Tanker earnings are surging in chaotic trades on Thursday as charterers rush to seek replacement vessels after the US put a major Cosco subsidiary on the sanctions list.
Cosco Shipping Tanker (Dalian) Co, a tanker owner controlled by Cosco Shipping Energy Transportation (CSET), was put on Washington’s Specially Designated Nationals List for allegedly violating Iran-related sanctions late Wednesday.
With a lack of firm information on which vessels are under the ownership of Cosco Dalian, market sources have suggested some charterers are steering away from business with CSET, the world’s second largest crude tanker owner by carrying capacity, altogether as precautionary measures.
“I think people will not be willing to fix with them for a while,” said an Asian broker.
At least four VLCCs were chartered as replacement ships by a Chinese oil firm that had earlier chartered Cosco Dalian tonnage, according to Platts, without giving names.
Data from Tanker International shows Unipec provisionally chartered the Phoenix Tankers-operated, 312,300-dwt Asian Progress VI (built 2019) Thursday morning at Worldscale 76 for loading from Middle East Gulf between 3 and 5 October, with the shipment destined for China.
This was much higher than the Baltic Exchange assessment of the trade at WS 63.4 Wednesday afternoon.
“The FFA market is trading sharply up today and one VLCC spot vessel was fixed at WS 76…corresponding to $45,000 per day,” said Clarksons Platou Securities, adding that daily time-charter-equivalent earnings increased by 17% from a day ago.
“The sanctions mean most Western charterers will probably avoid chartering Cosco vessels and as such mean an effective tightening of the vessel supply in a period we expect tanker demand to rise due to seasonal factors as well as the IMO disruptions.”
In the product tanker sector, LR1 earnings on the benchmark Middle East-Japan route were assessed by the Baltic Exchange at $7,562 per day as of Thursday afternoon, up 15.6% from the day-ago level.
CSET, part of state conglomerate China Cosco Shipping, has suspended the trading of its shares on the Shanghai and Hong Kong stock exchanges following the sanctions news without giving any particular reason.
“We are checking some major issues and the shares will continue to be suspended on 27 September,” CSET said in an exchange filing.
A senior Cosco executive told Dow Jones news agency: "Sanctioning one of the world's premier energy-shipping companies that abides with all international trade norms is a wrong move. Cosco will carry on with its global tanker operations. The US should stop policing and punishing legitimate maritime operators."
An email seeking comments from the company has not been responded at the time of writing.
Heavyweight owner
CSET generally controls its oil tanker assets via Cosco Dalian and Cosco Shipping Tanker (Shanghai). In theory, the company can transfer the vessels owned by Cosco Dalian to non-sanctioned group entities, but such operations can be time-consuming if class surveys are required.
According to Clarksons Platou, the Dalian subsidiary owns 27 VLCCs, three suezmaxes, three aframaxes, 11 LR1s, four MRs and five pressurized LPG carriers, equivalent to 2.7% of the world’s tanker fleet. CSET overall controls 4.2% of the tanker fleet.
“[An increase] of 2.7% from today’s utilisation could lift VLCC rates from $40,000 to $70,000 per day,” the brokerage said.
The fallout could be significant in the shipping industry as CSET has business relationships with many major charterers, shipbrokers, insurers and classification societies across the globe.
“We have been busy checking with our compliance department on how to deal with this,” said a London-based broker. “This could be Huawei’s equivalent in shipping.”
Huawei was the last high-profile Chinese firm targeted by US sanctions for Iranian trade. The tech giant’s continued legal dispute with the US government has strong reverberation for the global supply chain in telecommunication.
Sanctions and tariffs tussle
The US has also put Cosco Shipping Tanker (Dalian) Seaman & Ship Management Co, which handles ship and crew managements for Cosco Dalian, on the sanctions list. However, the Department of Treasury has explicitly stated that other entities controlled by Cosco Shipping – the parent group that has large operations in the US – will not be affected.
Aiming to completely choke off Iran’s oil exports, the US opted not to renew sanctions waivers to China, India and six other countries in early May.
The Treasury did not state how Cosco Dalian violated the sanctions and have not put any CSET vessels on the sanctions list. Vessel-tracking databases show no CSET vessels have carried Iranian crude since May.
“I think this is a trade war issue rather than anything else,” said Samir Madani, a co-founder of TankerTrackers.com.
In early October, Beijing and Washington are scheduled to hold another round of talks on how to resolve the trade dispute between the world’s two largest economies.
“If Cosco Dalian is still on the list then, the shipowner will likely want Chinese negotiators to help resolve this,” said the broker.
