By Zhang Xiangdong (张向东）
News, page 1
Issue No. 565
Apr 16, 2012
Translated by Song Chunling
Original article: [Chinese]

This is an extended abstract of an article that appeared in this week's edition of The Economic Observer, for more highlights from the EO print edition, click here

China Cosco Bulk Shipping (Group) Co., Ltd (中远散货运输集团有限公司) had only one concern when it learned that a huge ship called the "Berge Everest", the first in a fleet of very large ore carriers (VLOC) chartered by the Brazilian mining company Vale S.A., was headed towards China - it must not be allowed to reach a Chinese port.

Although the centrally-controlled state-owned enterprise had already persuaded the directors of twelve of China's major ports to refuse entry to the ship, Cosco failed to stop the super carrier from berthing.

Unlike the "Vale Brazil", which was refused permission to berth and off load 390,000 tons of iron ore when it arrived in Chinese waters in June last year, the "Berge Everest" entered the port in Dalian and offloaded 350,000 tons of iron ore in 48 hours in late December.

As one of 35 "Valemax" iron ore carriers that have been ordered by the state-owned Brazilian miner to ship iron ore from Brazil to the world's main ports over the next 25 years, "Berge Everest" can transport up to 400,000 tons of iron ore, which is twice the current standard freight capacity.

Eight Chinese ports have upgraded, or are in the process of upgrading, their facilities in order to be able to receive the large ships. However, despite the fact that China was the only place in the world to complete the necessary port alterations before any of the new ships had hit the water, according to an unnamed source at Vale, "our ships have been prevented from docking at the ports for a variety of reasons, and it appears that these ports have been coming under some kind of pressure."

Zhang Shouguo (张守国), the vice-chairman of China Shipowners' Association (中国船东协会), couldn't hide his excitement when he recalled his role in helping to block the Vale ship in June 2011, "It was only after we repeatedly petitioned the relevant government departments that we were able to drive the ship away, it sailed off to Italy."

Vale has tried to negotiate with China Cosco Shipping (Group), the lead bulk shipping enterprise in China, and hopes they could buy the large ships and ship their iron ore with the them but didn't get a clear response. Vale revealed that China Cosco Bulk Shipping Group raised the possibility of transferring some expensive ship rental contracts to Vale during the second round of negotiations.

A director from Cosco denied that this took place when the EO asked him about it.

China Cosco Shipping (Group) signed long-term contracts to rent many ships in 2008 when the shipping market was booming and prices were at a historic high, but ship rental costs have now fallen from the $200,000 a day that was being charged at the time to $5,000 a day at the beginning of this year.
 
In addition, to finding themselves locked into expensive ship-rental contracts, the arrival of these new super carriers means that Chinese ships can no longer compete for iron shipments from Brazil to China.

Over the last four years, Vale has put much effort into making sure that their ships would be accepted at Chinese ports. They have talked with many Chinese steel companies, various industry associations and government departments. However the China Cosco Shipping (Group) and the China Shipowners' Association have interpreted the introduction of the new fleet as an attempt by Vale to gain control over the shipment of iron ore.

Chinese steel enterprises put forward a proposal last month suggesting that the relevant government departments "research the feasibility of allowing large ships to arrive in Chinese ports." According to these "old friends" of Cosco, the large ships are more environmentally-friendly and help keep shipping costs down.
 
One person also told the EO on April 12 that some of the more influential members of China's ship-owners association have expressed "extremely strong interest" in purchasing the super carriers, but they are still worried about the reaction of China Cosco Shipping (Group).

An unnamed source with China Cosco Shipping (Group) explained to the EO how the company thought it was bad timing for the large carriers to be introduced now and how they hoped that Vale would be willing to decrease the number of the ships it planned to produce.

A Vale employee said that the company understood Cosco's concerns and that they were ready to negotiate with Chinese authorities.

However, it seems that negotiations might play out for a while yet, a recent comment from Vale about the company eventually requiring 100 ships, instead of 35, in order to transport the forecast 200 million tons of iron ore to Chinese ports led to an angry reaction from both Cosco and China Shipowners' Association.