, LR2s and Suezmaxes are linked to China, they added. However, none of Frontline's massive fleet of over 40 VLCCs are of Chinese origin.

Fee would 'reshuffle tonnage'

The US proposal is still under consideration. Shipping analysts said it is not only difficult to implement but to even fathom.

"If implemented, it looks like a recipe for chaos as owners and charterers will seek to reshuffle tonnage," said Ole-Rikard Hammer, an Oslo-based senior oil and tankers analyst with Arctic Securities.

If the port fees are in seven figures, it will certainly hurt Chinese shipyards, but it will also bankrupt many US businesses, said Richardson.

He said that the potential for an upheaval cannot be underestimated because 70% of the new build orders across shipping types are being built in China.

Both Richardson and Hammer said that the supply chain chaos could be as dramatic as during the deadly covid pandemic.

Several witnesses who testified to the US Trade Representative during public hearings March 24 and 26 warned of negative fallout of the fee proposal if it is implemented in its current form, said a consultant privy to the developments because he has clients in the North American shipping industry. He said that shipping and oil executives in the US have recommended changes in the US proposal to avoid any loss of business.