Hafnia unlikely to send China-owned ships to US unless charterers bear port fees

The New York Stock Exchange-listed Hafnia, the world's largest pool of products and chemical tankers by number of ships, will most likely offer its China-registered or China-owned ships for US port calls only if the proposed exorbitant additional fees levied from mid-October onward are paid by the charterers, sources with direct knowledge of the matter said Aug. 24.

However, several chartering executives also told Platts, part of S&P Global Energy, that it will not be possible for them to bear the additional costs because it will make shipments economically unviable.

From mid-October, the US proposes to levy fees on China-linked ships calling at its ports and progressively hike them over almost three years, to encourage local maritime manufacturing. However, it distinguishes between those owned and operated by Chinese companies and those built in China for companies elsewhere. There are many exemptions for the latter, but none for those owned and operated by Chinese companies and individuals.

For voyages that involve US port calls from mid-October onwards, Chinese-owned and Chinese-registered ships in the Hafnia pools will be offered if there is a USTR clause in the agreement with charterers that they will bear these additional fees, one of the sources said. Since it is highly unlikely that charterers will agree to pay these costs, such ships may not undertake voyages to the US at all, another source said.

The proposals are not yet final, and it would be premature to make definitive decisions at this stage, a Hafnia spokesperson said. It may become an industry practice that, if the fees are applied to freight, they are ultimately borne by the charterers, the spokesperson added.

"An exercise to identify such tankers has already begun," one of the sources said.

Hafnia operates close to 200 tankers in around eight pools. About 30 companies have put their tankers into the Hafnia pools, and they own more than 40% of this fleet by number.

The Hafnia spokesperson confirmed that the company is conducting due diligence with its pool partners to ensure that all parties are fully prepared "in managing any potential fee impact, should the [USTR] measure move forward in mid-October."

The move is highly significant because it marks the beginning of a two-tier market of ships that will and will not call on US ports, which will be totally cemented over the next few weeks, unless the US withdraws its proposals, something that the shipping industry currently thinks is highly unlikely.

The company has asked all entities with ships in Hafnia pools to give a written undertaking that these tankers do not have any ownership link with China, both sources said. This includes a requirement that companies that own these tankers are not registered in mainland China, Macau or Hong Kong, they said.

Tankers have traditionally had a complicated web of ownership, but each mandatorily has an Ultimate Beneficial Owner, or UBO, and a shareholding structure. Keeping this in mind, Hafnia is insisting that, if any of these persons, or entities have a stake of 25% or more in a ship that is in its pools and holds a Chinese, Macau, or Hong Kong passport, and registration, then the details must be furnished to them, so that a situation does not arise where inadvertently an additional fee is levied on them at US ports.

"No risk can be taken in this regard and any financial link with China is tantamount to [Chinese] ownership," said a Copenhagen-based source. For the sake of good order, this includes and is not limited to sale and lease-back arrangements, and loans and mortgages, the source said.

The onus is on the pool partners to either provide this information, or give a legal undertaking that there is no financial ownership link whatsoever with "any territory that is Chinese on the map of the world", he said.

For example, ships built in China but not owned by Chinese entities and arriving empty to load US export cargoes have been granted total exemption from these fees, which are otherwise so exorbitant that carrying cargoes to and from US ports on them is totally unviable. For a Chinese-owned and operated VLCC, a US port call can cost more than $5 million from Oct. 14 and almost $8.5 million from mid-April next year, according to brokers' estimates, based on the USTR proposals.

Against this backdrop, companies such as Hafnia may not send Chinese-owned or operated tonnage to US ports, and charterers may not agree to foot the bill under their commercial contracts with owners.

Singapore-based shipping conglomerate BW Group has a stake in Hafnia, which operates the world's largest fleet of LR1 tankers. Last year, Hafnia was listed on the New York Stock Exchange and continues to trade on the Oslo Stock Exchange.