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Chinese steel mills are attempting to take advantage of currently low ship charter rates caused by dampened export activity as the global economy turn down.
The mills may also want to manage their own shipping because it gives them greater scheduling control, allowing them to determine when product arrives.
Fortescue said on Friday it had suspended all of its long-term cost and freight (CFR) shipping contracts of affreightment and consecutive voyage contracts.
The miner said about two-thirds of its sales had been on CFR terms - whereby it covers transport costs and passes them on to customers at a premium - but this was likely to reduce to about one-third of sales.
It would instead increase freight on board (FOB) sales, which involve the customer directly paying a charter company for transporting product.
"The changed arrangements are in direct response to market conditions demanding greater FOB sales," Fortescue said in a statement.
It is unknown how the ship owners have reacted to the suspension of the long-term contracts.
Fortescue offered the explanation that the move was "on the basis of unforeseen circumstances".
The miner said it would not affect the volume of iron ore that it shipped.
The effect of the changed arrangements on Fortescue's bottom line is unclear.
Many exporters prefer FOB - which is playfully referred to as "free of bother" - to CFR contracts because the product is off their hands as soon as it is delivered to port.
But in Fortescue's case, providing shipping for its customers is an important revenue stream, bringing in A$71.15 million (US$45.86 million) in 2007/08 against shipping costs of A$60.85 million.
The company's balance sheet for this financial year is almost certainly already being hampered by a slump in spot prices for iron ore as demand from Chinese steel mills wanes.
Separately, Australia's newest iron ore miner Atlas Iron Ltd (ASX:AGO) on Friday shipped its first load of the bulk commodity to an unidentified medium-sized Chinese steel mill, using Fortescue's port facilities at Port Hedland in Western Australia.
Atlas is the first company to have reached an agreement with Fortescue to use its infrastructure, and is cashed up with zero debt.
Shares in Fortescue were down 12 cents, or 4.88 per cent, at A$2.34 at 1422 AEDT while Atlas' shares were up 2.5 cents, or 3.91 per cent, at 66.5 cents.
(AAP)
* DISCLAIMER: the writer of this article holds shares in Atlas.
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