Large newbuilding announcements are often interpreted as exogenous supply shocks, raising concerns about oversupply and pressure on freight rates. Vale’s plan to order 30 VLOCs has prompted similar reactions. However, when assessed using economic concepts such as effective supply, these orders appear far less disruptive than headline figures imply.

The economics behind Vale’s fleet strategy

Vale’s approach to maritime logistics has been shaped by persistent structural disadvantage. Unlike Australian producers such as BHP and Rio Tinto, whose iron ore exports benefit from short sailing distances to China, Vale’s Brazil–Asia trade is among the longest in the dry bulk market. As a result, freight costs represent a materially larger share of Vale’s delivery costs. The economics of freight control came into focus after the 2008 commodity supercycle, when Vale commissioned around 35 Valemaxes (400k dwt) to reduce unit freight costs, of which 19 were directly owned through Vale Shipping and the remainder chartered under long-term CoAs.

However, China imposed restrictions on ultra-large bulk carriers calling at its ports, largely in response to safety concerns and domestic shipping interests. This prompted Vale to sell most of its owned fleet and shift toward an asset-light, contract-based logistics model, a stance it largely maintained despite revisiting ownership during the tighter freight markets of 2017–18. Currently, Vale operates 67 Valemaxes on charter under long-term CoAs. In addition, Vale entered into a 25-year charter agreement with Shandong Shipping Corp in 2025, covering 10 new 325,000-dwt Guaibamax vessels, scheduled for delivery in 2027.

Currently, Vale operates 67 Valemaxes on charter under long-term CoAs. In addition, Vale entered into a 25-year charter agreement with Shandong Shipping Corp in 2025, covering 10 new 325,000-dwt Guaibamax vessels, scheduled for delivery in 2027. On the production side, Vale’s iron ore production has been on an uptrend with a 2.6% YoY increase in 2025. In light of this, the current plan to secure 30 new large ore carriers (10 Guaibamaxes and 20 Newcastlemaxes) under long-term arrangements represents a strategic shift.

Unlike the previously ordered Valemaxes, the proposed vessels are designed with strategy rather than maximum scale, combining high carrying capacity with triple-fuel capability and broader port accessibility. The alignment of delivery time with an ageing-driven replacement cycle helps explain why Vale is again prepared to take on freight exposure, this time with a materially different risk profile.

Fleet ageing and effective supply constraints

In shipping economics, fleet capacity does not translate one-to-one into supply. The relevant metric is effective supply, defined by the share of the fleet that can operate competitively under prevailing cost and regulatory conditions. More than 17% of the global VLOC fleet, by number of vessels, is currently older than 15 years. In the rest of the Capesize segment, over 35% of vessels exceed this age threshold. Combined, almost 32% of the Capesize and VLOC fleet is already more than 15 years old.

As vessels age, their marginal operating costs rise due to higher fuel consumption, increased maintenance requirements and greater exposure to environmental regulations. Economically, such tonnage migrates toward the upper end of the industry cost curve, contributing less to effective supply.

VLOCs on order account for close to 13% of the existing fleet, while the rest of the Capesize vessels on order account for less than 12%. However, despite concerns about new orders, the orderbook remains relatively thin. Only more than 11% of the combined Capesize and VLOC vessels are on order. The delivery schedule further moderates supply risks. While most vessels are scheduled for delivery before 2028, a significant share will be delivered from 2029. Meanwhile, Vale’s proposed VLOCs are expected to be delivered post-2030

Even in absolute terms, the scale of Vale’s proposed orders is modest. Thirty VLOCs represent 1.5% of the combined Capesize and VLOC fleet and around 0.7% of the global dry bulk fleet. Given their delivery timeline and the ageing structure of the existing fleet, these orders are unlikely to alter the long-run market equilibrium. Instead, they will influence the quality and efficiency of supply rather than its quantity.

The delivery timeline of Vale’s proposed vessels coincides with a period in which a substantial proportion of the existing large ore carrier fleet will exceed 20 years of age. As environmental regulations tighten and operating inefficiencies become increasingly penalised through fuel costs and carbon-related measures, the introduction of modern, fuel-flexible tonnage may accelerate the retirement of older vessels.

Conclusion

Although Vale does not currently own a fleet, its re-entry into vessel ownership contributes to a broader reallocation of capacity toward efficiency and compliance. The result is not excess capacity but a gradual shift toward a more efficient and environmentally sustainable equilibrium in the global dry bulk shipping market.
Source: Drewry