Since Vale's first orders for the 400,000dwt Valemax vessels were placed with Rongsheng Shipbuilding and Heavy Industries shipyard in China in August 2008 – just 2 months before the world economy plunged into crisis and ship values plummeted – shipping stalwart have raised questions about whether the company would follow through with its ambitious plans.
Shipowners gambled on the company getting cold feet, predicting the order would be cancelled, before embarking on the kamikaze expansion of their own dry bulk fleets.
The healthy recovery in freight rates in 2009, driven by the acceleration in Chinese consumption of Brazilian iron ore, served only to strengthen the logic of Vale's plans to take the freight rate risk out of supplying its principal market.
Vale's iron ore shipments to China increased from 85.1m tones in 2008 to 140m tones in 2009, the Rio de Janeiro-based company snapped up a fleet of up to 15 secondhand vessels for less than the $441m allocated for acquisitions and quietly ploughed $154m into the construction of 19 of its own VLOCs. It was also putting its name on long-term charter agreements underpinning the construction of another 16 vessels to be operated by partners in Oman and STX Pan Ocean. It is now rumored to be talking to a Chinese yard for more similar vessels.
The end result of Vales's game-changing strategy, however, finally arrived in June with the loading of the company's first Valemax, the South Korean-built and Singapore-flaggged Vale Brasil, in Porta da Medeira.
"Freight rates have fallen to levels of about 10% the cost of the cargo, which is very low,"says Simon Clayton, director of Rio de Janeiro-based chartering firm Brava Chartering. "What Vale has effectively done is turned the freight into part of the commodity and they are now able to export their iron ore with a guaranteed price," he says.
Freight rates for capsize vessels today hover around $20 a tone – roughly in line with the $17 per tonne figure on which Vale based its fleet expansion program in 2008.
With rates at one-fifth of the levels being paid in June 2008, when an exasperated Vale finally gave the green light to its fleet expansion program, it seems as if Vale has already achieved its mission with the delivery of only its daunting VLOC fleet.
José Carlos Martins, executive director of marketing, sales and strategy for Vale, says the vessels will be uses exclusively for the transport of iron ore from Brazil to asia when they are delivered over the next three years. The company has insisted it expects all 35 vessels to be delivered by 2013.
"The Valemax is going to allow a significant reduction in freight costs, making our iron ore more competitive in Asia," says Mr Martins. "In addition they will cut carbon emissions by 35% per tone transported. It's great innovation, bringing Brazil even closer to the world's fastest-growing market, Asia – and yet another demonstration of the pioneering approach taken by Vale."
Based on the fleet's capacity to handle 1.8m tones a year, the Valemax fleet will be able to handle up to 63m tones of iron ore a year, almost 35% of its cargoes to Asia and 49% of volumes to China. This does not include its 3m dot fleet of secondhand capsize bulkers, which it acquired in 2009.