Affected by factors such as Sino-US port fees and taxes, the resulting additional costs, and inefficiencies in fleet operations, the freight rates for Very Large Crude Carriers (VLCCs) have surged significantly recently. Simultaneously, robust crude oil production has also supported strong transportation demand.
Against this backdrop, S&P Global Commodity Insights’ Platts assessed on October 17 that the cost of shipping 270,000 tons of crude oil from the US Gulf Coast to China rose to $46.67 per ton, the highest level since December 22 last year, representing a 73% increase compared to the average of the past five years.
Shipping analyst Kevin Zhao commented, “VLCCs remain the vessel type most impacted currently, as they undertake the primary task of China’s crude oil imports. Until risks ease, operators and traders will remain cautious when handling routes involving China.”
The potential scale of its impact is enormous. S&P Global Commodity Insights shipping data shows that China’s crude oil imports in 2024 reached 10.1 million barrels per day.
This is particularly important for VLCCs. China is the largest export destination for such vessels. According to 2024 export data, China accounts for approximately 38% of total VLCC trade volume.
◆ Uncertainty May Intensify Freight Market Volatility
Analysts stated that in the short term, uncertainty regarding which companies can safely access the Chinese market may lead to more dramatic fluctuations in freight rates.
China’s special port fees apply to any vessel with clear US connections calling at Chinese ports: including vessels owned or operated by US companies or individuals; and vessels owned or operated by entities in which US companies, organizations, or individuals directly or indirectly hold a 25% or greater equity stake.
Zhao pointed out that the 25% equity threshold is quite tricky, as it is difficult to clarify the actual influence of US-listed shareholders. He emphasized the need to closely monitor all VLCC routes bound for China.
Furthermore, trade flows are also bound to be disrupted. Gibson Shipbrokers stated in a report on October 17 that more “ballast mileage” (additional voyages to adjust shipping tonnage) is expected, and the process of owners and charterers repositioning tonnage could exacerbate port congestion due to increased document scrutiny.
◆ Ripple Effects of a Tightening Market
Analysts noted that the VLCC market was already tightening. Gibson’s analysis suggests this situation is supported by multiple factors: OPEC+ production increases, refinery maintenance, reduced direct crude burning for power generation in the Middle East, and increased eastbound crude shipments from the Atlantic Basin in September.
Recent widening price differentials between Brent and Dubai crudes, and between West Texas Intermediate (WTI) and Murban crudes, have stimulated eastbound oil shipments. Growing supplies from Guyana, Brazil, and the US have attracted VLCCs to long-haul transportation, thereby tightening tonnage availability in other regions like the Persian Gulf.
This impact has spilled over beyond the shipping industry. Medium sour crudes across the Atlantic Basin, such as those from Angola and Norway’s Johan Sverdrup field, have recently faced pricing pressure, as high freight costs make it harder to move cargoes to destinations amid weak demand.
Platts assessed that Angola’s Hungo crude traded at a discount of $2.95 per barrel to the October 16 Brent futures price, the lowest since April 2023; Congo’s Djeno crude price hovered near lows seen since January 2024.
CAS data shows that as of October 20, the average West African seaborne exports were 3.337 million barrels per day, down 9% month-on-month, while September daily exports had peaked at 3.662 million barrels.
Despite high freight rates, coupled with other supportive factors, shipments to China remain strong, and market opportunities are unimpeded. In September, cargo volumes from West Africa to the Far East grew by 40% to 1.196 million barrels per day, with exports to China accounting for 1.133 million barrels, contributing the main increase.
Zhao believes freight rate trends will become even stronger. He added, “This event, combined with tightening VLCC tonnage, means performance in the fourth quarter will be better than the previous quarter.
