Across the asset classes, Handies have been amongst the strongest performers this year. They have also shown greater resilience as rates have fallen for all bulker sizes over the past few weeks. We look at the various factors that are providing the support.

Following the recent decline in freight rates, Handy size earnings are still up by 244% versus average levels last year, vastly outperforming Capes and Panamaxes which are currently up 140% and 125% by comparison. At $27,640 per day, average Handy rates are also currently at a premium to those for Kamsarmaxes in absolute terms, and for 30% of the year so far, they have printed higher than the Capesize index.

One of the greatest sources of Handy demand growth this year has been scrap steel. In 2021 so far, Handies have hauled 14.4 MMT of scrap cargoes, up by 32% YoY. Some of this is due to the strength in the container market. Scrap cargoes are typically shipped in containers as well as bulkers, and with container freight being extremely expensive for most of this year, some shippers have opted to transport cargoes in bulk. Exacerbating this effect, liner companies often price freight for scrap, which tends to damage containers, at a premium to that for other cargoes which are more standardized, cleaner and lighter. It is difficult to quantify this effect, but there are signals that it is occurring.

Forest products have been very supportive of the Handy segment. Shipments of these goods over January – October were up by 8% YoY. Within this, log trade is up by a modest 4%, while shipments of woodchips have shot up by 21% YoY. The UK, the second-largest bulk woodchip importer, is driving steady growth in these volumes, growing by 9% YoY so far in 2021 as its biomass-fueled power generation continues to ramp up. Japan and the Netherlands, have also seen solid growth in their woodchip intake against a backdrop of energy shortages and switches away from coal. Increased volumes of these cargoes are of course positive for demand, but they alone do not explain why Handy employment from these trades has jumped by a disproportionate 14% YoY. Elevated times spent waiting to discharge have increased the demand intensity of woodchip and log trades, particularly in China, where river pilots are in short supply due to quarantine measures and vessels still face lengthy testing and clearance procedures. Handies spent 11 days waiting to discharge these goods in China last month, up from 2 days in October 2019, and average sailing durations have ticked up by 35% YoY as more woodchips is sourced from distant origins such as Canada, Chile and Brazil.

Demand for Handies from fertilizer trade is up by 4%, despite shipments only increasing by 2% YoY. Global demand for fertilizers remains extremely high but supply is tight, as natural gas shortages have crimped production of this energy-intensive commodity. The Handy market has been tightened by a surge in congestion in Brazil, mostly related to this trade. The queue there currently stands at 1.7 MDWT, more than double the five-year average for this time of year, while the average time spent waiting to discharge fertilizer cargoes last month was up by 77% YoY at over 10 days. This is partly down to an increase in Brazil’s purchases (YTD imports on Handies are up by 20% YoY at 26.3 MMT), backed by consistent growth in crop plantings, on top of inefficient port infrastructure and competition from larger vessels with higher demurrage rates.

Demand for other minor bulks such as salt, sulphur and mineral sands has also proved strong, and the various cargoes in the ‘other’ category accounting for 27% of the growth in Handy demand so far this year. Employment from these goods has grown by 25% YoY over the first ten months of 2021, and again, greater disruption and inefficiency appear to have boosted this figure. Handy shipments of these commodities have become 12% more demand intensive this year versus average levels pre-COVID. Here again, some strength is likely coming from the container market where cargoes can be shipped in bulk, though it is difficult to quantify the impact of this.

Underlying this year’s rally on the Handies has been very low supply growth, due to several years of underinvestment in the sector. Handy capacity, in DWT terms, has increased by 16% since the start of 2014, the lowest of all of the bulker segments. In comparison, the Supra, Panamax and Cape fleets grew by 42%, 29% and 28% respectively over this period. This has helped to narrow the average spread in earnings between these vessels and their larger cousins.

The fundamentals for the Handy market remain positive; we believe that growing volumes of minor bulk trade combined with a historically depleted orderbook will provide a floor to utilization going forward. However, many of the aforementioned COVID and non-COVID related inefficiencies do represent a risk to freight as they begin to unwind in the coming months. Equally, while the container market remains extremely hot, a slowdown in this sector could sap some of the demand that has filtered into the bulker market this year.