Fortescue closes $275m ships contract

Fortescue Metals Group has signed a contract with a Chinese shipyard for the construction of four iron ore carriers that are even larger than the Cape size vessels currently in use in the industry. 

The 260,000 dead weight tonnage class vessels, which will count for about six per cent of Fortescue’s shipping fleet requirements, will cost about $275 million and will incorporate design specifications ideally suited to Port Hedland’s tidal conditions and are larger than the traditional Cape size vessels that have dominated the seaborne market. 

Fortescue chief executive officer Nev Power said the contract represents a strategic decision to secure long term, low cost freight on vessels that will compliment infrastructure at Herb Elliot port and maximise shipped volume.

“We are already in the shipping business, with an annual forecast spend of around US$1.5 billion a year,” Mr Power said.

“These vessels are a natural extension of our supply chain and will play a significant role in increasing efficiencies at the port and lowering costs.”

Fortescue was involved in the research and development of the vessels to ensure design specifications complemented Port Hedland’s tidal conditions and shallow natural harbour.

In recent times the average size of the vessels have been increasing although only a small proportion are in the 250,000dwt or greater segment.

The larger vessels offer operational efficiencies and higher carrying capacity but they do not significantly deviate from the size parameters of vessels currently operating in the Pilbara.

The vessels will be delivered from November 2016 through to May 2017 with the majority of payments made upon delivery and funded from operating cash flows. 

Fortescue’s share price rose by 0.74 per cent to $4.09 at 12:50pm WST.