what they fail to say is the initial problems Vale

what they fail to say is the initial problems Vale had w these ships- 72-75 ft draft- not 1 port deep enough so VALE building its own terminal in China-meanwhile  using smaller ships to offload to

the Chinese domestic ore assoc lost its battle to keep vales monsters out- but many of vales vessels are being leased due to incredibly selfish over capacity which planned on cornering the entire increase in iron ore market when prices shot to 192/ton Feb 2011-the greed was amazing

Where are the Mega-ships Now?

By Dave Gambrel

As described recently in E&MJ (See “China Ship Congestion—How So Many Capesize Ships Got Locked Out of China ’ s Ports, ” p. 66, August 2012), Chinese reaction to Vale ’ s new, mammoth iron ore vessels was rancorous. Chinese shipowners, led by government-owned China Ocean Shipping Group Co. (COSCO), were incensed that Vale wanted to ship its iron ore product from Brazil to China in its own 400,000-ton bulk freighters (Valemaxes), and had rallied the troops to prevent the Valemaxes from discharging in China. Vale countered by refusing to load any of COSCO’s new iron ore vessels in Brazil, and by off-loading stranded Valemaxes to smaller vessels at Subic Bay, Philippines. Speaking through the China Shipowners Association, COSCO responded angrily to the Subic Bay operation. Seemingly, it would never end.

COSCO had recently invested in smaller versions of mammoth bulkers— only 300,000 tonners. Moreover, they were losing money in the cruel world of bulk shipping. Gone were the golden days of 2008 when daily rates were running $160,000-$180,000. Now the rates had dropped to $10,000-$20,000 per day, and Vale was even refusing to load their new vessels.

To the outside observer it seemed there would be no sword to cut the Gordian knot the parties were working to fashion. How would the Chinese get high-quality Vale iron ore if they would not allow Vale’s vessels into their ports? How would Vale sell its iron ore to China if they refused to load Chinese vessels tendered by COSCO? What would happen to the multi-billion dollar investment Vale had put into the new ships if China would not allow them in?

But in the midst of all the public rhetoric, a mouse began to gnaw at the knot, one so tiny and so quiet that no one seemed to notice—a mouse named silent cooperation . Quietly, Vale began loading COSCO’s fleet of 300,000-ton vessels with iron ore at its Sao Luis and Tubarao terminals, and just as quietly COSCO began hauling Brazilian iron ore to Chinese terminals in its fleet of 10 300,000-ton vessels. One might now expect the Gordian knot to quickly disappear, but it must be done with such care and deliberation that neither party would lose face. It must be done without fanfare and public announcement, without embarrassing public retractions.

Using the Automated Identification System (AIS) now required by the International Maritime Organization (IMO), we can track specific vessels across the globe. At any one time, as many as 45,000-50,000 ships can be within range of the system. COSCO owns 10 vessels in the Very Large Ore Carrier (VLOC) class—greater than 200,000 metric tons carrying capacity. Each of them has been tracked recently using AIS, and they have all followed a regular course between Brazil and China. It seems reasonable that they were all designed for the Brazilian iron ore trade, and the AIS data confirms that.

At the time this article was being written, six of COSCO’s 10 VLOCs were loaded with Vale’s Brazilian iron ore and were steaming toward iron ore terminals in China. The first of these vessels to reach port was the He Ying , which arrived in the Port of Rizhao July 17, 2012. Assuming a travel time of 44 days, the vessel must have been loaded at Vale’s Tubarao terminal between the last week in May and the first week in June—just a few weeks after the last discouraging words heard from China, suggesting the parties began to quickly see the futility of a word war, and decided to make a serious mid-course correction. As further confirmation, Reuters reported recently that China’s transport ministry in May approved plans to build berths for iron ore vessels of up to 400,000 metric tons at its eastern Ningbo-Zoushan port. This causes one to believe Beijing may eventually lift its ban on the 400,000-ton Valemax vessels.

Table 1 shows the status of COSCO’s VLOC vessels as of July 18, 2012. The typical travel time to China is 45 days, so not much in the table can change in a short period of time. Certain spaces are blank because the data were gathered after the vessel’s last transmission, or because the vessel did not give its destination, ETA or other information. Loaded vessels are indicated by gold highlighting.

While the 10 VLOC vessels were built to the same deadweight specifications, there is a big difference in their loaded drafts. The shallowest draft is possibly caused by the ruling draft at the Rizhao terminal, while the deepest draft is probably the maximum draft of the vessel type. For comparison, the maximum advertised draft of the Valemax class is 22.7 m, just 1 m deeper than that of COSCO’s New Ansteel VLOC.

A Tale of Transloading
Of the 35 Valemax vessels they have ordered, Vale currently has 11 of the 400,000-ton vessels in service. They are classified as Ultra Large Ore Carriers (ULOCs). Five loaded Valemax vessels are currently heading for its Ore Fabrica transloading facility in Subic Bay, Philippines. All were loaded to the maximum draft of 23.0-23.2 m at Vale’s Sao Luis Terminal in Ponta da Madeira, Brazil. The 280,000-metric ton Ore Fabrica , formerly a crude oil tanker, has been reconfigured to serve as a platform for unloading the Valemax vessels and transferring the ore into smaller vessels that can unload without question at Chinese iron ore terminals.

Originally opposed to the transloading operation because they considered the Valemaxes unfair competition, the Chinese have apparently gone silent because all the COSCO VLOCs are now fully employed carrying iron ore from Brazil. It is unlikely that Vale would load 2 million tons of iron ore onto five vessels unless they knew the Chinese would cooperate with the transloading operation. At $130/mt, a total cargo value of $260 million is not trivial, even to deep-pocketed Vale. In other words, Vale would not focus so much of its attention on Subic Bay if it were not confident the Chinese shipowners would retract their opposition to the operation.

Three loaded Valemax vessels are on their way to the Port of Sohar in Oman. In case you’re wondering, this is not a printing error. The planning and logistics people at Vale are so far ahead of the learning curve, the rest of us can only stand back in amazement. Before they began ordering the first of their Valemax fleet in August 2008, they realized there were only a few deepwater ports in the world where they could unload them, and they began taking steps to secure service. The Port of Sohar in Oman was one of them; the Port of Rotterdam was another.