Shippers of low value bagged dry commodity cargoes are baulking at sky-high container freight rates and returning to the bulk carriers they have shunned for so long. Hsu Chih-Chien, chairman of Taiwanese bulker player Eddie Steamship, said the return of these cargoes to dry bulk shipping is one of the major reasons why the handysize bulker segment has been performing so well in recent months. Speaking at the TradeWinds Shipowners Forum Greater China 2021 on Thursday, Hsu said the handysize market is enjoying a knock-on effect from the high cost of shipping containers. “Handysize is the strongest in the dry bulk sector,” said the executive, who is also known as CC Hsu.

Container lines have for several decades coveted cargoes such as rice, grains, sugar, and fertilizers shipped either bagged in regular containers, and in in dedicated bulktainers. They have done this by offering cheap freight rates that provided shippers with a cheaper alternative to chartering a bulker. At the same time liner companies syphoned off many cargoes that were carried in dedicated reefer vessels by undercutting the reefer market with refrigerated containers. The development of the liquid ISO tank also saw liner companies target cargoes that were the backbone of long-haul routes for small chemical and product tankers.

Container carriers saw these cargoes as a new source of income to fill the many empty slots that came as result of containership fleet being supersized before demand could catch up. Lines enticed shippers to make the switch by offering lows freight rates that undercut the freight on a per ton basis. That situation has now turned on its head.

The dramatic rise in container freight rates and terminal handling charges has made shipping low-value cargoes prohibitively expensive, and that is even if shippers are able to secure space onboard. The stiff competition to secure slots on ships has put the lines in a position where they are able to pick and choose what cargoes they are willing to take. Shippers of low value cargoes have in recent months complained loudly that they have been pushed to the bottom of the container pecking order.

Commodity shippers are not the only ones who are reverting to former methods of ocean freight. TradeWinds has recently reported that liquid bulk shippers are once again knocking on the door of tanker operators as they try to move their hydrocarbon cargoes to market. Even reefers, a class of vessels long considered a dying breed, have found themselves back in vogue this year.

A shake-up of global seaborne coal trades looks likely this year, adding to already firm demand for bulkers to carry the commodity — panamaxes primarily and capesizes too. The world’s two biggest importers — China and India — are said to have started running low on the commodity, which is likely to prompt large scale and urgent restocking in the months ahead. But Europe, too, is likely to up its imports of thermal coal before the end of the year because LNG prices are rising.

Even though coal prices are high, it is more profitable to use the dry commodity over natural gas as an energy source for power generation. For current benchmark European Union prices, coal is about €21/MWh more profitable than gas for the final quarter of 2021 and the first quarter of 2022. Arrow Shipbroking Group has described this differential as “exceptionally high” and thinks it will incentivize “large” coal imports into Europe in the coming months. Research by Arrow suggests these pricing dynamics could prompt a change in seaborne trade flows for coal. “This revival of EU coal burn will dent fronthaul demand as the Atlantic coal balance tightens, this potential reduction of inter-basin coal cargoes would likely reduce aggregate freight demand,” the broker said. “However, recently the Pacific basin has been taking Atlantic coal cargoes, it will be interesting to see how/if Asian importers switch origins.”

Nick Ristic, lead dry bulk analyst for Braemar ACM Shipbroking, agreed that there has been something of a reversal in European power companies switching from LNG to coal, but said “it’s not a long-term trend in our view. As it stands it is theoretically more profitable to burn coal, even after accounting for the cost of polluting under the EU [emissions] trading scheme, so we’ve seen a slight pickup in import volumes,” he explained. “There’s scope for this to continue, but coal is still expensive right now.”

This year, Indonesia has risen to become the world’s number-one supplier of coal to China, which is still maintaining its import ban on Australian coal. But Indonesian coal exporters may be unable to further ramp up seaborne exports during the rest of this year, even as commodity prices rise, because the country’s government requires miners to sell 25% of their output domestically. Rising coal prices also mean some industry leaders in Indonesia are calling for the domestic market obligation to be made even more stringent to reduce domestic coal prices, according to research by Arrow. Ristic said it remains unclear how much export capacity is still to be squeezed out in Indonesia. “Monthly shipments are still below their 2019 highs, though August was up by about 10% [year on year],” he said. “However, I think what is more important is the shake-up in trade patterns that has occurred. For example, you have more coal coming on long-haul voyages from the Atlantic to the Far East, in addition to more Australian coal heading on capesizes to India, which are helping to tighten the market.

Of the known coal loadings tracked by online platform Oceanbolt this year, Indonesia has exported 306.4 MMT of coal in 2021 so far, including 130 MMT of thermal coal. In comparison, Australia has exported 271.5 MMT of coal since 1 January, of which 84.2 MMT was thermal coal. China, of course, was the top destination for all this coal and has imported 215 MMT of seaborne coal since the year began, of which 86 MMT has been thermal coal, according to data compiled by Oceanbolt. “The latter has also meant that fewer ships are opening up in the Pacific, which is helping to shore up that market along with the Australian quarantine and congestion in China.” None of these problems are expected to abate in the short term and Ristic said the market can expect “a sustained floor” to freight rates in the weeks to come, “even amid the very troubling signals coming from China’s steel complex”. Indonesia’s seeming inability to boost its exports in a rising coal market could open the door for greater volumes around the globe, according to research by Arrow. But this burgeoning trade could be hindered by concerns over carbon emissions and growing pressure from national governments, banks, and shareholders, according to the report. Any shake-up in the seaborne coal trade would likely affect demand for panamax and capesize bulkers the most. The seaborne coal trade is principally the preserve of panamax bulkers, which have carried close to 50% of all coal cargoes tracked by Oceanbolt so far this year. Capesize bulkers have carried about 29% and supramaxes have taken around 18% of the coal cargoes monitored by the platform since 1 January.

Berge Bulk founder and chief executive James Marshall was excited when he took to the podium at a Marine Money conference in Singapore on Tuesday. Capesize rates, he gleefully told the audience, had just smashed the $56,000-per-day mark. Marshall — who gave a rare glimpse into his low-profile but giant dry bulk company during a 30-minute on-stage interview conducted by DNB Markets Singapore managing director Joachim Skorge — said he had every reason to believe that the sector would continue on a high for the next two years.

“Some of the seeds for this current high cycle are set to continue for some time,” Marshall said. Strong demand from the Covid-19 rebound together with strong coal and steel prices were some of the reasons he cited. Marshall also pointed out that 30m more tonnes of iron ore were brought into the market, most of which was long-haul from Brazil. Already describing the market as being very healthy, he said it has been “supercharged” by Covid-19 issues. He said constraints such as strains on logistics and the efficiency of the fleet have “added spiciness to the market”. The shipowner cautioned that these pandemic factors would only have a short-term effect on what he described as an “already strong market”. “The short to mid-term prospects look pretty positive,” he said. “We will still see strong demand over the next two years.”

Factors influencing Marshall’s bullish market view include the US infrastructure package and strong demand for electricity in India, along with low stockpiles of coal in both India and China. “The road to decarbonization and renewables will also be infrastructure intensive,” he said. In addition, Marshall noted that Vale intends to up its iron ore production capacity to 375m tonnes in 2022, which should add an extra 30m to 35m tonnes to the seagoing iron ore trades. This, he added, was combined with a modest orderbook for new tonnage, which is unlikely to change as building slots at shipyards are occupied by containership orders.

Berge Bulk is seen by some as one of dry bulk’s greatest success stories from the past decade. Marshall founded the company in 2007, when he bought 12 capesize bulkers from BW Group. Today, the company owns a fleet of 85 bulkers, the vast majority of which are capesizes. In the smaller size segments are seven ultramax and 16 handysize bulkers. Another capesize is set to join the fleet later this month, while a newbuilding is scheduled for delivery in 2022. When both have been incorporated into the fleet, the company will have a total capacity of 14.7m dwt.

Asked to divulge the secret of his success, Marshall said it came down to having a good business model, the right management team and strong support from banks. “I wanted to build a business offering safe, efficient and reliable freight, and we’ve stuck to that,” he said. “Delivering what we said we would do has helped with banks.” Being cautious, financially prudent and taking only well-considered risks were also listed as factors that played out in Berge Bulk’s favor.

Asked whether now would be the right time to invest in new ships, Marshall said an area where Berge Bulk is considering making further investments is the smaller bulker size sectors, which he said were performing well because of strong grain demand and have positive market fundamentals going forward. However, Marshall stressed that the company’s growth emphasis over the next few years would be on decarbonization rather than adding large numbers of new ships. “We bought 10 ships at the low point of the cycle and are currently absorbing them,” he said. Berge Bulk has committed itself to having a zero-carbon vessel in service by 2030. Marshall said that while the company worked on that goal, it continued in the interim to invest in improving the efficiency of its existing ships, improving their performance, and reducing their carbon emissions using existing technologies, ranging from better paints to improved voyage performance systems.

This upgrading is an ongoing process that Marshall said has resulted in a 42% reduction in the Berge Bulk fleet’s carbon intensity as compared to what it was in 2008.

Capesize spot rates are rocketing once again, having risen by more than $5,000 on a Friday and a further $6,736 on Monday, taking them back above the $50,000 mark and to levels not seen since 2009. Brokers Lorentzen & Stemoco described the current cape freight environment as a “perfect storm” in an update to clients today. “The C5 between West Australia to China skyrocketed, transcribing into the C10 transpacific round voyage going ballistic … that then reverberated into the Atlantic,” analysts at Lorentzen & Stemoco explained.

Several factors came into play, all pointing in an upward direction. The typhoon Chanthu, centered in the East China Sea, disrupted vessel scheduling and thus hiked up vessel capacity utilization. Moreover, iron ore prices in China for 62% Fe fines dived to $123.84 per ton on a CFR basis, likely causing anxiety among the mining companies in West Australia and Brazil eager to fix vessels in fear of commodity prices dropping further. The futures prices trading on the Dalian Commodity Exchange yesterday were changing hands at $113.66 per ton for January delivery.

The other factor increasingly coming into play is Chinese port congestion, thanks largely to Beijing’s zero-tolerance Covid-19 policy. In addition to official restrictions, some ports are enforcing even stricter rules. Cleaves Securities cited the major iron ore port of Qingdao as an example in a new report published yesterday. Qingdao port authorities view vessels having called Indian ports – or ports nearby – within the last 28 days as high-level risk and may delay the berthing plan accordingly.

Nick Ristic, a dry bulk analyst at Braemar ACM, observed cape queues in China today are 49% higher than the five-year average. The concern for cape owners, however, is China’s restrictive policy on commodities and especially on the steel market, something a new report from Breakwave Advisors suggested should be taken seriously and at least moderate some of the current excitement.

A recent report from BIMCO also touched upon Beijing’s commodities clampdown. “After strong growth in the first half of the year, the Chinese government seems keen to clamp down on the steel and other heavy industries to limit emissions. One big question is how strictly these measures will be enforced and whether they will start to constrain economic growth,” the BIMCO report noted.

The two largest dry bulk goods imported by China in terms of volume, iron ore and coal, have both fallen year-on-year during the first seven months of the year. “Given the current level of uncertainty and lack of robust long-term fundamentals in support of the current freight boom, we are quickly moving towards a market regime favoring very high-risk lovers,” George Lazaridis, Allied Shipbroking’s head of research and valuations wrote in a new report published this week.

The Baltic Exchange’s assessment of average spot rates for capesize bulk carriers made its biggest daily advance on Monday, rising by $6,736. The leap since Friday has taken capesize spot rates to the highest level seen in just over 11 years. Baltic panelists put the capesize 5TC assessment — the weighted average of spot rates across five benchmark routes — at $52,908 on Monday.

Friday also saw a big rise when panelists added an extra $5,021 to the basket assessment. In addition to being the biggest one-day jump of the 5TC, Monday’s rise was higher than any gain on the prior 4TC since May 2010. The 4TC was phased out in 2014.

The index movement poured fuel on the futures market on Monday, particularly for front-month contracts. September contracts were up by $3,375 since the market opened, with bids around the $49,250-per-day level as of 3pm in London — a new high. Likewise, paper for October was up by $2,500 with bidding around $47,000 per day.

A capesize was said to have been fixed for the handsome sum of $35 per tonne for a voyage to China, but this high price is believed to reflect the associated risk. But the fixture is said to be for a capesize loading bauxite in Guinea from aluminum producer Emirates Global Aluminum (EGA)’s export facility in the country, according to market sources. Guinea is still undergoing its rainy season and a government handover following last week’s military coup, making the trade riskier than others in the market.

Brazilian miner and major charterer Vale has been seeking vessels for loading in Brazil at the end of September, but is struggling to find tonnage to meet its needs, according to chartering manager Michael Gardiner. “We came to the market on Friday to give some padding for the line-up for [the] very end [of] September but were unable to meet our freight targets, and thus asked some existing vessels to speed up,” Gardiner told TradeWinds on Monday. “Demand for 2H [second half of] October remains good. We are not in a rush to cover for the time being.”

Last week, Vale chartered 15 to 20 ships for loading in October for trips to China from Brazil, all at around the $29 to $30.50 per tonne. Gardiner said the miner had “moved decisively” on Monday and Tuesday in response to the uncertainty in Guinea. In contrast, Japanese carrier NYK Line was reported on Friday to have booked Golden Ocean’s 180,500-dwt Golden Monterrey (built 2016) for a trip to China at $30.75 per tonne, loading iron ore in Brazil during early October.

Iron ore prices may be in freefall, but fixtures for capesize taking ore voyages to China have been steady and concluded at higher rates. Freight for iron-ore voyages from both Brazil and Western Australia to China is at its most expensive level since November 2009. An extra $3.17 was added to the Brazil-to-China route, which panelists assessed at just under $35.03 per tonne. Baltic panelists assessed the benchmark route $2.60 higher on Monday at nearly $16.76 per tonne.

Ports in Shanghai and Ningbo, the world’s largest and third-largest container hubs, have closed for the second time due to the impact of a typhoon this summer. China’s National Meteorological Centre has issued an orange alert, the second-most serious level, for the Typhoon Chanthu, which is expected to make landfall in the Zhoushan Archipelago, Zhejiang province on Monday with strong gales and heavy rainfall.

Terminal operators at the nearby Yangshan Deepwater Port, which accounts for about 45% of Shanghai’s throughput, have suspended all box pickup and delivery operations from September 13. Two other main port areas, Waigaoqiao and Wusong, will halt the entry and exit of containers at the same time. Storage yards were also closed.

At the major terminals in Ningbo — including Ningbo Beilun Container Terminals, Daxie China Merchants International Terminal, and Meishan Container Terminal — closer to the landfall point, operations are being phased out at an earlier time from September 12. The suspension is like the measures taken when Typhoon In-fa hit the two Chinese gateway ports in July.

Shanghai and Ningbo are no stranger to the visits of typhoons each year, which normally leads to some delays to vessel schedules. The disruption this year, however, has rubbed salt into the wound of an already badly stretched global supply chain, with unprecedented port congestion and logistics bottlenecks triggered by the coronavirus pandemic. The Meishan container hub, for example, had been shut down for more than two weeks after a dock worker tested positive for coronavirus in the past month.

According to Lloyd’s List Intelligence data, there were already 86 containerships at anchor off Shanghai and Ningbo as of Friday before the closure and a further 55 off the US ports of Long Beach and Los Angeles.

The boxships waiting to load in waters off the two Chinese gateway ports total nearly 385,700 teu, with similar capacities waiting to discharge off the two ports on the US west coast — suggesting more than 3% of the fleet capacity is tied up at these two destinations.

Assessments of average spot rates for capesize spot rates have jumped up by just over 12%, the second highest daily increase ever. Baltic Exchange panelists on Friday added an extra $5,021 to the capesize 5TC assessment, the weighted average of spot rates across five key benchmark routes. The basket assessment was put at $46,172 per day on Friday.

The largest daily increase in the assessment happened on 18 June last year, when it rose by $6,244, based on its current methodology. Such big gains have not been seen since 2010, using the old methodology that was phased out in early 2014.

It has been a bumpy week for the capesize market. “What appeared initially on Monday as a well-supplied and relatively muted start, appears to be ending on a far more unpredictable note,” Braemar ACM Shipbroking commented in a market report on Friday. General sentiment in the market took a variety of knocks early in the week from fears that the military coup in Guinea could affect the bauxite trade, as well as how Typhoon Chanthu could potentially disrupt ports in Asia. This fed into a three-day rout and average spot rates fell to $40,518 per day on Wednesday.

“There was also some competition from Brazilian shippers able to look into later laycans in October for vessels yet to pass Singapore,” Braemar said of the Atlantic market this week. “The Pacific has traded at a discount to the longer duration ballasting routes up until this point. It’s yet to be proven if the latest rebound in value is sustainable or whether it’s a pinch to be navigated till conditions once again settle.” In the Pacific, Western Australia this week has seen “much healthier” volumes of traffic both loading and waiting to load, Braemar said in its report. “The dates of the shippers moved steadily this week and rates seemed to drift as owners were left to consider the benefits of fixing for a shorter duration round trip in the absence of more attractive opportunities,” it said in the report.

Meanwhile, shippers in the Atlantic market have busily covered their needs for China-bound iron ore loading in Brazil during the rest of September and have been active in making enquiries for October too, according to Braemar. “The difference in opinion between owners became apparent with only a portion of tonnage willing to sell below $30 toward the start of the week,” Braemar said of Brazil-China voyages for iron ore. “As we near the end there seems to be less appetite below $31 for the same position.”

Looking slightly further ahead, Braemar said the Pacific market could run the risk of having too many available ships in late October. “Traffic westbound past Singapore remains consistently high which starts to signal a danger of oversupply,” the firm said. “The reluctance from charterers to engage for 2nd half October cargoes seems to testify to the same. For now, the market remains poised as more fixtures continue to be reported at improved levels.”

Sentiment is said to be firming for the Atlantic capesize market as the list of ballasters grows shorter, according to Braemar.

The AP Moller-Maersk chief executive Søren Skou has called for the eventual prohibition of new fossil fueled ships. “The European Commission is proposing to end production of combustion engine cars in 2035,” he said in a post on LinkedIn. “The IMO should do the same for fossil-fueled ships with ambitious targets and measures to decarbonize shipping.”

Maersk has committed to becoming a net-zero emitter by 2050 and has pledged that from 2023 all the vessels it orders will have the capability to run on zero emissions fuels.

Mr Skou has previously called on the IMO to implement a gradual global emissions levy that would ultimately increase to $450 per tonne of fuel oil to reduce the price gap between conventional and alternative fuel oils. The levy proposal made in early June was based at the oil prices of that time, which stood at just under $71 per barrel for Brent crude.

“A global ‘drop dead date’ would address future newbuilt vessels complementing the impact on existing ships from the carbon tax,” Mr Skou said in social media post. He said that a ban on new fossil-fueled ships and a carbon price would send a clear message to the entire industry of where things are going.

“As the price gap narrows, the IMO’s Energy Efficiency Design Index in its coming phases could be the instrument to make the end date for fossil-fueled ships a global reality.” The IMO’s EEDI mandates efficiency requirements for newbuilding vessels. The requirements become more stringent as time goes by with the introduction of new phases every few years.

The IMO has already adopted the third EEDI phase and has begun work to explore a fourth phase.

Ships are being forced to drift outside Los Angeles and Long Beach as all anchorages are chock-a-block with the total number of boxships waiting for berth spaces to open at America’s top two gateways set to hit a new all-time high of 50 ships today.

As of last night, the Marine Exchange of Southern California registered a record 49 boxships waiting for berth space in and around San Pedro Bay. More than 15 ships are due to arrive by the end of the weekend.

Giving an update on operations last month, Gene Seroka, the executive director of the Port of Los Angeles, said the challenge facing the entire supply chain amounts to “squeezing 10 lanes of freeway traffic into five lanes.”

The extraordinary congestion seen at America’s main two west coast ports is far worse than the port lockout days of 2002 and 2004. When the ports of Los Angeles and Long Beach were locked out for 10 days and eight days in 2002 and 2004 respectively, ship queues never exceeded 30 vessels, and yet the port lockdowns caused significant economic chaos.

“Record backups at the ports of LA/Long Beach are the major driver of delays that are effectively removing an estimated 20-25% of transpacific capacity. Combined with still-surging demand for imports, these delays pushed Asia-US West Coast prices up 12% and past the $20k/FEU mark for the first time this week,” Judah Levine, head of research at online box platform Freightos stated in an update yesterday, adding: “As carriers again look to alternate West Coast ports like Oakland and now Portland, volumes have started causing backlogs in East Coast ports such as Philadelphia as well.”

Today, Capesize benchmark spot rates rose by USD5.0k/day, which, when excluding last year’s increase of USD6.2k/day, is the largest daily incremental increase seen since 2010. The market has shrugged of the negative sentiment stemming from potential cooling in Chinese steel production, the military coupe in Guinea and potential weather disruptions in Asia. Australia is reportedly seeing increasing shipments, with the West Australia to Qingdao route rising 8% versus 5% for Tubarao to Qingdao.

Total Chinese iron ore stocks have built 9.7% YOY, while Australian stocks are up 6.3% and Brazilian stocks are up 27.8%. Accordingly, Australia’s share of total Chinese iron ore stocks is down from 52% one year ago to the current 50% and Brazil’s share has increased from 24% to 28%.