Capesize shipping rates strengthen as China's special port fees take effect

Global Capesize freight rates strengthened after China announced the imposition of special port fees on US ships, with the directive coming into force Oct. 14.

The Platts Capesize T4 Index -- a global ton-mile weighted average index of four Capesize routes -- stood at $30,844/d on Oct. 13, up 25.9% from $24,496/d on Oct. 10, the day China announced the implementation of special port fees, according to S&P Global Commodity Insights data.

China's Ministry of Transport stated on Oct. 10 that the port fee structure will apply to ships owned or operated by US entities, US-flagged ships, US-built ships, and even ships linked to entities or individuals that directly or indirectly hold 25% or greater US equity ownership. The implementation of this measure will be enacted in stages, commencing with Yuan 400/net ton (equivalent to $56.16/net ton) from Oct. 14, escalating to Yuan 640/net ton on April 17, 2026; Yuan 880/net ton on April 17, 2027; and finally Yuan 1,120/net ton by April 17, 2028.

Several participants specifically labeled the clause that affects ships linked to entities or individuals with a certain degree of US equity ownership as a key factor with far-reaching implications on the Capesize market, as a sizeable number of shipping companies with exposure to the Capesize segment were linked to US capital markets.

In the immediate aftermath of the announcement, many market participants were heard to have refrained from concluding trades actively while assessing the potential impact of the development on freight rates.

Many ship owners were also heard to have raised Capesize offer levels in the spot market Oct. 13, while some affected ships that were laden in transit significantly reduced sailing speeds due to the ambiguity associated with the implementation of the measure, market sources told Platts.

"This might take quite a few tonnages out of the market," a shipbroker source said, adding that vessel supply may be artificially constrained for a short period if more affected ship owners decide to slow down their ships while contemplating their responses, which could in turn result in temporarily higher fleet utilization rates.

China's Ministry of Transport announced in a statement Oct. 14 that vessels that were built in China despite being owned or operated by US entities, are US-flagged, or are linked to entities or individuals that directly or indirectly hold 25% or greater US equity ownership, would be spared from payment of these special port fees.

Some participants said this announcement could ease some of the market's concerns.

A ship owner source indicated that there will be an initial "knee-jerk" reaction among market participants and that rates would likely spike in the very short run. However, given that Chinese-built ships will be exempt from these fees, the Capesize freight market might eventually retrace and settle at a new equilibrium that is marginally higher than prior to the announcement on Oct. 10, the ship owner added.

According to S&P Global Market Intelligence data, as of October, there were 2,050 Babycape to Very Large Ore Carrier vessels in service globally, and among them, 37.75%, or 774, were built in China.

A second ship owner source said that in the longer run, affected entities may strategize to position their Capesize tonnages to dabble in trades that exclude calling at Chinese ports in order to avoid paying such high special port fees.

These include, but are not limited to, trades such as the Transatlantic and backhaul routes, and trades within the South Africa-Indian Ocean range. This could potentially prop up tonnage availability in such markets and exert downward pressure on freight rates in such trades, market sources told Platts.