USTR reshuffling to widen BLPG3-BLPG1 VLGC freight rates

The impending onset of the US Trade Representative’s port fees on China-operated vessels come October 14 looks set to widen benchmark BLPG 3 (US Gulf Coast-Chiba) and BLPG 1 (Middle East-Chiba) VLGC freight rates past year-ago levels. This is due to partial redeployment of vessels affected by these fees to the Middle East, increasing ship availability out of that region. This comes amid increasing tonne-mile demand from the US Gulf Coast as US production continues to chart record highs amid recent capacity additions to export facilities. 

Source: Argus Media prices 

The USTR fees are aimed at China-built and China-operated ships, but due to key exemptions on vessel status (i.e. ships ballasting to the US) and net tonne minimums, most China-built ships will be spared from these levies. China-operated ships, however, are not subject to these exemptions. While several questions still remain due to the ambiguities in the agency’s language,  we estimate about 12% of the global VLGC fleet will incur these levies.  

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Our conversations with market participants indicate that the bulk of affected vessels have yet to be reshuffled, partly due to the ambiguities in the USTR’s ruling. However, many are betting on a last-minute pullback from the Trump administration or some sort of rescindment a month or so after the mid-October start date, in line with past behaviour around tariffs. Either way, freight rate volatility is likely in Q4, which is peak season for tonne-mile demand. 

Source: Vortexa API data 

We note that has been a marked increase in LPG vessel availability out of the Middle East in the last few weeks, signaling recently redeployed China-operated vessels. While ship operators are banking on robust India LPG imports going forward to ensure healthy vessel utilisation rates from the Middle East, there is also a concerted supply push out of the US, based on strong production and anchored by new export capacity expansions that will only intensify next year.  

A wider spread, but for how long? 

The question then becomes: how long will a wider BLPG3-BLPG1 spread vs year-ago levels last? The answer arguably lies in which supply basin could increase tonne-mile demand more. 

Middle East LPG exports hit a record high in September (1.46mbd, up by 0.19mbd y-o-y). This upward trajectory is likely to continue given unwinding OPEC+ production cuts and production additions in Saudi Arabia (Phase 1 of Jafurah field at year’s end; we estimate 75kbd of incremental LPG production) and UAE’s Meram project by mid-2026 (our estimate is for 23kbd of LPG supply), among others. 

Similarly, US LPG exports hit a record high in September (2.49mbd, up by 180kbd y-o-y). US LPG production for the year-to-date is up by 114kbd y-o-y, an increase of 3.5%. Next year, another 300kbd of LPG export capacity is expected to be added. 

Source: Vortexa data 

We also note that a higher y-o-y use of the Cape of Good Hope rather than the Panama Canal to access markets in Asia could further tighten the fleet that regularly makes the USGC-Northeast Asia run. 

Vortexa data shows that for the year-to-date, 46% of total global LPG exports departed from the US with Northeast Asia destinations accounting for 39% of the destinations. In contrast, Middle East-origin material comprised 33% of the global total. In other words, on a purely volumetric basis, a potentially tighter fleet out of the US Gulf Coast will provide relatively more upside freight price risk compared to that of the Middle East and, as such, a wider y-o-y spread is likely to become the new normal.