Industry mulls premium on freight rates into China

Talks of a premium on freight for shipping dry bulk cargo into China is gaining ground after ships were held up for months at the anchorage of Chinese ports waiting to berth due to a trade spat with Australia.

The wait to discharge cargo, some stretching as much as seven months after Chinese customs delayed import clearance, has spoilt their chances to get new contracts and extended the already delayed crew change on ships.

The global dry bulk shipping industry is looking into the “possibility” of levying a premium on freight rates into China, a shipping industry executive said. “Shipping has become the collateral damage of a trade war between China and Australia,” he said.

However, others say that getting a freight premium would be a tough ask.

“Dry bulk shipping is a very fragmented industry. It’s not like the container shipping sector where there are only a few players. In dry bulk, there are thousands of ship owners. So, nobody can decide anything, it is only the markets which will finally decide,” said another industry source.

China- Biggest buyer

The main hurdle in getting a freight premium is China’s status as the world’s biggest buyer of dry bulk commodities. In 2020, China’s share of global sea-borne trade was 72 per cent in iron ore, 22 per cent in coal and 22 per cent in grain.

“China has an upper hand in dry bulk shipping. If I demand a premium and don’t get it, I will have no option to go anywhere else because large volumes of dry bulk trade is going into China,” he said. “If I have some other location, then it’s okay,” he added.

Sour relations

Relations between Australia and China have soured in recent months after Australia called for a global probe into the origins of the Covid-19 pandemic and China retaliating by putting restrictions on a range of Australian products, including coal.

At the peak of the crisis, over 40 ships were stationed at the anchorage of some of China’s top ports, waiting for a berth to discharge cargo and sail off for their next contracts.

The long wait forced ship owners and charterers to re-work their commercial terms mid-way, including that on demurrage, a development that was unforeseen at the time of chartering the ships.

Some of the ships also had crew on board who were long overdue for signing-off, adding a humanitarian dimension to the crisis.