Section 301 Saga

After weeks of speculation, the Office of the United States Trade Representative (USTR) finally published their much-anticipated action plan to address alleged Chinese maritime dominance. Most international shipping companies were relieved to see almost all measures were significantly watered down. Notably, the “fleet composition” requirement has been dropped, so if an owner has Chinese built vessels, it will not impact their non-Chinese built vessels. However, the latest plan still has considerable ramifications for tankers.

First, it is important to note that the USTR has again asked for public comments and will be holding a hearing on the 19th of May to discuss the proposed actions, so the final version may be subject to change. Second, the measures are scheduled to come into effect on the 14th of October after a phase in period of 180 days.

Critically, the current plan differentiates between Chinese built and Chinese owned or operated vessels. For Chinese owned or operated tankers, the tariff will be initially set at $50 per net tonne (NT) per port call or rotation of US port calls, increasing over the next three years. Yet, there is still uncertainty as how “vessel owner” or “vessel operator” will be defined. According to the USTR, these terms mean the entity which is identified as the owner or operator of the vessel and whose name would appear on the Vessel Entrance or Clearance Statement (US Customs and Border Protection Form 1300) or its electronic equivalent. However, there appears to be little consistency in how these forms are completed, creating further uncertainty. Further, it is uncertain how far up the ownership chain the USTR will go to “trace” Chinese ultimate ownership, particularly in cases where Chinese lease finance is present. According to law firm Watson Farley & Williams, under Chinese lease financing the lessee is considered the beneficial owner of the vessel, although other opinions have put the lessor as the ultimate owner. If this proves to be the case, widescale refinancing may be required. There are no exemptions for Chinese owned/operated vessels, versus those built in China, but not owned/operated by Chinese companies. Given the fees for Chinese owned/operated vessels are prohibitively high, Chinese operated or owned tankers are unlikely to trade to the US once the measures come into effect. The average NT of a VLCC is 105,000 tonnes, which would put this fee at $5.25m for a port call by a Chinese owned or operated vessel, which could be charged up to five times per year, per vessel.

For Chinese built but critically not owned or operated vessels, the measures are more complex as various exemptions may apply. Regardless of vessel size, if the tanker arrives in ballast, the voyage is less than 2000nm, or it is US beneficially owned, no fees will apply. Further, if the vessel is less than 55,000 dwt, or has a bulk capacity less than 80,000 dwt, no fees will apply. Under 55,000 dwt covers Handies and MRs, including chemical tankers, which are thus exempt from paying fees. The 80,000 dwt tonnes bulk capacity threshold should mean that Panamaxes/LR1s are also exempt. It is unclear how this would apply to Aframaxes, which typically carry 70-100,000 tonnes. Provided none of these exemptions apply, US port calls on a Chinese built vessel would be impacted, and a fee of $18/NT is set which will also increase over the next three years. This translates to a fee of around $1.9m for an average VLCC, $900k for a Suezmax, and $600k for an LR2/Aframax above 80,000 dwt bulk capacity. Discharging crude via STS may be a way to avoid fees, although this has not been specifically mentioned.

Due to the exemptions around vessel size, the fees will apply primarily to dirty tankers, with the vast bulk of clean trade into the US under 55,000 dwt requirement. Imports from Mexico and Colombia will be unaffected, as both these countries are within 2000nm of most major US Gulf refineries. Imports from Canada, which mainly go into the USWC, should also be unaffected. No Brazilian or Argentinian ports are within 2000nm of US ports, and around 200kbd of crude exports from South America into Los Angeles are affected.

15% of tankers are Chinese owned or operated, though this varies strongly between vessel sizes, applying to only 6% of Handies and 24% of VLCCs. 22% of tankers are Chinese built, and this number is set to increase as 67% of newbuilds are on order at Chinese yards. It so far seems unlikely that we will see cancellations of newbuilding contracts at Chinese yards. Many owners will have enough diversity in the origin of their fleets to direct Chinese vessels away from US trade. Further, Chinese built vessels may be subject to a larger discount compared to Korean and Japanese built vessels.

US owners are exempt from fees, though only 4% of the tanker fleet is US owned. One aspect of these plans is for US shipbuilding to be encouraged and ordering a ship of greater or equivalent tonnage can lead to the suspension of fees on another vessel. However, the current lack of capacity and cost competitiveness of US shipbuilding is unlikely to change any time soon.

If the measures are implemented in their current form, we are likely to see some repositioning of tanker fleets. Chinese owned and operated vessels will no longer trade to the US, and non-Chinese owners of Chinese built vessels will likely position their fleet to avoid incurring any extra costs, if none of the exemptions apply. There remains a lack of clarity around certain definitions and loopholes, which may be cleared up at the next hearing on the 19th of May.

Share of Chinese built tankers by asset class (%)

Crude Oil

East

After last week’s positive spell in the AG region for VLCCs, the hope was that this could continue into this week. We were faced with a short week due to the Easter Holiday period and once people had returned to their desks, the market had picked up from where it was left. A decent flow of enquiry coupled with a lack of tonnage availability led to further improvements. Looking ahead to next week, we firmly turn our attention to the 2nd decade stems, with our current fixture count hitting double figures. It will be interesting to see how the market reacts in the early part of next week. Today we are calling AG/China at WS72 and AG/USG at WS38.5.

Those owners looking for Basrah/West runs are likely to get on in the mid WS50’s as Suezmaxes clamour to get West. It’s likely over the weekend we’ll see more units ballast to WAF where the market continues to support owners. Charterers may struggle to push down on rates here with the larger sizes pushing up in the AG market. With limited runs to WCI the top of the list hasn’t been chipped away against, and owners may look to push on next week, though for now 140 x ws55 via C/C is the right call. Those able to transit via Suez to the Med are adding a considerable ws35 point premium. Rates to go East haven’t really moved over the week though with Ships looking to ballast to WAF it’s likely that rates will push up at 130 x ws115.

Asian Aframax rates trended downwards this week as the market saw a sole Australian-bound cargo at the end of the week. Owners with open positions will have to factor in more idle time as the fixing window now moves into 2nd decade of May. However, the region could be supported if earnings in the AG continue to climb. With that being said, Vancouver liftings remain steady and this has attracted ballasters away from Asia, but is not enough to balance the Singapore tonnage list. Overall, sentiment in Indo is soft as the TD14 prints 80 x WS126, dropping WS5 points from the start of the week.

West Africa

The VLCC market in West Africa this week has not provided the excitement that some would have hoped for. Reports circulated that a handful of deals have been done but all under the radar which does not allow for momentum to be built here. Looking ahead to next week, attention will be firmly focused on end May stems, which is supported by a healthier tonnage list. Yet, for now levels along with the sentiment remain firm. We are calling WAF/East in the region of WS69.5 today.

Suezmax markets in West Africa have been everywhere this week though the firm feel continues as we come to the end and we’ll likely see it carry on in the same direction next week as tonnage off the early position is soaked up, without pressure being relieved by the larger sizes or a significant amount of ballasters we could see further improvement. Rates are firm at Ws120 for TD20 today.

Mediterranean

With XMed stems continuing to clip away tonnage here the list has tightened considerably leading to a firm feel overall on Suezmaxes. Though Black Sea stems trickle into the market at a steady 135 x ws 135 level, we feel the same levels are likely here to stay. For a long east run owners are feeling confident and Libya/Ningbo rates today are around $5.7M mark.

After the long easter weekend, Aframax levels reacted negatively shedding ws15 points for a benchmark Ceyhan run falling to ws180.  Owners did well however to stem further declines with this number becoming something of a conference rate for the balance of the week, with a lot more business concluded in a clandestine fashion. Looking ahead with the list looking quite balanced, the short term outlook remains steady.

US Gulf/Latin America

The USG region this week did not produce fireworks as some would hope for VLCCs. Cargoes had been drip fed, which allowed for some positivity; yet, compared to the AG, the Americas lacked real momentum. Next week could prove to be interesting as the USG market is steady for the moment, whilst rates in the surrounding regions start to feel like they could be reaching the top. Today we are calling USG/China at $8.50m and Brazil/China at WS67.5.

North Sea

An interesting week for North Sea Aframaxes. Other markets have felt the pressure but the North Sea has held firm trading around ws140. It feels like little will change going into May despite an influx of tonnage from the US. The market looks stable for the time being.

Crude Tanker Spot Rates (WS)

Clean Products

East

A busy week for the LRs in the East, which now need to see a re-test on naphtha given 75x ws125 is on subs a few times with next likely to be ws130. West runs haven’t seen as much activity but assess $3.75m for the end of the week.

LR1s are extremely tight off the front end, and although 55x ws150 was released, Owners will be wanting to repeat this on next done. Similar to the LR2s, West runs are not overly tested. But for now sit at $3.0m levels. Charterers will be hoping they have no prompt requirements as given how tight the front end is, as they could find themselves in tight spot.

UK Continent

With another week compressed by the easter break, MRs have been busy and the tonnage list has mostly been decimated. Sentiment has firmed during the week and rates have moved up a touch to 37 x ws152.5 TA. The 1-5 window is now busy and with some tricky stems still to cover, there is a chance we see higher rates done. With the UKC now the better performing market, it will draw tonnage from numerous regions, putting the recent rally under threat.

There has been a good amount of fixing for Handies in the North this week and levels have managed to bounce back slightly. Still a couple of cargoes remain uncovered in the early May window and as MR rates push on a little, we do expect to see more potential firmness in Handy rates.

Med 

We have not seen Med MRs lower than the UKC for sometime which might be a precursor to a typical summer slow down. It has been fairly active with some off market fixing so some tonnage has been cleared out, but supply looks healthier compared to recent weeks. Rates currently stand at 37 x ws145 TA and around ws165 to WAF. With a steady stock of ships from a slower WAF market, we largely expect rates to be driven by the North, not by Med action. 

All in all a rather stable week for Handies in the Med. Rates have lingered at 30 x ws170 which has lulled all parties into an acceptance period. Contributing factors for this have been fairly regular enquiry and a prompt, flowing tonnage list. As mentioned there has been some resistance post easter weekend and the odd X-Italy cabotage run. Nonetheless, there is a sense of calm which might be signs of a seasonal summer slow down as mentioned above. However, enquiry and tonnage must maintain the current balance if rates are to remain stable. 

Clean Tanker Spot Rates (WS)

Dirty Products

Handy

It’s been a quiet week in the North with little activity to report or get the market moving. Activity has mainly come in the form of O/P and COA business leaving positions to slowly creep up the list and provide options to charterers in the current fixing window. Levels looked likely to firm from 30 x WS245 early into the week but unfortunately for owners, enquiry struggled to surface, cooling off the upward pressure. Momentum has now shifted in charterers’ favour where we expect to see levels tested down towards the 30 x WS240-242.5 mark early into next week.

The Med has seen the better of the two regions with levels starting the shorter week at the 30 x WS230 mark before quickly firming to WS235 the next day. Enquiry continued to flow further fueling owners’ bullish sentiment and rates were driven upwards. A mix of premium ports, distressed cargoes and vanilla XMED runs have pushed rates toward the 30 x WS250 mark for an XMED run and we expect to see more of the same as we head into next week’s trading.

MR

MR owners in the North have shared a similar week to their handy counterparts as enquiry has struggled to surface and allowed for naturally positioned tonnage to offer some optionality to charterers here. Levels look likely to soften on next done down towards the 45 x WS165 mark as we head into next week.

It has been a better week for MR owners in the Med where enquiry although sluggish, has been met with firming rates mainly due to tight availability. Rates have firmed to 45 x WS165 marking a 5-point increase on last done. Should enquiry flow early and from the EMed, we would expect to see levels continue to firm.

Panamax

A week of long subs and chopping and changing for local Panamax tonnage as enquiry has mostly cleared what was looking like an ample amount of availability. A mix of vessels on subs for USG business and more local runs have helped to keep owners’ vessels moving here. More tonnage arrived from the USG/Caribs around the end of the first and early second decade pushing the fixing window towards mid-May. UKC-TA deals are still concluded on a case-by-case basis, but levels sit around 55 x WS110-115 range for now.

Over in the USG, the recent bull run has run out of steam for now with tonnage building and enquiry waning we expect to see levels continue to continue their downward descent as TD21 prints at 50 x WS173.75 on Friday marking a correction of almost 20 points from the previous day.

Dirty Product Tanker Spot Rates (WS)

Rates & Bunkers

Clean and Dirty Tanker Spot Market Developments – Spot WS and $/day TCE (a)

wk on wk changeApr 24thApr 17thLast Month*FFA Q2
TD3C VLCC AG-China WS1671555761
TD3C VLCC AG-China TCE $/day19,25057,00037,75038,00039,750
TD20 Suezmax WAF-UKC WS111201099596
TD20 Suezmax WAF-UKC TCE $/day6,75055,75049,00037,25037,250
TD25 Aframax USG-UKC WS-19176195185157
TD25 Aframax USG-UKC TCE $/day-7,50046,75054,25048,75035,250
TC1 LR2 AG-Japan WS6127121152 
TC1 LR2 AG-Japan TCE $/day1,50028,50027,00036,250
TC18 MR USG-Brazil WS-11155166199173
TC18 MR USG-Brazil TCE $/day-2,25017,75020,00025,00019,250
TC5 LR1 AG-Japan WS17150133151136
TC5 LR1 AG-Japan TCE $/day4,25024,75020,50024,00019,000
TC7 MR Singapore-EC Aus WS-10162172182175
TC7 MR Singapore-EC Aus TCE $/day-2,00016,50018,50019,25018,000

(a) based on round voyage economics at ‘market’ speed, eco, non-scrubber basis

Bunker Prices ($/tonne)

wk on wk changeApr 24thApr 17thLast Month*
Rotterdam VLSFO  +12452440490
Fujairah VLSFO  +1482481524
Singapore VLSFO  +6495489527
Rotterdam LSMGO  +16617601640

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