Vale, the largest iron-ore producer in the world, has faced a lot of trouble trying to get their iron ore to China. Currently, China is the largest iron ore importer due to its huge demand for steel.
How does a company in Brazil transport iron ore all the way to China and still hold competitive prices against other iron ore companies closer by? The answer — economies of scale. Vale, with the help of ship builders in Asia, has been able to acquire the largest capacity dry-bulk carriers on the planet. One of these ships is able to transport 400,000 tonnes of iron ore. Using these vessels from Brazil to China reduces transport costs by approximately 20-25%.
Largest ore carriers in the world
http://www.reuters.com/article/2012/05/21/vale-china-idUSL4E8GL38F20120521
However, following sending only one ship into the Chinese port of Dalian, Chinese authorities refused to allow these massive ore carriers to dock in any of its ports. The authorities enforced a limit on the size of the ships allowed to enter its ports. So now what? What does Vale do with 35 massive ships?
Vale now sends its 400,000 tonne ships to the Philippines and Malaysia. There, the ships are emptied into smaller vessels which then go onto the chinese ports.
Iron ore is transferred from the Valemax to a smaller ship
Is it better to have a transhipment hub to then send smaller ships to various locations around China? Or is it better to send the 400,000 tonne ships directly? With growth expected in other Asian countries in the near future and with a slowing down in China perhaps the transhipment hub will benefit Vale into tapping into other countries iron ore demands.