With rates across the dry bulk sectors improving in recent weeks, particularly on the Capesizes, we look at several inefficiencies across all sizes that may be providing support to freight markets.

 In the past month, the Baltic Dry Index has rebounded by 19.5% to 2,644. While numerous factors are at play driving this, several market inefficiencies have appeared in April. Similar to the effect Covid-restrictions had on rates in 2021, there are now other reasons that have emerged. Below we outline some of the factors that may be providing support to the market.

 Capesize shipyard activity

According to our tracking, Capesize vessels in shipyards has more than doubled from the previous month, currently standing at 9.8m dwt, primarily a result of longer visits at several Chinese yards. This accounts for 2.6% of the Capesize fleet, or  41 vessels, with the current average visit lying at 19 days. After reaching over 10.4m dwt in April, this was the highest level of yard activity for the Capesizes since April 2020 during the scrubber-fitting craze post-IMO 2020. While lockdowns in China continue across several provinces, namely Shanghai, efficiency in some shipyards has dropped, primarily caused by staff shortages.

Vessels regularly visit yards for maintenance and repairs, but also special surveys. Several vessels are likely to have requested an extension on carrying out surveys as a result of the high-rate environment the Capesizes found themselves in in Q3, hence the steep decline in yard activity over this period. As a result, typical Capesize capacity in yards is being compounded by the extra vessels that may have delayed their visit in 2H21. 2.6% of the Cape fleet is now effectively withdrawn from the fleet as of today. Although seemingly low, this can still provide meaningful support for freight for this sector in the short-term.

Further, some of this effect may be triggered by current bunker prices, which are certainly high enough to convince some players on scrubber-fitting. Finally, the elevated yard visits are rising higher as vessels prepare for the upcoming IMO 2023 regulation, fitting devices which may provide a more favorable EEXI or CII score from January onwards.

European discharge waiting times climbing

Shipments on bulk carriers arriving to discharge at Amsterdam, Rotterdam and Antwerp (ARA) ports totaled 24.1 MMT in April, rising by 43.8% YoY and the highest level in the past 5 years, the main driver of this trend has been the surge in coal imports into Europe. In April, 10.2 MMT of coal discharged in the ARA region, more than doubling YoY. This was largely a trade on the Capesizes in April, totaling 5 MMT, while coal discharging on Panamaxes increased by 52.9% YoY to 3.9 MMT. Other trades, iron ore and steels in particular, have also been strong into ARA driving the surge in bulker arrivals at these ports and lengthening waiting times. Bulk carrier waiting times at these ports in April averaged a day more than they did in March at 3.4 days. While the EU has banned the arrival of Russian-flagged vessels, this will have a limited effect on the dry bulk sector and thus will not have an effect on the queues in these ports.

Overall, dry bulk congestion of laden vessels in anchorages surrounding the ports in the ARA region has reached 2.4m dwt compared to a 5-year average of 452k dwt. When breaking waiting times down by cargo, we can see this effect is exacerbated for coal shipments, which accounted for 42.2% of ARA imports in April. Waiting times for these cargoes increased to 6 days last month, higher than for any other imported commodity. Following a sharp increase in coal imports, on-land supply chains have not adjusted in tandem, driving the delays. For context, Europe’s largest iron ore and coal terminal, EMO, has 14 barges scheduled for transport in the next 24 hours according to the company’s website, which will haul approximately 38k tonnes of iron ore/coal eastward. Rail and trucks are also facing drawbacks as a result of soaring fuel costs, as well as a reduction in available labour. Overall these constraints show the limited capacity to transport existing stockpiles in bulk quickly, hence discharging has to be delayed. While coal has certainly started to arrive into Europe from locations further afield than Russia, the above effect has only prolonged these voyages further.

Global waiting times

So far in 2022, average bulk carrier load waiting times have increased to new highs, rising above 4 days in February. Although having come down to 3.5 days in April, these still remain 19% higher than the 5-year average. Since the beginning of the Covid-19 crisis, we have seen a consistent rise in waiting times across all regions, particularly resulting from Covid-19 requirements over the first 18 months. However, since then, loading delays have persisted, as supply chains continue to be disrupted for other reasons.

On the back of heightened coal demand, ports in Eastern Australia have seen increased arrivals despite already operating at full capacity. Dry bulk congestion at the Port of Newcastle reached 5-year highs in mid-April of 2.8m dwt, also as a result of adverse weather affecting coal volumes reaching the port. In South Africa, wait times increased to over 8 days, the highest level since December 2019. Similar to Europe, rail and trucking constraints have limited raw materials reaching ports, a trend that is unlikely to subside any time soon. Finally, liftings out of West Coast India, which has started shipping more wheat due to soaring prices, has seen loading wait times climb to nearly 5 days as the port infrastructure is restricted for the volumes that are transported to the port by truck.

Overall, as on-land supply chain issues persist, vessels will continue to be forced to delay loading/discharging operations. With these vessels already in employment, it will ultimately make voyage lengths moderately longer across all vessel sizes. Another prospective event, owing to the ongoing lockdowns in China, is potential slippage in newbuilding activity as some yards in restricted provinces work under reduced labour conditions. As of today it is unclear whether this will ultimately take shape however it is something to keep in mind in the months to come.