The new port fees imposed by the US and China have significantly contributed to a surge in Very Large Crude Carrier (VLCC) freight rates. The fees, which took effect on October 14, introduce substantial extra costs and create fleet inefficiencies, adding to an already tight market supported by robust crude production.
VLCC Freight Rate Surge
VLCC freight rates have sharply increased, driven by the new US and China port tariffs and strong crude carriage demand.
- The rate to carry a 270,000 metric ton cargo of crude from the US Gulf Coast to China was assessed at 46.67 on October 17, marking its highest level since December 22 and standing 73% above its five-year average.
- The port fees, which can be prohibitively expensive—estimated to be around 10$\$6$ million per call for a VLCC—have effectively reduced the pool of available, compliant tankers.
- This rate surge is also supported by a tight VLCC market, which has been bolstered by rising OPEC+ crude production, a larger pull of Atlantic Basin crude eastward, and rising supply from regions like Guyana, Brazil, and the US, attracting modern VLCCs into long-haul trades.
Impact of New Port Tariffs
The reciprocal port tariffs imposed by the US and China have created significant uncertainty and market disruption, particularly for VLCCs.
- China’s Measures: China’s special port fees apply to any ship with clear US links, including vessels owned or operated by US companies or individuals, or those with direct or indirect US equity.
- VLCC Exposure: VLCCs are the most exposed size class, as China is the single largest destination for this class, accounting for approximately 38% of VLCC trade on an export-volume basis in 2024.
- Operational Inefficiencies: The uncertainty over which ships are “safe to trade” into China could fuel additional freight volatility.19 Trade flows are being disrupted, with the expectation of more ballast miles as owners and charterers reshuffle tonnage, and greater port congestion due to the need for additional documentation checks.20
- Market Response: Operators and traders are expected to be cautious about China-inbound voyages until the risks associated with the ownership threshold are mitigated, which may prove “tricky” to identify among US-listed owners.
Broader Market Effects
The effects of the strong freight rates have rippled beyond shipping, impacting crude pricing and trade volumes in other regions.
- Crude Pricing Pressure: High freight rates have made it more difficult to place medium-density crude cargoes across the Atlantic Basin into a softer demand environment.
- Specific Crude Grades: This has put significant pressure on crudes like Angola’s Hungo and Congolese Djeno, with their discounts to Dated Brent and their lowest prices since April 2023 and January 2024, respectively.
- Trade Flow Changes: Seaborne exports from West Africa declined by 9% in October from a September peak. However, shipments from West Africa to the Far East, primarily driven by exports to China, rose by 40% in September, indicating that volumes to China remained strong while opportunities were still unimpeded.
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Source: S&P Global
