Shipping companies seek non-Chinese finance to dodge steep US port fees

Operators are seeking alternatives to avoid potential multimillion-dollar charges for American visits

Shipping companies with a widespread form of Chinese financing are rushing to find different funding sources to avoid potential multimillion-dollar fees for US port visits when new Trump administration rules come into force in October.

Operators are seeking alternatives to the “sale and leaseback” deals that make up a high proportion of the $100bn in outstanding financing from Chinese institutions for shipping companies worldwide.

Shipping companies are concerned the arrangements could mean that ships with no other Chinese connection will count as Chinese-owned under new US rules due to be introduced on October 14.

Under draft rules, the fee for most Chinese-owned ships would be $50 per net ton, rising to $140 per net ton over two years from April.

The fees mean that even a modest container ship of about 20,000 net tons is likely to pay about $1mn per port visit, rising to about $2.8mn. For a Very Large Crude Carrier of about 100,000 net tons, the initial cost per visit would be $5mn, rising to about $14mn.

James Lightbourn, founder of New York-based ship financing company Cavalier Shipping, said the fees — set out in the not yet finalised rules — were causing a “major shift” in the ship finance market.

He added that some Chinese leasing structures had become “problematic” for shipowners who would otherwise not be subject to the new fees. “We’ve seen some shipowners decide to refinance Chinese lease financing prior to their scheduled maturity,” Lightbourn said.

An executive at one shipping company said the business had ended a number of Chinese-linked leases. “We think that there’s a clear risk with the leases of being considered Chinese-owned,” the executive said.

The ownership charge is separate from a proposed $18-per-net-ton fee for vessels built in Chinese shipyards. That fee will rise to $33 per net ton. Operators eligible for both charges will pay only the ownership fee.

Chinese institutions started to finance a large number of ship purchases about a decade ago when many European and US banks were repairing their finances following the 2008 financial crisis.

Lightbourn estimated that China’s $100bn in outstanding financing arrangements accounted for just over 15 per cent of the sector’s worldwide $600bn total.

Industry figures suggested some of the world’s largest ship operators, including container shipping lines and energy majors, were seeking to exit China-linked leases.

Earlier this year, Greek group Okeanis Eco Tankers, which is listed in New York, announced deals to replace Chinese sale and leaseback deals on three VLCCs with $195mn in lending from non-Chinese banks.

Finance director Iraklis Sbarounis said at the time that this would improve the company’s capital structure while making it more resilient to “geopolitical and other risks and costs”.

Another ship financier, Dimitri Vassilacos, a partner at Ship Finance Solutions, said some of his company’s clients had been seeking refinancing to exit Chinese leasing deals.

However, he stressed that the reasons for this were often complex. Among other factors he cited were improved industry profitability — which allowed operators to obtain better financing terms — and the increased willingness of traditional financiers such as European banks to lend.

This story orginally appeared on Financial Times.