Alexander Oetker deems the sale by his shipowning company AO Shipping of an ultramax bulker as “the right decision” at this point in the cycle. The Hamburg-based shipping company has sold the 61,288-dwt bulker Daniela Oetker (built 2015) to unidentified buyers for around $30m. The vessel was purchased several years ago for around $27m. But AO Shipping has retained the 61,288-dwt sistership Letizia Oekter (built 2015). “We thought it would be prudent to have one for longer and let the other one go,” said Oetker.

The sale follows the delivery to AO Shipping last month of the 81,000-dwt BW Canola (built 2014). The kamsarmax bulker was reported sold for $24m in April, with a three-year time-charter back to BW Dry Cargo. Since then, its value has appreciated to around $31m, according to VesselsValue. The ship, which has been renamed Belmonte, was delivered last month to AO Shipping. The deals involving the two bulkers will leave AO Shipping with a fleet of around 10 vessels.

All the ships are technically managed by Hamburg-based shipmanager Orion Reederei, including its supramax and panamax vessels. Oetker is relatively bullish on prospects for the dry sector for the next two years due to supply and demand fundamentals. But he argues it was right to “let go” of one of the two ultramax sisterships in the company’s fleet. “We’re still very conservative,” he said. “But don’t be exposed, because this market may change very, very quickly,” he said. “There will be Black Swans everywhere, so selling one (of the ultramax bulkers) in these conditions is the right decision.”

Hong Kong-based Caravel Group has upped its ship owning exposure in containerships and dry bulk this year with under-the-radar transactions. Chief operating officer Angad Banga told TradeWinds that the company increased its stake in containership owner Mandarin Shipping via a secondary purchase of shares. Tim Huxley and William Fairclough-led Mandarin owns five 1,730-teu Zhejiang Ouhua-built feeder container sisterships delivered in 2016 and 2017. Mandarin Shipping’s shareholders were formerly Swire, Wah Kwong Maritime Transport Holdings, Caravel Group, and founder Huxley. Banga declined to comment on the current shareholding beyond saying Caravel became the largest shareholder after acquiring a stake from Seacor Holdings.

Financial filings by Seacor connected it to a stake in Mandarin Containers, the affiliate of Mandarin Shipping that owns the five feeder vessels. Over the past year, the value of Mandarin Shipping’s fleet has grown from about $83m to $200m, according to VesselsValue. Banga also confirmed to TradeWinds that Caravel took delivery in September of the 61,300-dwt ultramax bulker Africa Explorer (ex-White Hawk, built 2012), which was purchased in the summer from Triton Navigation at a reported price of $21.3m. That brings the owned fleet of Caravel to three, which includes two Chinese-built kamsarmaxes purchased in 2018. The new acquisition and one of the kamsarmaxes are reportedly on charter to Norden and the other kamsarmax to Oldendorff. Formerly a substantial dry bulk operator, Caravel is only occasionally seen taking ships on trip time charter of late.

Commodities trader and dry bulk shipowner and operator Caravel Group was founded by chairman and chief executive Harry Banga. Its major activity in shipping is currently Kishore Rajvanshy-led third-party ship manager Fleet Management. Banga’s outlook for the dry bulk market in the coming year is positive but strengthened by limits on the growth of ship supply rather than by a sustained boom in the demand for goods. “The positive is that seaborne trade volumes are higher than pre-pandemic levels — all cargo groups saw rapidly rising volumes,” Banga told TradeWinds.

Although it is possible that trade growth momentum peaked in the first half of 2021, Caravel believes demand will remain strong for the next eight to 12 months. Supply chain inefficiencies because of the Covid-19 pandemic should help support the market. “We are also seeing how investment growth in China is waning as policymakers taper the stimulus and global consumption patterns are turning away from goods and back towards services as major markets such as the US see Covid restrictions ease and people slowly returning to ‘normal’ life,” he said. But he painted a less ambiguous picture of the supply side, where an increased volume of newbuilding deals by optimistic shipowners will not be enough to overbuild the market. “We expect to see overall fleet growth decrease as lengthy delivery times mean deliveries will slow in the coming year,” Banga said.

Caravel believes that adds up to strong vessel earnings continuing. Banga said the company estimates that the increase in seaborne trade will outweigh the growth in fleet over the next year. “The booming demand that delivered strong earnings in the dry bulk sector over the last year will continue to be driven by the restricted supply,” he said. “It’s impossible to predict or prepare for the kind of volatility that may lie ahead,” Banga said. But he expressed confidence that Caravel’s team would continue to manage the risk well.

The dry bulk market is poised to retain its strength in the long term as demand growth will outpace fleet expansion, according to Drewry. In its base case most-likely scenario, the compound annual demand growth rate from 2020-2026 is expected at 3.8% compared with fleet growth of 2.6%, Drewry lead dry bulk analyst Rahul Sharan told the Association of Bulk Terminal Operators annual conference.

Demand growth will be led by minor bulks at 5.1%, followed by grains at 3.8%, iron ore at 2.7% and coal at 2.2%. Global steel production could rise by 3.9% over the forecast period. The base case assumes that global economic recovery will continue into next year, amid localized lockdowns related to the coronavirus, while the trade spat between China and Australia could remain. In addition, International Maritime Organization efficiency regulations should force a reduction in vessel speeds and discourage the use of non-eco engines from 2023.

As of the end of September, 61% of the fleet was non-eco, while about 10% was more than 25 years old, making the latter prime candidates for scrapping within the next two years, Mr Sharan said.

One-year time charter rates of about $30,000 per day could well be sustained, he said.

But China’s policies favoring scrap use and domestic iron ore production, combined with the drive for greener energy, especially in emerging economies, could provide risk factors. In addition, a deterioration in trading relations between Peru and the US could be a negative for the smaller-sized bulkers.

Inefficiencies have been providing support to the dry bulk market this year as has the de-containerization effect of grains and steel, but with container rates showing signs of softening, that may put pressure on bulker rates, said Mr Sharan.

Coal was proving to be an important trade this year with low inventories in China and India amid an energy crisis, he said, although high coal prices, above $200 per tonne may deter imports.

Grains have also been strong, with growth led by Australia, followed by Argentina and Canada. Cement trade gains have been led by Turkey, while clinker trade growth has been driven by Vietnam and Indonesia.

While he sees a decline in rates in the coming two to three months due to seasonality, the market could stay “high” through to 2023 or 2024 after which a gradual softening could be expected.

If public bulker owners are making so much money, why are so many still trading at a discount to their net asset value (NAV)? There has been little normality in the dry bulk sector in 2021. The Baltic Dry Index, the overall indicator of the strength of dry cargo markets, is at the highest level since September 2008. But shares in most publicly listed bulker owners have fallen by nearly 20% over the past month.

Lars Christian Skarsgard, chief executive of ultramax owner Belships, has pointed to an unusual situation that has developed this year: he said equities are lagging, even though dry bulk is a “fantastic proposition” in terms of its fundamentals. “It’s quite different to earlier cycles, where you often see stocks and [asset] values moving early, and the cash flow comes later. This time it’s the other way around,” he said, speaking during an Arctic Securities panel discussion last month. “Across several listed [bulker] companies, you have the cash flow first and actually the equities and vessel values are lagging.” Skarsgard called the current market a “fantastic proposition” and said the cash yield for 2022 could reach levels “not seen in any cycle I can remember“.

Randy Giveans, head of shipping equity research for Jefferies, also sees a huge dislocation between super-strong freight rates and bulker owners’ share prices. “This is easiest to see in the spot rates, but also in the FFA [forward freight agreement] curves,” he told TradeWinds. “Equities were much higher when the 2022 FFA curve was $24,000 per day, compared to today’s $28,000 per day.” Giveans said this dislocation stems mostly from fears surrounding a shutdown in industrial activity in China, which accounts for a big slice of dry bulk shipping demand, and the energy crisis worldwide. But the fact that bulker equities are looking cheap is also linked to profit-taking. “This [dislocation] is somewhat surprising, but, after the year-to-date rally, I know many investors who are looking for reasons to ‘call the top’ and take profits,” Giveans said. “As for a near-term precedent, just look back at the month of July; all of dry bulk was down 20% to 25% in a two to three-day span despite rates going up.”

Capesize spot rates are 196% above where they were last year, but asset values have not seen quite the same uptick, according to Ynes Benotmane, cargo analyst at VesselsValue. She told TradeWinds that 102 capesizes have changed hands so far this year — a 67% increase on the same period last year. “Values have increased [by around] 50% during this period,” Benotmane said. “A five-year-old, 180,000-dwt capesize bulker was worth $32.7m in October 2020 and can now fetch $49m today.” Smaller vessels, particularly handysizes, have had the most dramatic turnaround in values. One-year period rates for handies have more than tripled year on year, while the average value of a five-year-old vessel has grown by almost 91%, according to VesselsValue.

The lag effect means bulker owners including Genco Shipping & Trading, Star Bulk Carriers, Navios Maritime Partners and Eagle Bulk Shipping are trading at big discounts to NAV, according to Giveans. “These reduced equity prices could/should be a good thing if companies take advantage by repurchasing shares,” he said. In Oslo, DNB Bank estimates Golden Ocean’s NAV at NOK 99 ($11.74) per share, but the stock closed NOK 16.75 below this level on Friday last week and was trading at around $9.75 on the Nasdaq bourse. Last week, DNB raised its target price for Golden Ocean to NOK 133 after revising its one-year forward forecast for asset prices, considering better-than-expected freight rates.

For investors, Giveans thinks there is still plenty of value to be squeezed out of bulker stocks. “Obviously, the best opportunities were a year ago before the stocks tripled to current prices,” he told TradeWinds. “That said, [there is] still a lot of upside, as there remains a large disconnect between elevated rates and strong asset values versus undervalued equities.” Looking ahead, Giveans thinks “cooler heads will prevail as rates stabilize in the coming weeks” but believes earnings season will help with optimism. “I think this upcoming round of [third-quarter] earnings calls will be robust, with blow-out quarters, strong guidance and big dividends.”

Another record drop in Chinese steel output has spooked many in dry bulk. China’s National Bureau of Statistics has issued figures showing steel production falling to a four-year-low in September, lows not seen since December 2017, and helping explain why volatile cape freight rates have fallen from $80,000 to $60,000 in the space of a fortnight.

China’s steel mills produced about 73.8m tons last month, down by 11.4% from August and 21.2% from the year before as real estate concerns grew and Beijing clamped down on polluting heavy industries while grappling with power shortages rolling across the world’s most populous nation.

“As the ongoing energy crisis forces most of the industrial sector in the country to operate at a reduced capacity, average steel capacity utilization in the country fell to 83.5% in September, down from 85.3% in August,” brokers Braemar ACM stated in a note to clients, adding: “A slowing Chinese economy, particularly in primary industries, has hurt sentiment in the country’s steel industry, exacerbated by the tumults of the Evergrande Real Estate Group.”

When looking at the statistics, analysts at Lorentzen & Stemoco noted today that the reductions seen in late summer and fall have been so steep that this year’s annual increase is about to dwindle drastically. Whereas the first half of the year started with annual gains of 10.8%, the increases for the first nine months of the year are down to a mere 2.8%.

“There is a parallel between China’s reduced refinery throughput and steel production in recent months,” Lorentzen & Stemoco argued today in a note to clients. The authorities have steered towards a deflation policy, attempting to hold down prices for imported commodities such as oil and iron ore by keeping a lid on oil processing and steelmaking plants. Higher fossil fuel prices have also worked towards more costly electricity bills and power blackouts.

A further pullback of capesize rates — although to still-frothy levels — helped deflate stock prices in the sector and pull-down US shipping listings overall. New York-listed dry bulk owners dropped an average 6% on the week, contributing to an overall decline of 2.1% by the companies under coverage of investment bank Jefferies. This came as the S&P 500 registered a 1.8% gain and the small-cap Russell 2000 index a 1.8% advance. However, the Jefferies Shipping Index is still up 65.4% year to date and 54.2% year on year.

“Capesize spot rates fell 23% on the week on slowing iron-ore demand and cargo-splitting but remain above roughly $64,000/day,” Jefferies lead shipping analyst Randy Giveans said. “The Chinese government has asked steel producers in northern China to reduce production from mid-November until March in an effort to improve air emissions around the Beijing Winter Olympics. That said, the coal trade remains robust for all dry bulk carriers, and the 2022 FFA curve for capesizes has strengthened over the past few weeks.”

The capesize slump appeared to affect dry stocks indiscriminately even as kamsarmax rates were rising 5.1% on the week to $36,584 per day and supramax fares 4.7% to $39,333. For example, one of the week’s biggest decliners was Connecticut-based Eagle Bulk Shipping, which fell 7.6%. Eagle owns no capesizes, with its fleet of 53 composed entirely of supramax and ultramax bulkers continuing to pile strength on strength. Eagle may, however, continue to feel the effects of the divestment of one of its biggest and longest-standing shareholders, private equity’s GoldenTree Asset Management, which elected to sell all 1.1m shares in early October.

Peer owners with capesizes units also took a tumble, with Genco Shipping & Trading shedding 10.2%, while SafeBulkers and Diana Shipping both slipped 6.1%. The week’s biggest loser at 10.4% was Navios Maritime Partners, which started out as a dry bulk owner. Through buys of sister companies Navios Maritime Containers and Navios Maritime Acquisition during 2021, it now has become a containership and tanker owner as well.

The week’s biggest gain came from a tanker owner, with Belgium’s Euronav piling on 6.4%. Euronav has become an investment target of the world’s most famous shipowner, John Fredriksen, amid questions whether there could be consolidation potential with his Frontline. Tankers as a sector lost 2% on the week on a pullback in VLCC rates. The week’s only gainer was in boxships, which eked out a 1% rise. LPG owners dropped 3% and LNG owners 1% despite raging LNG prices.

The market for dry bulk shipping’s smaller assets is keeping an even keel, while the capesize sector continues its steady decline from highs not seen in decades. The panamax 5TC, a spot-rate average weighted across five key routes, picked up $234 per day to reach $36,818 per day on Monday, improving slowly from $34,893 per day a week ago.

Shoei Kisen fixed its 84,914-dwt Jal Kamadhenu (built 2020) to an unrevealed charterer at $42,500 per day for a voyage next week from Vietnam to India via east-coast Australia. “Asia was reported to be active in terms of fresh demand particularly in the North, yet this had yet to be translated into fixtures with a typical wide bid/offer spread to start the week,” the Baltic Exchange wrote in its daily report.

The supramax 10TC gained $214 per day to $39,547 per day as the H7TC edged up to $35 per day to $36,407 per day, according to Baltic Exchange data. Two owners got unrevealed charterers to employ ultramaxes on spot voyages at higher rates starting next week, the winner being Shih Wei Navigation. The owner fixed the 60,200-dwt Genius SW (built 2015) at $49,000 per day for a trip from Indonesia to China. Star Bulk Carriers chartered its 61,491-dwt Star Wave (built 2017) at $40,000 per day for a prompt trip from the Philippines to Japan via Indonesia. Tosco Keymax got $40,000 per day for its 52,292-dwt panamax Pacific Tamarita (built 2001) for a prompt trip from Singapore to China via Indonesia.

The capesize 5TC, meanwhile, slid 5.3% on Monday to $61,026 per day to extend a sharp plummet from $86,953 per day on 7 October. Six capesizes were fixed on spot voyages, including Pan Ocean’s 175,000-dwt Pan Freedom (built 2012) to Vale to carry coal at $39.95 per tonne from Brazil to China. Vale signed a deal on 14 October to start employing the ship in late November. The average spot rate for the Brazil-China roundtrip voyage lost $3,321 per day on Monday to come in at $49,148 per day.

Belships has acquired its 20th bulk carrier in just over two years and signed a time charter contract for another vessel. In a resale deal, the Oslo-listed shipowner bought a 64,000-dwt ultramax, which is under construction at an unnamed Japanese shipyard and is due for delivery in January 2023. Belships did not reveal what it will pay for the newbuilding, but said it intends to finance it in the same way it has previous acquisitions — implying a fixed-rate bareboat charter of around 10 years with purchase options. The vessel’s cash breakeven upon delivery is expected to be around $11,500 per day including operational expenses, the company said.

Meanwhile, Belships has fixed another of its Japan-built ultramaxes on long-term charter. The unnamed vessel has been fixed to an undisclosed counterparty for 22 to 24 months at a gross rate of $26,250 per day. The contract is expected to commence this month.

Andreas Nibe Nygard, equity research analyst for financial services firm Kepler Cheuvreux, said the deal shows “the current strength of the dry cargo market“. “Based on the gross rate, we estimate that the charter could generate an annual Ebitda in the region of $7.5m,” he said in a note to clients on Thursday. “This compares with value quotes from Clarksons suggesting a five-year-old vessel valued at $31.5m and a resale at $37m.” The charter rate implies an enterprise value to Ebitda ratio of around five times for a resale, he said.

The deal also shows the big difference in rates for short-term deals and multi-year contracts, in a spot market in which average supramax day rates are around $38,500. Earlier this month, Belships took delivery of the 63,500-dwt geared ultramax Belmar from Imabari Shipbuilding in Japan. It has been chartered out to an unnamed charterer for five to seven months at a gross rate of $41,000 per day.

This month, Belships bought two secondhand supramaxes— the 57,700-dwt Japanese-built Stove Tide and Stove Friend (both built 2016) — from Stove Rederi of Norway for $28m per ship. Meanwhile, Belships continues to sell older tonnage. Chief executive Lars Christian Skarsgard confirmed to TradeWinds that it is circulating its oldest bulker, the 58,000-dwt Belstar (built 2009), for sale.

Once all its acquisitions have been delivered, Belships said its fleet will be made up of 30 supramax and ultramax bulkers, with an average age of four years and average daily cash breakeven of about $10,500.

The capesize market, which had been pushing new highs, has been on a descent for the past week. According to Fearnleys, there has been “a sudden drop in prompt iron ore volumes”, with only one key miner active on the key Australia to China route. Although slightly less dramatic, transactions were also said to be “few and far between” on the Brazil-China trade, the brokerage said in a note. However, congestion remains significant, with the number of ballasters at a historical low, leaving “a delicate supply and demand balance where tonnage that is actually workable keeps being very limited”, it said.

Arrow Research said that demand for iron ore was taking a hit given the energy crisis inflicting several countries including China, with power rationing both dampening steel demand as factories shut down, and curtailing production as steel mills cut run-rates.

While iron ore stockpiles in China are at comfortable levels, there is little indication that the situation will ease over the winter months, as households will be prioritized for energy rather than industry, the brokerage said, adding that iron ore use will remain below 2020 levels this quarter of the year.

The World Steel Association highlighted steel contraction in China of 1% this year compared with 2020 and no growth in 2022. The average weighted capesize rate on the Baltic Exchange closed at $64,417 per day on October 15, a drop of $5,764 from the previous session.

The market has been on a slide since a high of $86,953 per day for the 180,000-dwt assessment on October 7. In this volatile environment, operators were said to be keen on any period charters, with a one-year fixture concluded at $33,000 per day for a 2010-built, 176,000 dwt vessel, according to Fearnleys.

Back in 2008, high winds caused a crane to collapse on top of a Hapag-Lloyd boxship in Southampton, crunching several containers full of pristine Japanese automotive components in the process. The following day, the Honda car plant in Swindon announced it was shutting down for two weeks. That, in microcosm, illustrates what can happen when things go wrong with finely calibrated just-in-time delivery systems. Multiply the fallout from that incident by a factor of who knows how many thousand, and you have a metaphor for the pain the supply chain crisis is now inflicting on the world economy, exactly as seasonal consumer demand hits holiday season peak.

Shipping — which usually moves more than 200m teu from A to B each year without anybody paying a blind bit of notice — is suddenly in the news, basically because people aren’t getting their stuff. Worse still, parents may not be able to make good on little Johnny’s missive to Father Christmas. They’ll live. A generation has grown up in the expectation that it can click on the Amazon website and order a pack of gym socks, or a luminous garden gnome, or a multi-function food processor, and expect the goodies at their door in a matter of hours. Few will have given much thought to how these things make their way from the factories of Asia to their home. The thought of having to wait for delivery will come as a shock for many.

JIT is a relatively recent innovation. The fuddy-duddies of the 1980s pointed out the dangers that inevitably lurk when things are not done the way they always have been done, and the problems that would arise when things went awry. Inevitably, there have been glitches for individual companies now and then, and occasionally this or that import has been in short supply. But with hindsight, it is astonishing how rarely over the past four decades this has been the case. It is testimony to the supreme efficiency of shipping that upsets have been exceedingly uncommon. Well, until now, anyway.

The depredations of coronavirus, marginally assisted by the Suez Canal shutdown, have provided the naysayers with a modicum of retrospective vindication. There are now bottlenecks across the global supply chain, and no obvious silver bullet solution, especially where the constraints are physical. Clearly priority should be accorded to essential goods. Basic foodstuffs, medicines and medical equipment are simply more important than stocking filler, as are raw materials and components that support continued employment. In the abstract, it would be good if there were some slack built into port capacity, precisely to handle contingencies such as those we are witnessing now.

Indeed, Joe Biden has arm-twisted the ports of Long Beach and Los Angeles into 24/7 operation. The only surprise here is that they were not working 24/7 already, because that is standard practice almost everywhere else. For virtually everywhere else, hard standing just sitting there and straddle carriers gathering dust doesn’t make much sense; countering the once-in-40-years drawbacks of just-in-time with elaborate just-in-case measures is a commercial non-starter. What is imperative is that shipping is not singled out for political attack because things are temporarily going pear-shaped. Most of all, it is in no way the fault of the 200,000 seafarers currently working beyond their contracted tour of duty. If politicians want to do something more constructive than griping, they could start by classifying crews as key workers and giving them priority for coronavirus jabs.

Honda’s Swindon plant has recently closed. But in 2008, the JIT disruption it temporarily experienced passed soon enough. Eventually that will be true for the world economy as well. That won’t happen overnight, and the best guess of many pundits is that it could take 18 months or even two years to restore normality. But normality will be back. If it takes slightly longer to procure new gym socks in the interim, what of it?