New York-listed Genco Shipping & Trading is the latest dry bulk owner to seek a way to monetize exposure to a containership market that is even hotter than its own trade. Genco is seeking class approval on its entire fleet of capesizes, ultramaxes and supramaxes to carry boxes both on deck and in cargo holds, chief executive John Wobensmith told TradeWinds in a recent interview. Still, the Genco chief emphasized that the business was likely to be selective and opportunistic as it joins the list of dry owners to explore the option. “We’re not becoming a containership company, and we’re not converting dry bulk ships into containerships,” Wobensmith said. “It’s not something you’ll see us doing every day. If we have a ship we want to get back into the Atlantic, say on a backhaul cargo from China, it might make sense and we’ll explore it.”

Genco owns a fleet of 17 capesize, 13 ultramax and 13 supramax vessels with an aggregate capacity of approximately 4.57m dwt and an average age of 10.2 years. Wobensmith estimates that Genco can carry about 700 teu aboard each ultramax and 1,300 teu on a capesize. “It’s about coming up with a stowage plan for loaded and unloaded containers, how much weight can be put into the holds, adding lashing gear that will be needed and so on,” Wobensmith said.

The addition of box cargoes would augment rates strength that is already the best in more than a decade, especially for capesize tonnage. Genco is far along in the class process. “We’re probably a few weeks away from getting approval,” Wobensmith said.

The willingness of dry bulk owners to consider hybrid cargoes has been an emerging trend amid raging boxship rates and a shortage of containerships to meet global demand. Taiwan’s Franbo Lines said five of its 18 bulkers could take containers on deck and advantage of record rates. Lin Cheng-he, the company’s vice general manager, told domestic media that the company could earn more carrying boxes from Asia to Europe and the US. “We have five geared ships of around 17,000 dwt that can each carry around 212 teu on deck, so no modifications are required,” he was quoted as saying.

Asian analysts have also noted that Swire Bulk has been carrying a small number of containers on its ships. John Fredriksen-controlled Golden Ocean Group has also told TradeWinds that it is actively looking at how its bulkers could be used to carry containers.

Carnival Corp has reported a seventh consecutive quarter of huge losses because of the pandemic while also achieving record bookings for the second half of next year. The Arnold Donald-led owner of 91 cruise ships on Friday posted a $2.84bn deficit for the third quarter versus a $2.86bn loss for the same period last year. New York-listed Carnival registered an adjusted loss of $1.99bn against an adjusted deficit of $1.7bn a year earlier.

It did not disclose revenue but said third-quarter bookings improved since the first quarter but were not as high as the second quarter due to the Delta variant hurting consumer confidence.

Carnival said customer deposits grew by $630m during the third quarter to $3.1bn as of 31 August, marking the second consecutive quarter of increased deposits since March 2020. Advanced bookings for the second half of 2022 are ahead of a “very strong 2019”, it said. “Our booked position for the second half of 2022 is at a new historical high, including our seasonally strong third quarter with all our ships planned to be in operation, despite reduced marketing spending,” chief executive Donald said in a statement.

“The broader environment for travel, while choppy, has improved dramatically since last summer and we believe it should improve even further by next summer, if the current trend of vaccine rollouts and advancements in therapies continues. We have also opened bookings for further out cruises in 2023, with unprecedented early demand.”

Carnival ended the third quarter with $7.8bn in cash and lowered future annual interest costs by over $250m per year and arranged payment extensions on about $4bn in debt. “We believe we have sufficient liquidity to get us back to full operations and continue to be focused on pursuing refinancing opportunities to reduce interest rates and extend maturities,” chief financial officer David Bernstein said.

Carnival’s shares which trade on the New York Stock Exchange under the ticker symbol CCL, gained 3% to $25.44 on Friday.

Capes are back in 2008 territory. The time charter equivalent C10 transpacific round voyage yesterday surpassed the $70,000 a day threshold. The C14 transatlantic round voyage was also “on fire”, according to analysts at Lorentzen & Stemoco, on the verge of hitting the $70,000 a day mark. Overall, the Baltic Exchange set the 5TC at $61,683 a day, pushing up by $9,402 over the week and erasing the jitters experienced on Monday over concerns about a possible collapse of Evergrande, a major Chinese real estate developer.

“Tremendous gains in the Pacific framed the development of the Cape market this week,” Braemar ACM stated in a note to clients yesterday. The spot price of iron ore Fe 62% fines has climbed off recent lows in the past couple of days, as Chinese buyers start restocking for the Golden Week holidays.

“The coming days and weeks look to be very interesting as the Pacific seems to drain most vessels opening, meaning there is a very limited number of vessels heading for Brazil and Atlantic,” Fearnleys stated in its most recent weekly report.

The market for capesize bulkers swung to new heights this past week as high demand for commodities kept the pressure on a very tight supply of vessels. The capesize 5TC, a spot-rate average weighted across five key routes, improved 15% since last Friday to $61,309 per day on Friday, according to Baltic Exchange data.

The smaller asset classes also saw higher rates over the same period to a lesser degree. The panamax 5TC gained 2.7% to reach $36,104 per day, while the supramax 7TC moved up 1.6% to $36,948 per day. The handysize 5TC edged up 3.4% to come in at $34,650 per day on Friday.

“Honestly, the market is currently in a ‘super-squeeze’ phase,” John Kartsonas, founder of asset-management advisory firm Breakwave Advisors, told TradeWinds. “There is a shortage of tonnage in both the Atlantic and the Pacific trying to serve a steady demand for both iron ore and coal, thus the market balance is considerably tilted towards the benefit of owners.”

He said China’s slowing of steel production should not worry owners because supply and demand are “out of sync” for other reasons such as weather, port congestion and Covid-19 delays. “When and how such a squeeze will resolve is extremely difficult to predict,” he said. Rates will probably start strong next week, but where they will go over the days that follow is hard to say, he said.

“This is a market for strong nerves, and volatility will be considerably higher than in the recent past,” he said. “What matters is the averages, and we are tracking a very strong end of the year no matter what.”

The market may go even higher if port congestion and the supply remains imbalanced between the Atlantic and Pacific basins, but they will not stay very high for too long, Noble Capital Markets analyst Poe Fratt said. “At some point, the transportation costs become too onerous relative to the underlying cost of the cargo, like iron ore,” he said.

It’s all about vessel supply, and this time shipping is limited in its ability to destroy its own peak markets through excessive ordering of new ships. That’s the take in a new market note from investment bank Jefferies, whose lead shipping analyst Randy Giveans is projecting orderbook-to-fleet growth across most sectors at levels below 10-year averages, with especially compelling numbers in dry bulk. “In recent decades, all shipping cycles started due to vessel supply shortages and ended as a result of aggressive ordering and vessel supply surpluses,” Giveans told clients. “Regulatory, financial and structural limitations will help limit newbuilding ordering and prevent a new wave of oversupply,” leading the researcher to argue “the current shipping up cycle will be sustained in the coming years.“

Of course, for some shipping segments, like tankers, the notion of an up cycle is still more theoretical than proven as rates skid along at trough levels. But for dry bulk and containerships, the rally has been on since late 2020, intensifying through 2021 to date. Bulker owners have seen their best rates in more than a decade, while boxship operators explore new highs. Jefferies compares the current overall orderbook-to-fleet ratio at below 9%, with 195m dwt on order, to an average of 20% or 325m dwt over the past decade. The numbers are even more striking compared to a peak market in 2009 when the orderbook was 52% or 627m dwt.

The 2009 period was especially enticing for bulker owners, who placed orders representing almost 70% of the fleet or of 330m dwt. In comparison, the current figures are just 6.2% and 58m dwt. “Overall, the current supply picture is the best it has been since the turn of the century, with dry bulk being the most attractive,” Jefferies reported. “As such, we believe dry bulk fleet growth will remain below 2% in the coming years, which will likely further support stronger rates.” Giveans makes New York’s Genco Shipping & Trading and Greece’s Star Bulk Carriers his top picks in the sector.

While containerships have had more recent ordering amid record-setting rates, with 48% of total capacity ordered in the year’s first half, Giveans notes that most deliveries are not until 2023 or 2024, thus paving the way for more strength through 2022. The fleet is to grow by only 3.8% in 2021 and 3.3% in 2022, compared to average annual growth of 7.4% over the past 15 years. Jefferies likes Danaos, Global Ship Lease and Zim as top picks.

Unlike their dry brethren, tankers have been slow to recover from the demand-destruction of Covid-19 and the effects of destocking from a world oil glut. But for crude tankers, Giveans expects current-year fleet growth of 3.2% and then 3.4% in 2022 to fall below the 15-year average of 3.8%. Product tankers are to see a bigger dip, with growth of 3.4% in 2021 and 2.4% in 2022 falling well below the 15-year average of 6.1%. Jefferies’ top picks are International Seaways and Euronav on the crude side, Scorpio Tankers and Ardmore Shipping in clean products.

The dry bulk market continues to sail full steam ahead, toppling one record after another amid tight supply and strong demand for iron ore. The capesize 5TC, a spot-rate average weighted across five key routes, on Thursday improved 3.3% to $61,683, surpassing the $60,000-per-day mark for the first time since 2008.

It last reached that height on 23 September 2008 when it fell 6% to $62,105 per day before falling another 8.7% the next day to $56,724 per day, according to Baltic Exchange data. Before late February 2014, the spot-rate average for capesizes calculated only four key routes.

The capesize bulker sector is in backwardation as the paper market remains well below its physical counterpart. The forward freight agreement (FFA) rate for September improved $364 per day on Thursday to $51,500 per day. It declines steadily over the next few months to $25,161 per day for January 2022.

This latest crossing over the $60,000-per-day threshold comes well short of flirting with $234,000 per day in June 2008. The dry bulk sector’s other asset classes are also maintaining forward momentum amid tight supply and high demand for other commodities such as grain and coal.

The panamax 5TC picked up $300 per day to reach $35,947 per day, while the supramax 10TC gained $121 per day to achieve $36,838 per day. The handysize 5TC improved $271 per day to hit $34,486 per day.

The Baltic Dry Index, which does not factor in handysize rates, added 91 points on Thursday to attain 4,651 points.

• Australian forecasters have pinned wheat production at 32.6 MMT for the 2021/22 marketing season ending June 30th, 2022. The figure would make it the second largest harvest on record of the country’s most valuable crop, after last year’s. The bumper harvest comes at a time when wheat prices hover near eight-year highs and after multiple years of droughts damaged Australian farms.

• Two major grain growing states, Western Australia and New South Wales, experienced ideal planting conditions and heavy rainfall this year. Other grain harvests, such as canola, also stand to be excellent. Wheat prices have spiked in the last month amid constrained global supplies caused by dry conditions in major grain-growing areas.

• This harvest would cement Australia as a top four global wheat exporter, but market participants are weary of looming worker shortages due to reliance on overseas workers that are unable to travel during the pandemic and delays in acquiring new equipment.

For Genco Shipping & Trading chief executive John Wobensmith, it is not so much about implementing a dividend as it is sustaining a dividend. That, he said, will hold the key to the owner’s new strategy to reward shareholders with payouts regardless of what an historically volatile dry bulk market may throw its way.

“One of the real criticisms investors make of the shipping industry is that you pay dividends in good times, but you’re too levered to pay in bad times – that’s one reason these equities haven’t traded better,” Wobensmith told TradeWinds. “From the types of investor meetings we’ve had so far, and the number of meetings, the reaction has been encouraging. And I think once we announce that first [high-payout] dividend and it becomes seasoned — it will take us time to build that credibility of a consistent dividend — the stock should start trading off free cash flow rather than just NAV.”

While some companies have lowered their leverage simply because vessel valuations have climbed, Genco has steadily been paying down debt in a strong rates market, which Wobensmith finds a key distinction. Part of its dividend formula will be establishing a reserve fund for items including fleet renewal.

Wobensmith said Genco likes the age profile of its current fleet of capesize and ultramax/supramax bulkers but understands that renewal and replacement of vessels will be critical going forward. “I think we’re in a sweet spot with an average age of about 10 years,” Wobensmith said. “That age is a sweet spot when it comes to return on capital. But to keep it there, you need to constantly be looking at selling older tonnage and buying newer tonnage.”

He said one thing Genco will not be looking at is the newbuilding market, and this has little to do with uncertainty over future propulsions systems. “We don’t need that as a deterrent because we’re simply not ordering newbuildings right now,” he said. “I can’t get my head around any capital allocation strategy involving ordering newbuildings. I don’t understand why anyone would be out ordering ships when, for a lower price, you can get secondhand tonnage, start earning in a strong market and de-risk the asset right away.”

The possibility of Chinese property developer Evergrande defaulting on its debt shook global markets earlier this week, but shipping analysts have taken the news in stride. The Shenzhen-based real-estate behemoth in recent weeks revealed that it was struggling with $300bn in debt, including an $83.5m interest payment due on Thursday. Fears over Evergrande coming up short caused financial indices and equities worldwide, including those in shipping, to tumble by as much as 20% on Monday. Some analysts speculated that the debt dilemma may trigger a global recession, similar to the 2008 financial crisis that followed the fall of Lehman Brothers, but markets bounced back on Tuesday. Most dry-bulk shipping equities were up at the outset of Wednesday’s trading on Wall Street, led by Globus Maritime shares gaining 7.4% to $3.05.

The Dow Jones Industrial Average gained 185.66 out of the gate to reach 34,105.50. “I know the world likes to sensationalize everything, but to compare the Evergrande debt situation with the global financial crisis is a massive overreaction,” Jefferies analyst Randy Giveans told TradeWinds. “Certainly, a topic and issue to keep an eye on, but not very worried.” He said China’s government will most likely force Evergrande’s competitors to take over some properties while supporting the housing market with real estate-related policies and monetary easing. “Given traditionally tight lending standards such as a general prohibition of second house mortgages and high down payments, we expect a price correction that could trigger a full-on financial crisis as a highly unlikely scenario,” he said. Shipping should therefore remain unscathed by Evergrande’s financial troubles, especially since the industry is doing quite well amid tight supply and high demand, he said. “The supply picture remains very attractive with low orderbooks and old average fleet ages,” he said. “Company balance sheets — especially on dry bulk and containerships — are at the strongest levels arguably ever, thus easier to withstand any short-term market volatility.”

Shipping should remain stable despite uncertainties around Evergrande and factors such as the US debt ceiling and infrastructure legislation, Noble Capital Markets analyst Poe Fratt said. “I do believe that the dry bulk stocks will recover, possibly in response to third-quarter 2021 operating results,” he told TradeWinds. “At this point, I don’t see the fundamentals changing. Maybe demand will ebb as we enter the new year with less congestion and lower steel production, but the supply side appears very supportive of continued attractive fundamentals.”

The capesize 5TC, a spot-rate average weighted across five key routes, continued its upward swing on Wednesday amid strong iron-ore demand, jumping 6.1% to $59,715 per day. Spot rates for dry bulk shipping’s other asset classes also maintained positive momentum to a lesser degree as the demand for grain and coal remained high. The panamax 5TC picked up $274 per day to come in at $35,647 per day, while the supramax 10TC added $118 per day to hit $36,717 per day, according to Baltic Exchange assessments. The handysize 7TC also gained ground, picking up $278 per day to reach $34,215 per day.

Brakes on the Chinese economy have led to warnings to shipping not to rely too heavily on this global engine of growth. London-based shipbroker Braemar ACM warned in a research note of “alarming signals” coming out of the Far East amid a huge pull back in steel production. “Economic markers such as industrial output, infrastructure investment, retail sales and floor space under construction also registered the slowest levels of growth since the pandemic hit China in 2020.”

The Braemar warning was followed up by a second from New York-based shipbroker Poten & Partners, which said the “days of rapid, unbridled growth of demand for large tankers bringing crude imports to China are behind us”. These concerns from the maritime world come amid wider jitters over the state of China’s property sector. There are also fears about the strength of future stimulus packages from the US Federal Reserve and wider fears the post-pandemic global economic recovery is faltering. Monday brought a big sell-off of stocks around the world amid a liquidity crisis at the world’s most indebted property developer, Shenzhen-based Evergrande.

One banker described it as China’s “Lehman moment” in a reference to the collapse of American investment bank Lehman Brothers Holdings — an event which heralded the start of the wider 2008 financial crisis. Evergrande, which has debts of an astonishing $300bn, saw its shares plummet a further 19% on Monday. The Chinese state, which owns much of the banking system, could ride to Evergrande’s rescue at any moment but seems determined to teach the wider property sector a lesson for ignoring its demands to reduce debt levels. The Hang Seng Property Index of top Chinese-listed developers slumped 7% to its lowest level for five years.

The concerns rumbled through Wall Street, pulling the S&P 500 index of leading US listed companies down 1.4%. International mining companies and some formerly high-flying bulk shipping stocks felt the pain immediately. Chinese bulker owner Jinhui Shipping & Trading saw its shares slide 20% and Golden Ocean Group’s valuation fell by 13.5%. There has also been a major commodity sell-off, with iron ore suffering one of its worst weeks on record in the seven days to 17 September. Steel mills in China have been forced into a go-slow by government production curbs, while there are signs of faltering physical demand for homes and infrastructure. Just to add to the sense of uncertainty, there have been growing geopolitical tensions after the US, Australia and Britain unveiled a new AUKUS defense pact. Beijing condemned the new grouping, claiming it seriously undermined regional peace and intensified a global arms race.

But the most serious issue surrounds economic rather than military or political issues, with the Chinese communist government trying to reassert control over certain business sections and take the air out of a speculative asset bubble. There has been a high-profile regulatory crackdown on its formerly booming tech sector and warnings from President Xi Jinping to rich businessmen that “excessive incomes” must be “adjusted”. The production quotas on steel led to a 12% year-on-year decline in output last month and helped lead to a halving of iron ore prices since May. Despite the slowdown and Braemar’s warnings about the longer term, the dry bulk sector has remained more than firm. The capesize sector has been aided by high levels of iron ore exports out of Brazil, coupled with continuing post-pandemic congestion at ports around Shanghai.

Meanwhile, the caution coming from Poten about the tanker sector relying too much on Chinese imports is derived from estimates that the 5.5% annual oil demand over the past 20 years will not be sustained. Crude levels grew from 4.7m barrels per day to nearly 14m barrels per day last year, but state-owned Sinopec has already forecast they will peak at 16m barrels per day. The biggest driver for change is the speed with which the world’s most populous country is shifting from petrol-driven cars to electric vehicles. With the climate crisis on every country’s agenda — to some extent or another — Poten sees no one taking up the slack on crude and therefore tanker tonne miles. The broking house said shipping needs to “carefully manage vessel supply to enable the industry to return to profitability”. It seems like all eyes are on China for the moment.