Congestion is providing “very powerful temporary support” to dry bulk spot rates, allowing owners to enjoy “spectacular” earnings, according to BIMCO. Peter Sand, the shipowner association’s chief shipping analyst, expects profitable earnings for “a large part of 2022,” depending on how long it takes for the congestion-related supply squeeze to unwind. “We are quarters away from that,” he told a webinar event.

The number of ships waiting for more than 50 days has dwindled to a trickle, while about 250 bulkers have been waiting to enter Chinese ports for five-10 days, and a further 480 have been in a queue for up to five days.  Congestion has caused a supply squeeze amid low newbuilding deliveries this year, according to Hong Kong Ming Wah Shipping’s general manager James Ding Lei. While port congestion may improve next year, it will still be at high levels compared with previous years, he said. The overall fleet growth rate is expected to drop by 0.4% this year, while the growth rate for smaller vessels is lower than the larger sizes, which is supportive of a better performance from the smaller segments, he said.

He was optimistic for the dry bulk market through the first half of next year, with the next low point perhaps occurring in 2024 given that the market is now operating in four-year cycles. However, while the world resumes activity following the coronavirus situation, China faces downward pressure, with investments in fixed assets such as real estate, manufacturing and infrastructure dropping since about the middle of this year. Dry bulk demand is thus expected to grow at lower rate next year, down to 2% from 3.6% this year, he said. Iron ore is estimated to grow by 1% next year from 2% this year, while the growth in coal could come in at 1% from 4%. Minor bulks, meanwhile, could expand by 2% from 3%.

Separately, the World Steel Association estimates that China’s steel output will decline by 1% this year versus 2020. After a strong first-half, the country decelerated, with declines since July due to adverse weather and infections, combined with the “slowing momentum in real estate sector and the government cap on steel production”.

“Real estate activity has weakened due to tough government measures on developers’ financing introduced in 2020. At the same time, infrastructure investment has not picked up in 2021 due to a depletion of investment opportunities and limited local government financing ability. Furthermore, the strong manufacturing recovery across the world has reduced the export market.” No growth in steel is expected in China in 2022.

Developed nations have bounced back to almost pre-pandemic levels this year, with steel demand increasing by 12.2%, with further growth of 4.3% in 2022, the group said in its short-term outlook report. Overall, steel demand is estimated to rise by 4.5% this year, and 2.2% in 2022. This compares with growth of 0.1% in 2020.

The dry bulk derivatives market has been active given the massive volatility being experienced in segments such as the capesizes, which reached the highest spot average in more than a decade. In the year to date, overall dry forward freight agreements reached almost 2m lots, up from 1.25m lots in the same period last year, according to Baltic Exchange data. One lot equals 1,000 tonnes. Panamax derivatives trading reached almost 1m lots so far this year, a gain of 62% from the same period in 2020, while capesize trading reached 672,519 lots, up 42%.

According to Freight Investor Services senior dry FFA broker Kris Payne, the steep backwardation in capesizes suggests “a big correction is looming. All the uncertainty over when and how big that correction will be is exactly why the capesize market is currently so volatile. In my humble opinion, with the current global energy crisis, coal demand will only increase, and with winter on the horizon, this only boosts long-haul trade and supports the panamax market as well,” he said. “The current backwardation, in my opinion, is too steep as we can only see a strong end to the year with the seasonal iron ore shipments and the additional coal demand. The entire dry bulk shipping complex is currently supported from the bottom up and looks set to stay that way for the near future at least.”

Spot capesize rates dipped below $80,000 per day this week, closing at an average of $70,181 per day on the Baltic Exchange on Thursday. That compares with a high of $86,953 on October 7 for the 180,000 dwt assessment. Arrow research said an easing of spot rates was expected given a decline in iron ore from Brazil over the coming months. The desperate need for coal amid an energy crisis did little to offset the sudden drop in prompt iron ore, although congestion remained significant, said Fearnleys in a note. FFAs have largely responded to the recent decline in the spot capesize market, with values for the fourth quarter dipping through the week. As of October 13, the fourth quarter was at $52,300, according to GFI broker figures. That compares with $54,500 in the previous session and $61,500 at the start of the week. Similarly, the first quarter shed value, though not to the same extent, closing out at $27,250, from $27,500 and $29,500, respectively, GFI figures show.

“There is a battle going on in the dry bulk market, and the outcome will probably define the direction of rates over the next several months,” Breakwave Advisors said in a note. While the considerable increase in freight costs is hurting traders and producers, commodity demand, especially for coal, is extremely strong. When combined with steady flows in iron ore and “ongoing bottlenecks on the supply side, makes it hard for market participants to turn negative on rates, despite the mean reversion character of freight and the upcoming seasonal weakness during the winter”, the US-based exchange traded fund said. It added that it remained in the camp of those expecting a gradual softening in rates, and it believed the futures were “rightly positioned” for such an event. However, the extent of such a decline was highly debatable. “We sense an urgency from market participants to hedge winter freight,” it said. “At the same time, short-term spot fundamentals, especially for capesizes, don’t look particularly promising, and history suggests that when spot prices drop, futures follow. Yet, it will be the rate of decent that will shape the futures curve.” It expects volatility to remain high through the rest of the year.

Jefferies also notes volatility in the market, though it expects strong rates to remain with higher averages in 2022 compared to this year, which saw the highest rates for all dry bulk segments in more than a decade.

The capesize bulker market took another plunge on Thursday, continuing a steady fall as fears mount over China’s coal shortage putting sharp brakes on the nation’s economy. The capesize 5TC, a spot-rate average weighted across five key routes, dropped 5.8% to $70,181 per day, according to Baltic Exchange data. The China-Brazil roundtrip voyage saw the greatest decline among the benchmark routes, losing $5,750 per day to come in at $58,960 per day. Thursday’s average spot rate for capesizes reflected a 19.2% plummet over the past seven days from $86,953 per day — a high not seen since 2008. “Part of that is due to fears around China shutting down due to an energy crisis, but rates falling should be expected as the forward curve is showing rates will be lower in the coming weeks and months,” Jefferies analyst Randy Giveans told TradeWinds. “All that said, capesize rates are still at incredible levels.”

A scarcity of cargoes in the Atlantic Basin is also weighing down on capesize rates, according to Baltic Exchange market analysts. “However, some owners still showed a bit of resistance and optimism for having an improved return as tonnage remained relatively starved,” the Baltic Exchange said on Thursday in its daily report on the dry bulk market.

The forward curve for capesizes is trending below the physical market, despite showing slight gains on Thursday. The forward freight agreement (FFA) rate for October picked up $322 per day to reach $69,179 per day, while the November figure jumped $1,178 per day to $49,571 per day. The FFA rate for the fourth quarter improved $661 per day to $53,024 per day. For all of 2022, it gained $392 per day on Thursday to achieve $28,509 per day.

The New York-listed bulker equities are falling with the dropping capesize rates, but they have disconnected from the forward curve, Giveans said. “Equities were much higher when the 2022 FFA curve was $24,000 per day, compared to today’s $28,000 per day,” he told TradeWinds. “All that being said, we remain bullish on dry bulk, especially going into what should be a very strong and bullish earnings season.”

Diana Shipping, an owner of 12 capesizes that trades on the New York Stock Exchange under the ticker symbol DSX, slipped 6.9% to $5.15 per share by mid-afternoon on Friday. Genco Shipping & Trading, which owns 17 capesizes and trades on the New York Stock Exchange under the ticker symbol GNK, meanwhile slid 8.1% to $17.17. “Indeed, we are in a correction mode for capesizes,” John Kartsonas, founder of asset-management advisory firm Breakwave Advisors, told TradeWinds. “However, the sub-cape segments are going strong, and that is very important, in my view. There should be a natural support level coming from the panamax and supramax markets, as there is naturally some level of substitution once freight becomes more competitive for larger ships.”

The panamax 5TC picked up $580 per day on Thursday to come in at $36,204, while the supramax 10TC improved $434 per day to $38,960 per day.

Bulk carrier loadings have been halted at the Vanino Bulk Terminal in Russia following a fire, adding to shipping congestion. Russian coal producer and exporter Suek declared an indefinite force majeure on its cargoes on 11 October, according to a letter from the company seen by TradeWinds. Suek chief executive Yuri Filippov said two conveyor belts were severely affected by the blaze and cannot be operated, making it impossible to load any coal at the terminal. He added the company, which is also a vessel charterer, and the port authority are still assessing the damage caused by the fire and working on solutions to bring bulkers in again.

VesselsValue senior trade expert Plamen Natzkoff told TradeWinds: “This is a highly significant event right now, as coal and gas shortages are forcing electricity rationing throughout much of China.” He added that Vanino almost exclusively exports coal, suggesting that the vessels currently waiting there will be stuck until the loaders are repaired. “This also means that another meaningful source of coal is currently offline, just as the world is scrambling to get hold of energy commodities — gas and coal in particular — ahead of winter,” Natzkoff added.

The expert tallies 15 bulkers waiting outside the port, with a total capacity of 1.45m dwt. These are mainly capesizes and panamaxes. Some have been waiting for more than a week and one for nearly a month already. Another nine bulkers are expected to reach Vanino before 17 October. One vessel operator told S&P Global Platts that there is another terminal at Vanino that could load thermal coal from other mining companies. “There are other ports nearby to which some volumes could be diverted,” a shipbroking source said. “In the short term, it could also mean there has to be more replacement volume from Indonesia,” the source added.

Other market participants said the fire could worsen the power crisis in China due to its reliance on Russian imports. China has begun rationing power to industries because of coal shortages and to meet emission targets. Vanino has exported 16.3m tonnes of coal so far this year, comprising 4.5m tonnes to China and Taiwan each, 3m tonnes to Japan and just over 2m tonnes to South Korea.

The terminal was built in 2008. Total exports hit 23.2m tonnes in 2020, Suek’s website shows. The company produced 67.7m tonnes of anthracite and 33.5m of lignite last year. The price of Russian coal is tipped to shoot up, given that demand is firm and global coal supply continues to tighten, S&P Global Platts reported.

On 7 October, Richards Bay Coal Terminal in South Africa caught fire, though the impact has remained unclear. And the Chinese province of Shanxi has faced heavy rains and flooding which resulted in 60 mines being shut. Suek was established in 2004 as an exclusive exporting company of Russia’s Siberian Coal Energy Company, the country’s biggest coal producer.

Online leviathan Amazon has become the latest retailer to try to circumvent the congested containership sector to get goods to market. Consultancy Alphaliner reported that the US conglomerate loaded several of its own 53-foot containers on to an open-hatch bulk carrier operated by Gearbulk and Grieg Star joint venture G2 Ocean. The 50,800-dwt Star Lygra (built 2013) carried the cargo from Shenzhen in China to Houston in the US. “The ongoing shortage of capacity on many liner trades and continued sky-high container freight rates keep prompting shippers and beneficial cargo owners to look out for alternative options to move cargo across the oceans,” Alphaliner said.

G2 Ocean’s managing director for the Atlantic, Scott Krantzcke, confirmed 213 newly built 53-foot containers were safely discharged from the Star Lygra at Port Houston, Texas, on 6 October. “This was a one-off project, but due to the ongoing global supply chain challenges, we have carried a greater number of containers this year, and we are expecting this trend to continue well into 2022,” he added. “By doing so, we hope to ease the situation for customers and provide them with the reliability they need,” Krantzcke said. He added that the fleet has unique capabilities that allows the vessels to accommodate the transportation of specialized cargo.

Amazon’s move echoes action taken by another US shipper, Walmart, which put its own boxes on three Saga Welco open-hatch carriers earlier this year. G2 Ocean’s L-class ships usually carry cargoes such as forestry product and steel pipes. They have a notional container capacity of 1,411 teu. The shipping company has been contacted for comment.

Coca-Cola hit the headlines earlier in October, when it revealed it had loaded 60,000 tonnes of material on three handysize bulkers. Alphaliner said the cargo was concentrate powder shipped in big bags. This was the equivalent of 2,800 teu of boxes. The company chartered the 34,400-dwt Aphrodite M, the 35,000-dwt Weco Lucilia C and the 35,130-dwt Zhe Hai 505 (all built 2011), according to a photograph posted on social media.

Bulker association Intercargo said in a statement: “Recent reports that Coca-Cola has chartered three bulk carriers to keep its production lines running serve to highlight the flexibility and efficiency of the dry bulk cargo sector.” The organization added that the shipping industry has already proven its worth during the Covid-19 pandemic, and now, with the supply chain disruptions during the economic recovery phase, deep sea shipping is adapting to the uneven cargo and container flows. “Dry bulk carriers are demonstrating the vital role they play at the very heart of the world fleet,” Intercargo said.

Mainstream media has been full of news of big cargo owners such as Ikea and Home Depot chartering vessels, but brokers point out that what this really means is reserving space on ships.

Pacific Basin, an owner and operator of smaller-sized dry bulkers, expects continued strong market momentum in the sector, with spot rates pushed to new highs. Average daily earnings of its handysize and supramax vessels increased by about one third and a half, respectively, from the previous quarter to $24,350 and $36,270 in the three months ending September 30, according to a trading update. The Hong Kong-listed company said levels “improved with each month” to $26,950 and $39,310 last month, while most of October was covered at $29,070 and $40,200. “With over 30% of our core vessel days still uncovered in the fourth quarter overall, we have significant opportunity to add cargo fixtures to our book at what we expect will be strong market spot rates,” it said.

Given breakeven levels for handysizes and supramaxes of $8,630 and $10,170, respectively, including general and administrative overheads, its current core fleet — including 91 handysizes and 44 supramaxes that are owned and long-term chartered-in — is now generating decent returns. Third-quarter operating margin stood at $5,430 net per day over 4,680 operating days, almost double the tally in the second quarter.

The results come as Baltic Exchange’s freight rate index for handysizes and supramaxes in September hit 13-year highs, driven by a mix of factors, including demand for construction materials, port congestion and the spillover effect from the container shipping sector. Despite some corrections, “market rates have continued to rise in October,” the company said, adding that the pick-up of US grain exports and extra coal demand spurred by power shortage in key economies could support rates in the fourth quarter. It shrugged off concerns that the recent economic setbacks in China, including the property market slowdown, might weigh on dry bulker demand. “Recent uncertainty over China’s real estate market, steel production curbs and energy curbs has caused jitters in the financial markets, but we have not yet observed any connected impact on dry bulk demand (other than reduced iron ore prices).”

Meanwhile, the tight supply of vessels was expected to further bolster the market. The global fleet of handysize and supramax ships grew by only 2.2% in the year to date, while the orderbook stands only at 5.1% of the existing fleet, said Pacific Basin. “Despite the strong freight market and a slight recent uptick in newbuilding ordering, we expect that new ship ordering will remain restrained, discouraged by uncertainty about the future fuels and vessel designs and technology that will be required to meet coming decarbonization regulations.”

As part of its green shipping commitment, the company said it would only place orders when “zero-emission-ready vessels” become available and commercially viable in its sector, with appropriate global refueling infrastructure in place.

Several factors have merged to create the perfect storm powering an “amazing” dry bulk market, and the strength will continue provided there is restrained ordering, according to owners. The market has benefited from a post-pandemic recovery, congestion, the containerized spillover into bulkers, as well as the Australia-China trade dispute, Grindrod Shipping chief executive Martyn Wade told a Capital Link webinar. He said the market had waited a decade for such good earnings and that he had 90% of his company’s fleet trading in the spot market.

Coal would be the key driver for the market over the next six months, said Safe Bulkers chief executive Polys Hajioannou, with demand prominent in India and China. This was the first time he had seen coal shortages ahead of winter in the northern hemisphere. The greatest advantage to dry bulk has been from the containerized effect, he said, adding that the recovery started with the smaller sizes and pushed up to the bigger sizes.

Seanergy’s chief executive Stamatis Tsantanis agreed, highlighting an increase in coal imports into Europe from the US. Half its cargoes were now coal versus 20% previously. However, he said he had not seen congestion playing a big role for the capesize segment in which his company operates, with faster speeds being achieved, showing how tight the market balance was. He said the dry bulk market, which was in the early stages of the current cycle, would be strong for the next three years or so. Given the patience shown by his shareholders, he is devising a dividend policy that should be announced in coming weeks.

According to John Michael Radziwill, head of GoodBulk and C Transport Maritime, the market would not be where it is today without the low orderbook numbers. “It’s hard for us to screw it up until 2023/24,” he said. He does not want to see overbuilding happening when there are plenty of opportunities in the second-hand market, with vessels generating earnings quickly amid the strong rates environment. He also does not expect the Chinese government to allow its real estate sector to collapse, insisting that infrastructure projects would continue, which would require iron ore. The containerization of cargoes was also assisting the market, although not all owners were in favor of carrying boxes on their bulkers.

Eagle Bulk’s chief executive Gary Vogel said his company had investigated carrying actual containers but decided against it given the “required significant investment” which was also based on the design of the ship. The company was still active in carrying bagged items such as cement from Asia to the Atlantic.

Mr Wade from Grindrod, which is also active in the smaller-sized segments, said it too carried bagged goods from Asia to the US Gulf. But carrying boxes was a very specific opportunistic risky trade, which carried a “big premium” but needed class approval. It was not feasible on capesizes, but more suited to handysizes. “You don’t want to make a mistake.”

The Organization for Economic Co-operation and Development (OECD) is now tracking how much container shipping is factoring into global inflation. The OECD’s latest Economic Outlook report cites container shipping as a major contributor to inflation among G20 countries.

The OECD is predicting that G20 consumer inflation (CPI) will hit 4.5% by the end of this year with container freight prices and soaring commodity prices highlighted as a big contributor, adding 1.5% to G20 inflation. The OECD’s shipping input index currently stands at 482 points, versus 100 in February 2020. “Though termed a shipping index, it relates solely to container shipping and is based on the Shanghai Containerized Freight Index (SCFI),” analysts at Alphaliner explained in their most recent weekly report.

“This atypical situation appears likely to persist for some time, with significant additional shipping capacity only likely to appear in 2023,” the OECD stated in its new Economic Outlook report.

Just how much today’s sky-high container freight rates are contributing to global – and more specifically US – inflation formed the lead story of the September issue of Splash Extra, a subscription sister title to Splash.

Nariman Behravesh, senior economic advisor at information provider IHS Markit, suggested the surge in shipping costs has only added 0.1 to 0.2 percentage point to US consumer inflation, pointing out that shipping only accounts for 3% to 6% of the direct and indirect costs to consumers.

A capesize bulker market that has been hurtling toward the heavens may soon return to Earth amid slowing demand for iron ore, according to market experts. The capesize 5TC, a spot-rate average weighted across five key routes, has doubled over the past month to 2008 levels, coming in at $79,535 per day on Tuesday after falling 3.8%. It has soared amid a perfect storm of high demand and port congestion, but a return to rates as high as almost $234,000 per day in June 2008 is highly unlikely, according to market experts.

“I might be a party spoiler here, but although $200,000 is a plausible scenario, I do not think it is a possible one,” John Kartsonas, founder of asset-management advisory firm Breakwave Advisors, told TradeWinds. “In fact, I am in the camp that sees a possible correction in spot capesize rates over the next few weeks, and where we stop is difficult to pinpoint at this stage.” He said capesize supply is certainly low amid pending environmental regulations, but commodity demand is insufficient to push rates even further. “The difficult question is how much coal trading can increase to make up for a softer iron ore market, and that is difficult to answer as it relies a lot on weather and energy policies around the globe,” he said.

The capesize spot market may fall over the next few weeks to a “higher low” amid support from improving rates in the smaller segments, he said. Rates may fall 50% by December as commodity prices stay high and demand starts falling amid limited coal supplies and China’s plans to curb steel output, it said. “But as one can easily understand, it is not the overall supply of the global fleet that is lagging behind demand — at least not yet,” the report said. “It is the bottlenecks across the supply chain that are causing freight prices to spike. There are enough ships around, just not in the right spots.” There are about 2,400 bulkers at anchorage outside numerous ports worldwide, waiting for a berth to become available so that they can unload cargo, according to Vessels Value.

Braemar ACM Shipping does not guess on spot rates in such a volatile market, but firm demand and supply-chain disruption could send them a bit higher, said dry cargo analyst Nick Ristic. “On the flip side, it could only take a small pullback for owners to lose their nerve and concede a drop in rates,” he told TradeWinds. In the meantime, port congestion due to pilot shortages and clearance delays at ports continue to fuel market uncertainty, he said.

China’s unstable property and construction market and plans to curb steel output for environmental reasons may also weigh down rates, according to Athens-based broking house EastGate Shipping. A tumble in iron-ore prices to about $130 per tonne from almost $220 per tonne in mid-July may also hurt demand, but they are still high enough to keep miners interested in selling as much as possible, it said in a report.

High demand for coal in China and India may benefit capesize rates, but Chinese property developer Evergrande’s debt problems may indirectly offset any gains by hurting steel demand.

There appears to be a massive disconnect between frenzied tabloid headlines in the Western mainstream media about empty shelf paranoia in the run up to Christmas and the reality on the ground at key hubs around the world. The absolute worst in terms of global port congestion has passed, multiple data points confirm, and the pressure is now on inland links to move the goods in time to make into Santa’s sack for December 25.

The latest global port congestion bubble map from Danish liner consultant eeSea shows the most talked about congestion areas – Shanghai and Ningbo in China and Los Angeles and Long Beach in California – have retreated from red to amber in terms of the scale of severity with 62 boxships waiting outside the two Chinese hubs, down by more than 50% since Splash last covered eeSea data seven weeks ago. Outside the southern Californian gateways there were 54 ships waiting this morning, down from highs of more than 70 vessels recorded last month.

The one red dot on the global map provided by eeSea is in south China, but even here that is a temporary blip following the passing of two typhoons near Hong Kong and Shenzhen in the space of one week. Moving boxes from the ports inland remains the biggest issue facing retailers in the run up to Christmas, something felt most acutely in the US and the UK now.

Data from tech firm Project 44 shows orders from China are reaching American customers with a delay of at least 10 days compared to 2019 pre-pandemic delivery times. Aside from the well documented delays on the transpacific, the box snarl-ups have also being keenly felt on the other main east-west trade lane, connecting Asia with Europe. Alphaliner data shows container ships are currently arriving with an average delay of 18 days in China after a full round trip between the Asia and North Europe.

Trying to temper the hysteria among many mainstream media outlets about a doomed Christmas, Lars Jensen, CEO of liner consultancy Vespucci Maritime, took to LinkedIn today to ridicule much of the reporting. “The current supply chain challenges appear to give rise to ever more overblown press headlines raising fears of a disastrous upcoming holiday season plagued by empty shelves,” Jensen wrote, adding: “We almost appear to be heading into a state like Eastern Europe during the cold war with massive lines outside stores to get the bare essentials if we are to believe the headlines.”