Germany’s Hapag-Lloyd has again upgraded its earnings forecast for the full financial year to between €10.1bn to €10.9bn ($11.6bn to 12.6bn). The latest upgrade by the world’s fifth largest liner company compares with an earlier Ebitda forecasts in the region of €7.6bn to €9.3bn. The upgrade comes on the back of very strong financial results in the first nine months of 2021, according to preliminary earnings figures published today.

That is a result of unabated global demand for container transport and the continuing disruption in global supply chain, the company said. Ebitda for the first nine months of 2021 is anticipated to be in the range of €6.8bn compared to around €1.8bn in the prior-year period. That compares with full year Ebitda figures of €2.7bn last year and €1.9bn in 2019. At the same time, Ebit is expected to be roughly €5.8bn compared to approximately €0.9bn in the first nine months of 2020. Hapag-Lloyd will publish the final figures on 12 November.

The company has attributed record profits made in the first half of the year to the rise in freight rates to high demand, scarce transport capacities and severe infrastructural bottlenecks. Chief executive Rolf Habben Jansen told journalists last month that strong demand for containerized goods is expected to continue through to at least Chinese New Year next February, mostly driven by demand in the US. The company is not expecting any normalization of freight markets until the first quarter of 2022 at the earliest.

The company revealed the earnings upgrade on a day that its alliance partner Ocean Network Express (ONE) also unveiled fantastic profits. Earlier today, Japanese-owned ONE unveiled a first-half year profit of more than $6.7bn on the back of a stellar second-quarter performance. The company attributed the increase to the continuous strong market, with global container trade volumes in July to September increasing by nearly 10% year on year. Hapag-Lloyd and ONE are both members of THE Alliance, along with Asian carriers Yang Ming Marine and HMM.

ONE is also forecasting a full-year profit after tax of $11.7bn on the back of the continued strong market. Full-year profit in 2020 was $3.48bn. ONE chief executive Jeremy Nixon remarked on the significance of the unprecedented returns on investment for the liner sector. “A profitable liner industry that is capable of meeting future investment requirements of decarbonization is essential for global trade,” he said. “As governments head now to COP26, they should be mindful that if we can decarbonize shipping, we can decarbonize the whole world at the same time.”

Spot rates for capesize bulkers took another dive this week, but there is still room for optimism, according to market experts. The capesize 5TC, a spot-rate average weighted across five key routes, dropped 30% from a week ago to $36,065 per day, according to Baltic Exchange data. This rapid decline follows two straight weeks of 23% drops from when the average reached $86,953 just three weeks ago as traders tried to take advantage of high commodity prices that have since cooled down.

“As always is the case, I think it is a combination of things,” John Kartsonas, founder of asset-management firm Breakwave Advisors told TradeWinds. “Coal prices have been in a freefall, and that is probably causing is pause by coal traders in terms of activity.” Coal prices have fallen 17% since 5 October to $221.80 per tonne on Thursday, according to the New York Merchantile Exchange.

Iron-ore prices have meanwhile slid 15% to $110.70 per tonne. This has caused less demand for ships, especially in the Atlantic basin, but the falling rates are nothing to get too worried about, he said. “This is a natural correction, and nothing more,” he said. “We are still in a strong upcycle for dry bulk, but as always, ups and downs are part of the game.”

Coal demand should return once coal prices stabilize amid China’s plans to cap them and possibly subsidize imports, he said. “Volatility will calm down and the possibility of a late year rally is real, although still too early to call for that.” The Baltic Exchange noted that trade from Brazil to China plummeted throughout the week, causing the spot-rate average on that benchmark route to cascade 34% to $28,195 per day on Friday. “While rates have now halved from their highs in early October, levels are still thought to be robust and we are only part way through the Q4 high season,” it said in its weekly report on dry bulk shipping.

Australia’s Rio Tinto has hired the 170,000-dwt Amorito (built 2012) to carry coal at $12.10 per tonne from Australia to China in the second half of November. The benchmark Australia-China route’s freight rate improved $0.16 per tonne to $12.51 per tonne on Friday.

India has emerged as a major new market for Australian coal exports in the wake of China’s politically motivated move to stop buying its coal. In the first 10 months of 2021 Australia exported 51.6m tonnes of coal to India, up 74% year-on-year, according to figures from Banchero Costa. India is now the destination for 19% of all Australian coal exports in what has been described as a remarkable reshuffle in trade patterns this year.

Similar growth was also seen to South Korea with Australia exported 47.2m tonnes of coal to the country between January and October 2021, an increase of 50.6% year-on-year. Shipments from Australia to the European Union also surged by 38.4% year-on-year over the same period to 11.2m tonnes, according to Banchero Costa.

Japan remains the top destination for Australian coal exports with 84.7m tonnes shipped in the first 10 months of 2021, up by 16.7% year-on-year. Japan is now the destination for 31.1% of Australia’s coal exports, with South Korea 17.3%, Taiwan 9.8%, and the EU at 4.1%.

In contrast, coal exports from Australia to Mainland China declined by 96.9% year-on-year in the year-to-date to just 2m tonnes. China has been the destination for just 0.7% of Australia’s coal this year.

Overall, Australia exported 272.3m tonnes of coal in the first nine months of 2021, which was up 1.3% year-on-year from a year ago, although down 6.2% on the same period in 2019.

The first quarter of 2021 saw the weakest exports of coal so far this year at just 85.1m tonnes, which was a 5.8% decline from the levels seen in the same period in 2020 and down 7.4% from the first quarter of 2019. In the second quarter of 2021, Australia exported 91.2m tonnes, down just 0.1% year-on-year from the weak second quarter of last year, but down 9.3% from the same quarter of 2019. In the third quarter things improved considerably, with 96.1m tonnes, which was 10.3% on a year ago and just 1.8% below the 97.8m tonnes seen the corresponding period in 2019.

Australia is still very much the top exporter of coal worldwide, with 30.8% of global seaborne coal exports this year, ahead of Indonesia’s 27.9% share.

After hitting a high of $86,953 per day at the beginning of the month, average Capesize rates have more-than halved, settling at $37,669 per day today.

There are naturally several factors behind this correction. The clearest is a slowdown in Australian iron ore shipments. Over September, we saw a surge in C5 (Australia—China) cargoes shipped and a scramble for tonnage in the Pacific, as Chinese iron ore buyers took advantage of the slump in prices to rebuild stockpiles. Volumes from the major Australian shippers jumped by 7.5% YoY to 76.6m tonnes last month, but this month, shipments are on track to decline by 3.4% YoY and 6.5% MoM to 71.8m tonnes.

With most of this jump in iron ore shipments heading to China, stockpiles at ports have climbed back to early-2019 levels of 140.2m tonnes, up by about 8% MoM. With steel production in China now trailing last year’s output levels by around 20%, it is likely that this restocking will slow down unless we see further significant falls in iron ore prices.

As rates have fallen, congestion in China has conversely remained high. Yesterday, queues of laden Capes waiting to discharge in China totaled 18.6m dwt (5% of the trading fleet), 7% higher MoM and 98% higher versus the five-year average for this time of year. Although there has recently been news of fresh outbreaks of Covid-19 in Chinese cities, the recent rise in congestion does not seem to be down to restrictions tightening. Though authorities are still extremely strict regarding vessels berthing and discharging, longer queues appear to be driven by greater numbers of ships arriving, following September’s iron ore buying spree.

Coal trade has provided greater than expected strength to the market in recent weeks, but it remains limited by cargo supply. Amid extremely high coal prices, we had hoped to see some more tonnes come from South Africa and the Atlantic exporters, such as the US and Colombia. However so far this month, the volume of coal cargoes on the water utilizing Capesizes has remained below levels seen earlier in the year.

Combined with many ballasters heading into this basin and growing concerns over the rainy season in Brazil hitting iron ore supply, this is putting more pressure on C3 rates. Recent moves from regulators in China have also squashed prices, and although it remains to be seen how sustainable this trend is, this may soften the appetite of Chinese coal importers.

Despite the massive fall in rates, the market is still strong compared to what we have been used to over the past few years, and spikes are always to be expected in the Cape market. After all, spot indices are still printing at levels equivalent to the peaks seen over the last decade.

As Q4 fades into Q1, we expect the usual negative seasonal effects to take hold, such as a further slowdown in Chinese industrial activity, cyclones in Australia and wet weather in Brazil, but the Covid-related issues that have been supporting the market for much of this year will still likely be present. We see congestion continuing to play a significant role in restricting the effective carrying capacity of the fleet well into 2022, along with 14-day quarantine requirements for Australia loadings, which have artificially tightened the Pacific market. These kinds of effects should continue to disrupt the market and provide some floor to rates in the months to come.

Containership newbuilding orders in the first nine months of 2021 have surpassed the previous annual record of 3.4m teu in 2007, says a top shipbroker. Between January and September this year 3.9m teu of capacity has been ordered, helped by a wave of extremely strong contracting, according to Clarksons.

The containership orderbook now accounts for 23% of the existing fleet, up 8% from the start of the fourth quarter in 2020 and the highest level since 2014. Clarksons said larger ships account for the majority of teu capacity on order with ships over 12,000-teu accounting for 75% of capacity on order. “There has also been resurgent interest for ships of 7,000-teu, with 51 ordered this year and ships of 3-8,000 teu now accounting for 13% of capacity on order,” the shipbroker said. Clarksons said the sub-3,000-teu sector has also seen “robust interest” with 270 ships of 500,000-teu now on order.

This record level of ordering has resulted in a significant increase in the delivery schedule between 2022 and 2024 with a total of 5.1m teu set to be delivered in those years. “Whilst there is 1m teu scheduled in 2022, the 2023 schedule now totals 2.2m teu, compared to the record 1.7m teu delivered in 2015, while 2024 is also on track to see very strong deliveries, with 1.9m teu currently scheduled,” said Clarksons.

The shipbroker said there could be some further upside to this figure. While yard space for 2024 for 7,000+ teu ships appears to have been largely ‘committed’, some further orders could still come to light, whilst there remains appetite in the smaller sectors. Clarksons said the surge in ordering is likely to have a “material impact” on the pace of fleet growth between 2023 and 2024.

In one scenario, with limited demolition and slippage of 5%, it believes fleet capacity growth could surpass 7% in 2023 and 2024, representing a “significant acceleration” in fleet growth from the 4% expected in 2021 and 2022. Even with stronger levels of demolition of around 400,000 teu per annum and slippage of 10%, Clarksons said fleet growth would still “pick up notably” to over 6% for 2023 and 2024.

However, the shipbroker said record levels of demolition of around 750,000 teu per annum could see fleet capacity growth of 4-5% in 2023 and 2024.

Container freight and charter rates have reached a tipping point and are falling, but don’t call an end to the container shipping boom yet. Freight rates in the key transpacific trade fell this week in what some observers see as an early end to the peak season. Rates between China and both US coasts dropped by more than 6% in the week ending Tuesday and are 22% below the mid-September peak, according to the Freightos Baltic Index.

Similarly, in containership charter markets, sentiment has changed. Last week registered the first fall in 70 weeks in the Howe Robinson Containership Index, which measures charter rates for vessels up to 8,500 teu. A fall of 0.4% last week was followed by a more significant 3.5% drop on Wednesday to 4,632, dragged down by drops for charter rates for sub-panamax boxships of 1,700 teu. The fall reflects a shortage of ships for charter, rather than any lack of demand, say brokers.

But it is significant in that freight and charter markets are connected, probably more so today than ever before. Shippers able to earn $20,000 per 40-ft equivalent unit (feu) — 10 times the historical average — have been prepared to pay top dollar to charter vessels. With rates falling in the transpacific, some charterers are having second thoughts, according to brokers. That could mean an end to the $200,000-per-day charter rates seen for short containership periods. While the falls mark a turning point, they may not yet reflect a structural shift in the market. Freight rates from Asia to the US west coast fell 7% to $16,145 per feu, while the cost of shipping to the US east coast dropped around 6% to $19,451 per feu. That reflects an easing of demand ahead of the holidays in the US and delays caused by port congestion and supply problems in China.

Some analysts argued that the falls reflect a seasonal shift in the market rather than anything more fundamental. Shippers are holding off or cancelling additional shipments because of delays, and energy shortages in China are contributing to a dip in demand, according to shippers using the Freightos container shipping marketplace. With Chinese New Year just 12 weeks away, the chances of a sustained fall in freight rates remain remote. Freight rates have not fallen between Asia and Europe, where importers are equally exposed to production slowdown in China. That suggests the drop in the transpacific, with its longer transit times than for Europe, reflects a let-up in the underlying holiday-driven demand in the US. “If this is the start of a minor lull, it is likely to be short-lived,” said Freightos head of research Judah Levine.

“Just as retailers pulled peak-season orders earlier than usual to account for delays, so too the other ocean freight peak around Lunar New Year (which begins February 1st) is likely to start early.” That could fuel additional demand for charter market ships if they can be had. “There is no reason to think container rates will drop back to pre-Covid levels, surcharges will disappear, or schedule reliability will improve as supply chain problems worsen,” said Patrik Berglund, chief executive of the Xeneta freight rate benchmarking platform. He highlighted problems including shortages of drivers and equipment and sees the threat of near-shoring — bringing factories closer to end users — as likely to take years to implement. But the boom in US container shipping imports is unlikely to last, said Danish analyst Sea-Intelligence (SeaIntel). It suggested the slowdown in the growth of spending on goods — which has fueled the container shipping boom — has already started and noted a shift back to spending on services. SeaIntel expects consumer spending patterns to normalize over time. Rather than a “sudden shock to the container flows”, it foresees “a more gradual correction taking place over a couple of years”.

Similarly, port congestion will take time to unwind, perhaps until at least the end of 2022, it said. Nearly 80 containerships are waiting in San Pedro Bay to berth at the ports of Los Angeles and Long Beach.

Yesterday, the FFA curve noted a positive shift after a period of negative development, with contracts up 10% for November, 11% for December and 1.4% for 2022. In our view, the shift was a welcome relief from the recent negative sentiment in the sector which was extended by today’s 5.9% decline in Capesize spot rates – with a 3.0% and 4.6% decline to Panamax and Supramax spot rates as well.

However, we remain positive to the underlying fundamentals and view the recent sell-off as a buying opportunity given the companies’ attractive pricing and strong dividend potential. For Golden Ocean, we estimate a dividend potential of cUSD2/share for H2 2021 – resembling 45% annualized dividend yield on latest close, and 25% and 28% yield for 2022 and 2023, respectively.

Spot capesize rates continued to storm upwards because of increased enquiries combined with tonnage tightness. The average weighted time charter on the Baltic Exchange gained 2.8% to hit $63,030 per day at the close on Monday compared with Friday’s quote. That marks a 17% increase from a week ago and is the highest level for the 180,000-dwt assessment, which launched in 2014. The Baltic Capesize Index jumped to 7,600 points, which the highest position since November 19, 2009.

“The main driving force for the market came from the Pacific, as West Australian charterers were caught early on in the week dealing with a slim selection of choices and troubled vessel schedules resulting from the previous week’s weather in eastern China,” the Baltic Exchange said in a note at the end of last week. The C5 Western Australia to China route leapt up $3,759 at the beginning of last week to $20,145 before falling back on Friday to $19,082, while the C10 Transpacific route closed the week at a significant $67,000, despite being lower than the previous day’s high of $70,742.

Meanwhile, the fronthaul C9 route commanded a $81,775 price tag, allowing owners to cash in on their premium position for the price of repositioning to the Pacific, the London-based exchange said in the note.

Given the high rates, some owners such as Norway-based Golden Ocean were said to be staying exposed to the spot market for now but were looking to cover the traditional weaker months in the early part of next year with either floating or fixed rates.

Belships chief executive Lars Christian Skarsgård said his company had recently fixed a newbuilding for six months at $41,000 per day. Earlier in the year, one-year charters had been concluded at the $21,000-$22,000 per day range, while a two-year deal had been conducted at about $23,000-$24,000 per day, he said on a recent Arctic Securities’ webinar.

For 2020 Bulkers, its index-linked charters provide flexibility, always “capturing the market”, said its chief executive Magnus Halvorsen.

Chinese shipyards face losing valuable newbuilding contracts as main engine and crankshaft suppliers are unable to meet rising demand. The situation mirrors a shortage of engines caused by a surge in newbuilding orders during the 2004 and 2008 boom years. Brokers and shipyard sources told TradeWinds that the recently hectic newbuilding sales activity in China could now be set to slow down.

The newbuilding market has bounced back dramatically this year from the dearth of orders in 2020, caused by a slump in investor confidence during the pandemic. Total contracting levels have increased 72% this year, compared with 2020, according to broker Clarksons. High contracting levels have also been driven by a boom in the containership and bulk carrier markets, which has left owners and operators short of tonnage. But the dramatic upturn has caught local Chinese equipment suppliers by surprise. Without the capability to increase production, they are unable to supply key main engine components such as the crankshaft. Existing orders should not be affected, but the shortage does affect ongoing negotiations for deliveries in 2023.

Shipyards are reluctant to take the risk of accepting additional newbuilding orders for 2023 until they have first managed to guarantee the procurement of main engines and crankshafts. The early delivery slots are highly valued by shipowners that want to take advantage of the favorable market conditions as soon as possible. But yards now look like they could miss out on the early delivery premium because of equipment delays. Supplies are expected to be available for later deliveries.

China has seen its engine manufacturing capability cut back since the 2008 economic crash, when major marine engine manufacturers including Antai and Rongsheng closed. Engine manufacturing was further consolidated by the merger of giant state-run shipbuilding groups China State Shipbuilding Corp (CSSC) and China Shipbuilding Industry Co (CSIC). CSSC’s engine division is now prioritizing supplying the group’s own yards before supplying private shipbuilders. The recent closure of several private steel mills, as part of China’s decarbonization policy, has also had a direct impact on crankshaft supply.

South Korean mega shipyards have managed to maintain their engine building capacity, and yards in Japan are not benefiting from newbuilding orders to the same extent as Chinese yards, so they do not have the same problem. Attention is likely to move to whether the equipment shortages will now impact on shipyard prices.

Yards have already been hit by double-digit increases in the cost of steel plate, which have forced them to hike prices. Clarksons’ newbuilding price index is up 13% compared with the same period of last year. That has come amid a boom in ordering at Chinese yards. By the end of July, year-to-date ordering had reached 474 ships totaling 1.8m cgt, which marked the highest level in the first seven months of the year since 2008, according to data from Clarksons. Some 60% of those orders came from the containership sector.

Meanwhile, Clarksons noted in its latest monthly China report that shipyards have been looking to increase their capacity in the country, particularly with an eye towards boxships.

US-listed dry bulk stocks were able to claw back much of the double-digit percentage losses seen in a 20 September meltdown over debt woes from Chinese property developer Evergrande. On Friday, the dry group finished down an average 3% on the week, shipping’s worst performance by sector, but this was after several major names lost between 10% and 15% of their share value on the Evergrande developments. “Dry bulk spot rates increased across the board. To note, pretty much all the week’s pullback was a result of the sharp selloff last Monday, when dry bulk stocks were down 10-15% in a single day, before recovering throughout the week,” said Jefferies lead shipping analyst Randy Giveans.

Giveans has maintained that there is still no reason within the fundamentals of a strong dry bulk market to warrant such a selloff, despite understandable jitters over the developments. “Last week, Chinese iron ore prices remained stable and Capesize spot rates increased more than 15% to above $61,000/day despite market volatility and fears around Evergrande missing its payment deadline of $83.5m in dollar bond interest,” Giveans told TradeWinds. “Although there is risk of an Evergrande default, regulators are working with local officials to ensure social and economic stability, and China’s central bank injected cash into the financial system on Friday to support the market.”

Last week’s sell-off may have presented a buying opportunity, Giveans suggested, even if a market seeing its best hire rates in more than 10 years is not ultimately sustainable. “Looking at the dry bulk FFA [forward freight agreement] curve, everyone expects rates to soften from these decade high levels, but we think the rate decline will be slower and less severe than many are fearing. Hence, we remain bullish on dry bulk equities at these discounted levels,” Giveans said.

Overall, the 29 shipping stocks under Jefferies’ coverage gained 0.5% on the week, exactly in line with both the S&P 500 and the small-cap Russell 2000 index. The Jefferies Shipping Index is up 67.4% year to date 66.3% year over year. The other operating sector enjoying record rates, containerships, also managed to lose 2% on the week, perhaps also feeling the Evergrande jitters.

On the company basis, the week’s bottom three performers came from the two dry sectors, with Diana Shipping down 10.4%, Genco Shipping & Trading off 7.5% and Israeli liner operator Zim shedding 4.6%. The week’s best news came in tankers, where owners gained an average 5% as rates showed improvement. LNG shipowners climbed 1% as LPG shipping companies weakened 2%.