Port Fees Postponed

After causing headaches and logistical issues across the maritime sector, the meeting between Trump and Xi Jinping appears to have resulted in the cancellation of the US Trade Representative’s (USTR) Section 301 tariffs targeting Chinese owned, operated or built ships. China has pledged to also lift its own retaliatory measures. For those companies who switched out Chinese financing, removed US citizens from their boards and took other drastic steps to limit their exposure to each country’s respective fees, the news is likely to be met with both relief and exasperation. So, what does it mean for the freight market?

The removal of these measures should be bearish for freight levels. The VLCC market in particular has been impacted over the past two weeks by confusion over which vessels can call China without the risk of fees. In theory, with these issues now removed, charterers should see increased options when it comes to fixing. In isolation, freight should come under pressure, but with other factors (such as sanctions, among others) driving the market, this is far from guaranteed. As per our previous updates, Suezmaxes and Aframaxes were always going to be less impacted by Chinese port fees given much more diverse trading options, compared to VLCCs where nearly 40% of cargoes discharge in China. However, conversely, Suezmaxes and Aframaxes were much more exposed when it came to USTR related port fees, where any Chinese owned, operated, or built ship in these asset classes would face fees on exports to the US. Here freight volatility was in part being fuelled by which ships could call the US without facing fees.

For clean tankers, ahead of the Oct 14th implementation, we saw owners and operators move China linked vessels away from the USG region which may have contributed to freight volatility in the region, although other drivers were also clearly at play. However, given Chinese built (but not owned) LR1s, MRs and Handies were exempt, the impact of USTR on the clean sector was more muted. Retaliatory Chinese port fees on the other hand were causing more of a headache for the clean sector East of Suez. Freight rates for MRs in the Far East have barely moved since the measures were introduced, however for LRs, longer haul naphtha trade into the region was feeling the pinch. Given several large LR2 owners are listed in New York, TC1 rates rose following the implementation of the measures and now could be at risk given charterers should have a broader choice of vessels at their disposal. The question here is does the removal of logistical constraints spur more LR2 naphtha trade to Asia? Our brokers feel that volumes were impacted by the measures, and could now be primed for a rebound, particularly as maintenance in the Middle East begins to wrap up over the next few weeks.

On balance, these developments should be bearish for freight rates, but with both broader geopolitical factors and fundamentals supporting the markets, the removal of USTR and Chinese port fees in isolation may be insufficient to cool markets. However, as we await the full text from the White House, questions are also being asked as to what other positive impact the proposed trade deal might contain. Talks of increased US energy purchases could be positive for VLCCs in particular, if China commits to major US crude purchases. However, past experience has shown us that commitments to make big energy purchases are rarely delivered in full.

Crude Oil

East

The AG VLCC market started the week on a steady note, with a couple of early fixtures showing gradual upward movement and helping to maintain positive sentiment. Activity picked up quickly as the week progressed, with strong enquiry levels leading to increased resistance from owners. Charterers faced limited options amid a tightening tonnage list, which pushed freight levels toward the WS100 mark. Midweek saw continued firm sentiment as several cargoes were worked, driving the TD3 up past WS100 and to new heights. Toward the end of the week, the pace of fresh enquiry slowed slightly, though a number of cargoes remained uncovered as charterers looked for tonnage willing to work amidst a tight list. Freight levels held firm and looking ahead to next week owners will be hoping the momentum can continue. Today we are calling AG/East WS122.5 and AG/USG WS67 to be tested.

A busy Suezmax market in the AG continues to get dragged up by the larger sizes with no view of slowing down. Owners will be less likely to ballast to WAF which is the usual release valve for that market. Further questions remain about Chinese port fees and what it could mean for the tanker market coming up. Levels for Basrah/West have pushed up to the 140 x WS75 via C/C level with the premium via Suez probably heading above the 140 x WS105 level. Rates for AG/East have been driven upwards amongst much rumour and hype; owners will be looking to conclude around 130 x WS142.5.

Aframax activity in Asia tapered off toward the end of the week, though owners’ sentiment remained firm with TCE earnings touching $46,000/day. Vancouver freight reached a new high of $4 million lumpsum for a prompt replacement, further boosting owners’ confidence. Charterers worked mainly behind the scenes, with most positions quietly covered. TD14 levels were largely repeated, even for replacement business, suggesting a brief period of equilibrium. The Indo list remains tight through mid-November; however, charterers are expected to hold back new requirements unless a busier second decade emerges. With Chinese special port fees now out of the way, Chinese-built tonnage will no longer command a premium, likely capping further upside in the near term. The market enters November steady, assessing Indo/Up at 80 x WS 170.

West Africa

The WAF VLCC market remained relatively subdued this week, with limited amounts of enquiry working on the surface. There have been rumblings of activity under the radar which was to be expected given sentiment and the pace of which freight rates were moving upwards. Looking ahead to next week the list will continue to be problematic and with the adjacent markets not looking like they will cool for the time being we can expect any charterers who need to cover will be aiming to pick tonnage off without adding further heat to the market. Today we are calling WAF/East WS120.

In West African Suezmaxes we saw under the radar activity seep into the market, and it kept owners’ sentiment on the bullish side, up to four outstanding cargoes today shows that this firm market is not close to slowing. Even as we look towards the next window, with some tricky runs to cover and any firm itineraries being snapped up across the pond expect next done at around 130 x WS145 level for a standard TD20 type voyage. Longer runs to the East remain unpopular as owners tally up how many more voyages they can do in the West before the end of the year, which is going to keep levels at a +5WS premium.

Mediterranean

A solid week for Med Aframaxes. There were some naysayers who thought that the usual mantra of what goes up must come down should come into play, but this negativity was misplaced. Owners’ task was made easier by the rate of recent growth which has been measured and steady, but this was coupled with a general feeling of strength on all sizes and in all regions. The tonnage list remains tight enough to keep charterers on their toes and any cargoes wanting to protect for certain restrictions/receivers were more than happy to take last done levels and move on. XMed has been trading in the WS200-205 region for decent flats and CPC loaders should be expected to pay at least ten points premium on this. As we look further forward those naysayers will still be kept at bay given the very firm States market and the well-placed North Sea scene. For TA moves charterers will have more tonnage to pick from now given the easing of tariff restrictions on Chinese-affiliated tonnage, but the general firm outlook will most likely prevent marked discounts at the moment.

TD6 has continued to push on as far as fixing levels go this week, which has resulted in rates climbing towards the ws160 level. Owners’ confidence steadily grow as the tonnage availability IN the Atlantic basin has been very limited this week. We see little change next week WITH some delays in the region and charterers looking to secure longer Canakkale cancelling dates is only going to stem tonnage replenishment here. Expect owners to make life quite difficult for these runs and push for in excess of $6.2m.

US Gulf/Latin America

The USG VLCC market finally kicked into action after an injection of activity coupled with a tricky tonnage list led to VLCC rates pushing up over $1m from this time last week. The Americas region hasn’t done it alone; however, they have support from the AG where rates have reached new highs, sentiment has been firm and resistance from owners to fix around last done levels has been strong. The Brazil export region has also been welcomed to the party with freight levels jumping over 20 points on last done, like the surrounding regions tonnage availability remains a focal point and will continue to do so next week. Today we are calling USG/East $13.5m, and Brazil/East WS115.

North Sea

After witnessing a prolonged period where Aframax conditions in the North looked favourable for owners, eventually all that positive sentiment was made to count. A busy end month position finally made clear how bare the cupboard was for firm tonnage, and some dicey positions were taken to maintain rates. When these ships inevitably ran late the replacement fixture saw increases on the conference WS150 levels, first hitting WS152.5 and then 157.5. Looking ahead, and with support from surrounding sectors playing a part in owners’ decision making, more could yet follow where the North remains tight on the front end of the tonnage lists.

Crude Tanker Spot Rates (WS)

Clean Products

East

Busy week on the LR2s – where longhauls are preferred for usage. Ex-Gulf, naphtha has traded up to 75 x WS140, with the expectation that more is achievable, given that Oz deliveries fixed at WS145, and EAFR at WS140 basis usual min 75 and min 90, respectively. The West market has been tight also, and RSea/West LR2 cargoes have traded at $2.95m back end this week – key drivers for supply here being the far superior TCEs offered by the DPP market ex-Gulf and Europe, which is persuading some owners to dirty tanks, at least for the next 3 months.

LR1s have been more popular for shorter haul – picking up the slack for intra-Gulf, and some naphtha as well. 55 x WS155 is the going rate for an eastbound but looking slightly untested. May be higher despite offering better d/t than a very tight LR2 sector for naphtha. West runs again remain untested, but on a TCE basis should trade circa $3.2m – perhaps less available on the list for an owner motivated to travel in that direction.

As we move towards a historically strong part of the year – it’s worth noting that lists are tight and sentiment remains bullish despite refinery turnarounds. With DPP earnings still in delta vs clean, we can expect further action next week.

The week began with TC17 at 35 x WS200, firming midweek to 35 x WS215 on tight tonnage before easing as enquiry slowed. Rates settled around 35 x WS207.5, which was repeatedly on subs toward the end of the week. Eastbound also saw 35 x WS180 on subs for an ECI/Singapore run, keeping TC12 steady near 35 x WS145. With the list now well balanced, sentiment remains cautiously positive heading into next week, with a few cargoes surfacing today and others been worked behind the scenes, it could set up a busy start to Monday.

UK Continent

The plate tectonics of the Atlantic MR freight market have continued to creak around this week. TC2 was poised to potentially go lower than WS95 but now the Med has boosted up that is probably off the cards. There is still some chatter about ballasting to the USG from some owners wanting to capture rates starting with a 2, but this may start to look marginal with the WAF and Brazil differentials widening. The usual playbook is very much out of the window at the moment, and most owners are running a dream scenario, before being forced into jumping on plan b as they cannot get TA laden. The real problem is the ongoing void of TA stems; they are just not there to quench owners’ desire. It’s a little bit of a rudderless market with so many push and pull factors. One thing is for sure, any usual assessment of “standard differentials” are gone, most routes are run on a “case by case” basis.

It has been a positive week for the Handy owning fraternity up in the North as levels for TC23 close at 30 x WS175. There has been a surge of Med cargoes although Handy owners haven’t been willing to commit due to the lack of faith in TC6, which has resulted in most of the volume being mopped up by the MRs. Recently MRs have been competing on short-haul stems, but with a good clear out seen on the supply side and levels bouncing back on TA/WAF, short runs are down in the pecking order which will keep Handy owners in a strong position if enquiry persists. Weekend break comes at a good time to enable a few more units to firm up itinerary wise.

Med 

A conflicting week for MRs in the Med as all parties have been looking at the UKC and struggling to gauge what differentials should be applied and where. With TA runs being discounted and a lack of testing it has been difficult to gauge what Med-TA would yield but we now sit around the 37 x WS120 mark which is what we expect vanilla tonnage to lift at, unless we get a fresh positive test.  Eyes on whether the USG market continues to correct down which may pull rates into parity and help flip the dynamics in the favour of Med-TA runs for a change. Med-WAF stems became more frequent with demand picking up in the region, thus the usual 20-point differential was skewed and levels lingered at 37 x WS140. Nonetheless, owners end the week in a positive mood and hope this can materialise after the weekend restock.

Handy owners will feel ambivalent as the week draws to a close. We opened at 30 x WS160 levels off the back of negatively correcting down last week which became the main theme throughout this week. There was minimal activity to begin which allowed for the negative pressure to fester and we saw rates gradually reach current levels at 30 x WS140 levels XMed. It does seem we have reached bottom levels with last done repeated multiple times and with the influx of cargoes seen at the end of the week plus minimal vanilla tonnage, there is a small positive spin on the market. So much so we have seen charterers push the fixing window and lock in last done levels before any potential rates rally. Eyes on how the list shapes up and enquiry levels next week to see if owners’ fortunes turn.

Clean Tanker Spot Rates (WS)

Dirty Products

Handy

A fairly flat week towards the end for Handies in NWE, despite the start of the week providing the bounce many were expecting. As the week went on surrounding markets and regions firmed up, though several cancellations put the wind in charterers’ sails and levels were tested down. The Med was slightly softer this week due to a drop in cargoes and greater vessel availability.

MR

A relatively uneventful week passed on the MRs, with a flattish early half turning towards gathering strength as the week went on. Tonnage remains somewhat tight for MRs in the UKC, but this has yet to impact rates significantly. Thus we see the end of the week slightly firmer, with a more positive outlook largely due to overall strength in surrounding markets.

Panamax

Panamaxes had a bumper week in the USG and Caribs as tonnage turned tight. On top of that, Aframaxes markets in the region have recently gone from strength to strength and are now finally rubbing off on the Pannies. We expect this market to stay robust as many vessels got fixed out to forward windows.

Dirty Product Tanker Spot Rates (WS)

Rates & Bunkers

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

wk on wk changeOct 30thOct 23rdLast Month*FFA Q4
TD3C VLCC AG-China WS44128848293
TD3C VLCC AG-China TCE $/day53,250129,00075,75071,00081,500
TD20 Suezmax WAF-UKC WS1914512698131
TD20 Suezmax WAF-UKC TCE $/day10,75070,25059,50039,25058,500
TD25 Aframax USG-UKC WS31223191150197
TD25 Aframax USG-UKC TCE $/day11,00063,50052,50035,75049,500
TC1 LR2 AG-Japan WS20141121119 
TC1 LR2 AG-Japan TCE $/day6,50034,50028,00025,750
TC18 MR USG-Brazil WS-23221244264222
TC18 MR USG-Brazil TCE $/day-5,00030,50035,50038,25029,000
TC5 LR1 AG-Japan WS22151129122151
TC5 LR1 AG-Japan TCE $/day5,25026,00020,75017,75024,000
TC7 MR Singapore-EC Aus WS-4178182194188
TC7 MR Singapore-EC Aus TCE $/day-1,00020,00021,00022,25021,000

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

Bunker Prices ($/tonne)

wk on wk changeOct 30thOct 23rdLast Month*
Rotterdam VLSFO  +33439406434
Fujairah VLSFO  +12450438480
Singapore VLSFO  +16461445479
Rotterdam LSMGO  +69700631659

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