US-listed shipowners still don’t know their liability from Chinese port fees

“The form is in Chinese and there is an English translation,” said Ioannis Zafirakis, co-chief financial officer of Diana Shipping. The English translation features confusing questions asking whether something does not apply, with “not” in brackets, then asks for a “yes” or “no”.

For example, the form asks for a yes or no on whether “the vessel is [not] owned by an entity, other organization or a citizen of the US”.

“It’s crazy. Shall we delete the ‘not’ and say ‘no’, or not delete the bracket and say ‘yes?’” asked Zafirakis, who joked, “We’ll pay $2m, $3m, $4m and find out by trial and error.”

Calculating 25% US ownership

The big question for US-listed companies is whether the 25% US ownership test applies in aggregate, or whether a ship must only pay Chinese port fees if any single US owner has 25% or more.

If it is in aggregate, ships of many US-listed owners would be exposed to fees. In it’s not in aggregate, the fallout will be much lower.

“It seems like there’s the view at the moment that is focused on one single large US shareholder in terms of ownership,” said DNB Carnegie shipping analyst Jorgen Lian.

Norton stressed that Star Bulk has “no US entity with more than 25%”.

DHT said in a statement on Monday that “it cannot accurately verify the ownership of individual shareholders”.

DHT is 15% owned by Fidelity and 7% owned by Dimensional Funds, but DHT noted that Fidelty is just an intermediary for exchange-trade fund buyers and thus DHT “does not have the ability to verify the nationality of the ultimate beneficial owners of shares held” by Fidelity.

The concern is that Chinese regulators would put the burden of proof on the US-listed companies, not the other way around.

According to Anastasios Aslidis, chief financial officer of Euroseas and EuroDry, “We were especially concerned over the weekend — and still are — over whether a public company in the United States would have to prove that less than 25% of its ownership was US-based.”

The English translation in the Chinese customs form seems to favour the more benign interpretation. It asks whether a ship is “owned by, controlled by, or operated by an entity”, i.e., a singular entity, with 25% shareholdings.

Exemption for Chinese-built ships

Speakers at the Capital Link forum highlighted the major effect of the exemption for Chinese-built ships, even tonnage operated by an entity that is 25% US-owned.

The Baltic Exchange’s capesize index shot up 23% between last Thursday and this Monday as a result of China’s port fee announcement. Following news on exemption for Chinese-built bulkers, the capesize index dropped 14%.

According to Norton, “Two-thirds of our fleet was built in China.” Zafirakis emphasised that Diana “had a lot of Chinese vessels that are accepted regardless”.

Randy Giveans, head of business development at Navigator Gas, said, “The exemption is good for us, because 45% of our vessels were built in China. All of our ethane and ethylene vessels were built in China, so we feel pretty comfortable that regardless of how it plays out with the 25% shareholding, we would not be paying any Chinese port fees.”

Lois Zabrocky, chief executive of International Seaways, said, “The largest exposure we have is on our VLCCs, where the majority of our vessels that are in the spot market are Chinese-built, so therefore, no [fees] on those vessels.”

The exemption of Chinese-built ships from Chinese port fees reverses a dynamic in the secondhand and charter markets that emerged with the US port fee plan.

US port fees penalise Chinese-built ships, which put negative pressure earlier this year on asset values and charter rates of Chinese tonnage, and made Japanese- and Korean-built ships more attractive.

“Five or six months ago, everyone was saying: ‘We don’t have any Chinese ships. We’re great.’ Now you want Chinese ships,” said Giveans.

According to Zabrocky, “If you can find the humour in this, you previously would have been saying: I’d rather have a Korean-built vessel. But if you have big crude [tankers], you’re going to want to be able to go to China, because they import multiples more than anyone else in the world. So, you’d better be ready to pivot.”

More fragmentation of global fleet

Executives of US-listed shipping companies characterised the new Chinese port fees as yet another factor that will divide and/or dislocate global fleets and trade flows. Others include US port fees; US, UK and EU sanctions; tariffs; and regional environment regulations.

“It is getting more fragmented, with Chinese ships going to China, and non-Chinese ships coming to America,” said Bamparis. “We are moving towards a fragmented world where each of us has to find specific opportunities.

“Barriers are gradually being imposed, based on the country of construction, who the operator is, and what the energy efficiency is,” he said, noting that “a vessel that is fuel-efficient or can burn a compliant fuel will be transferred to Europe, because it will have the most benefit there”.

If the global carbon levy doesn’t pass this week at the International Maritime Organization, it will lead to “a more fragmented situation” with regional regulation and even more fleet bifurcation.

According to Bamparis, “All of these things will increase the relocation of vessels and increase tonne-miles. It makes operations more demanding worldwide and it may be a nightmare right now, but in the long run, it will increase profit margins.”

Gernot Ruppelt, chief executive of Ardmore Shipping, said the Chinese port fees “create further dislocation and thereby remove net available tonnage supply”.

“Different fleets are getting pulled in different directions, so ships won’t be flowing in the most efficient way dictated by economics. There will be a complexity premium that might offset the fees.”

According to Lister, “If you’re providing shipping capacity, you prefer a fragmented supply chain, an inefficient supply chain, a supply chain that requires more ships and capacity to run it. So, broadly speaking, disruption is good.”