Giant ships a 'Trojan Horse,' say Chinese shipowners
Last week, the Chinese transport ministry announced that its ports would not accommodate vessel's with a deadweight of over 300,000 tonnes, a move that is clearly aimed at the series of 400,000 DWT 'Valemax' ore ships built by Brazilian mining conglomerate Vale and an attempt to protect Chinese shipping that is losing money. China probably felt that its position as the world's largest ore importer gives it leverage to push the decision.
A day later, to add to the confusion, the China Shipowners association provided what they said were more details on the rules: the ban actually applied to dry cargo ships of more than 350,000 tonnes DWT and tankers over 450,000 DWT, they said. Since no tankers of that size exist, the announcement has removed all doubts that Vale is the target; only they operate bulk carriers of more than 350,000 DWT.
"My understanding of the rule is that it is strict and there are no negotiations," Zhang Shouguo, executive vice president of the China Shipowners Association, told Reuters.
So far, giant ships were given permission to dock on a case-by-case basis by local authorities in China. The transport ministry now says its decision was partly because of the downturn in shipping but also because of potential maritime safety issues. “Considering the sizeable hidden dangers, we have decided to adjust the port management system for the berthing of large ships,” the announcement said.
Despite protests from the China Shipowners' Association, Vale's mammoth 'Berge Everest' had unloaded a full load at Dalian in China in December. Reports later said that the cargo was being stored in anticipation of firmer ore prices. Industry observers say that -protection issues aside- China is also wary of giving away too much negotiating power to Vale, which is responsible for almost a quarter of seaborne ore movements. Some in China had protested at the Berge Everest docking, saying that the Valemaxes were a Trojan horse that would allow Vale to dominate the market.
"It was certainly about regaining control over the shipping industry," says Macquire's analyst Graeme Train, speaking of the Chinese announcement. "By Vale controlling their own freight and wrapping up all the prices on a cost-and-freight basis, China would have lost control over the overall cost of shipping, which would have economic knock-on effects." Vale will now have to use the Philippines as a transhipment hub instead, adding to costs.
"Everyone knows that China can change its mind very fast. It's a game of chess between China and Vale," said shipping analyst Hans Navik.
Other analysts like Hu Yanping say that the Chinese move is temporary and will be rolled back once shipping recovers. That may take some time. The fact is that State owned shipping firms in China are making losses and are likely to continue doing so for sometime. "The broader implication of this, I suspect, is that we could see more of these erratic protectionist measures as cost pressures build in China and many if these state-owned firms see their profits squeezed over the coming months," says UBS' Peter Hickson.
Interestingly, some of the Valemaxes are being built in China. It remains to be seen whether Vale will cancel some of these orders now, although Graime Train has another point of view. He says that the mining giant will not be too concerned about costs or transhipment. "They (Vale) need to get ore as quickly as possible from the west to the east and reduce their inventory in Brazil because that backs up their whole production chain. They can still do that so this is not that big a deal for them," he says.