WAF crude tanker rates climb on Chinese port fees, European demand

Freight rates for dirty tanker voyages loading in West Africa have risen significantly in the second decade of October, amid uncertainty generated by China's new special port fee system for ships with US affiliations and strong inquiry levels for Europe-bound voyages, according to shipbroking sources.

Platts, part of S&P Global Energy, assessed freight on the 260,000 mt WAF-Far East route at $33.52/mt on Oct. 14. This represents a 23% increase on the rate from Oct. 9, the day before the Chinese Ministry of Transport's announcement that it would impose escalating special port fees on ships with US affiliations starting Oct. 14.

So far, market sources have suggested that this firmness in the WAF VLCC segment has been largely driven by sentiment rather than fundamentals, despite the potential for tonnage bottlenecks caused by the reduced number of vessels able to discharge in China.

Although several VLCC fixtures for loading in the Persian Gulf have been settled at elevated levels since the port-fee announcement, the WAF market remains untested. However, three fresh WAF VLCC cargoes were reported in the morning of Oct. 15, which should provide a fresh test for the market, with shipbrokers indicating they expect rates to be settled in the low w90 range.

Looking ahead, market participants have been trying to assess whether VLCC freight is likely to remain at current elevated levels for a sustained period of time, or return to the rates seen prior to China's port-fee announcement.

"Lots of owners are managing to get around the new rules, and if you just look at tonnage fundamentals, it's actually quite balanced in the [PG], although the Atlantic is a bit tighter," a London-based VLCC broker said. "It could go either way at the moment, and it depends on whether owners are able to hold sentiment further, which so far they have been able to, but we could see the [PG] come down and owners focus on the West."

Stronger Suezmaxes

The WAF Suezmax market has also experienced gains in recent days, with freight on the benchmark 130,000-mt WAF-UK/Continent route hitting a two-month high of $21.08/mt on Oct. 14, up 14% from the rate on Oct. 10 and a rise of 23% from a recent low point reached Oct. 3.

Shipbroking sources largely attributed this strength to a spike in demand levels for crude cargoes destined for Europe, rather than the China port fee news. Unlike VLCCs, for which the main demand center lies in the Far East due to economies of scale for long-haul voyages, the primary discharge locations for Suezmax shipments have historically been Northwest Europe and the Mediterranean.

"I feel it's an inquiry thing, [it's] just [that] the list is quite tight. Also, the US Gulf had a big jump and [Black Sea-Med] did w145, so I think that the supply of vessels is limited -- that's why I think there was a jump in the market," a Europe-based Suezmax broker said. "Most trading going to China is on VLCCs, so I don't think [the impact on Suezmaxes] is going to be as big -- usually high VLCC rates bring [Suezmax rates] up, but I don't think it's going to be a major thing."

The near-term outlook for the Suezmax market also remains difficult to predict, with brokers noting that demand levels had exhibited high volatility in recent weeks. Nevertheless, the Europe-based broker described his perspective as largely bullish for the coming months.

"At least for the winter, rates should stay at good levels, with some oscillation, as usual," the broker said. "But, overall, I think they will stay at healthy levels."