Hapag-Lloyd has joined CMA CGM in placing a cap on spot freight rates for containerized cargoes. The German container line told Lloyd’s List that it has not been imposing any further hikes for a few weeks. “We believe spot rates have peaked, and we do not pursue further increases,” it said. “We hope that the market will slowly start to calm down.”

CMA CGM said in a customer advisory on September 9 that any further increases in spot rates would be halted with immediate effect until February 1. This applies to all services operated under its brands, including CNC, Containerships, ANL, APL, and Mercosul, as well as CMA CGM. Hapag-Lloyd said the rate freeze would be in effect “for the time being”. Other container lines have been contacted to see if they will be following suit.

Spot rates, which cover a large share of containerized cargo, are driven by market forces and the huge surge in demand over the past year has pushed rates up to unprecedented levels. The latest Shanghai Containerized Freight Index shows that rates between China and northern Europe averaged $7,491 per teu over the past week while in the transpacific trades, the average now stands at $6,322 per feu. Shippers have been complaining vociferously about the huge increase in ocean transport costs they have faced, but cargo interests have been driving up prices in bidding wars for whatever slots were available.

CMA CGM said it was prioritizing its long-term relationship with customers “in the face of an unprecedented situation in the shipping industry”. The French container line expects market-driven rates to continue rising in the coming months but has nevertheless pledged not to charge these to customers.

Hapag-Lloyd chief executive Rolf Habben Jansen appeared to rule out any sort of price controls when he said there was such huge demand for space. “If we tried to not follow the market, we then get so many bookings that our system collapses. But today there is very little space left for additional cargo, which is leading to these crazy rates,” he said in the past month. However, two of the world’s top box lines have now taken the lead in trying to buck the market and restore rates to more reasonable levels.

Container line operators are freezing freight rates against a backdrop of unprecedented congestion at major loading and discharge ports. There are currently 86 containerships at anchor off Shanghai and Ningbo and a further 55 off the US ports of Long Beach and Los Angeles. The boxships waiting to load in Chinese waters off the world’s first and third-busiest container ports total nearly 385,700 teu, Lloyd’s List Intelligence data show. Similar capacity is also waiting to discharge off the ports of Los Angeles and Long Beach on the US west coast. A record 55 boxships are tied up off the coast, with a combined teu of 363,000, according to vessel tracking.

It means nearly 3.2% of fleet capacity is at these two destinations. There are some 4,700 boxships of 10,000 dwt and above trading worldwide.

Rising port congestion that has delayed escalating numbers of containerships over past weeks has exacerbated pressure on an already stretched global logistics network, worsening supply chain interruptions that are driving shortages in manufacturing and pushing up costs that fuel inflation.

Freight costs have spiraled as port and inland transport congestion in the US, alongside coronavirus-related delays across China’s maritime and logistics sector, have caused trade imbalances. In China, authorities have implemented stricter vessel waiting times, as well as quarantine restrictions that have temporarily closed terminals in Ningbo, as well as others in southern China. Congestion off Ningbo and Shanghai has eased from levels of 98 ships, totaling 518,450 teu, seen in mid-August. The improvement is due to the Meishan terminal at Ningbo reopening on August 25, after shutting down since August 11 when a dock worker tested positive for coronavirus.

However, congestion at Los Angeles and Long Beach has risen from more than 40 boxships in recent weeks to 55 on September 10, Lloyd’s List Intelligence data show. This includes 14 ships that are waiting outside port waters as anchorages off Long Beach and Los Angeles terminals are already full.

Uncertainty currently dominates the tanker market as the impact of the pandemic keeps extending the timeline for recovery, but the outlook looks promising for the dry bulk market, according to shipping association BIMCO. New virus variants and outbreaks of coronavirus infection in regions of the world with low vaccination rates continue to delay a recovery in the demand for oil. “This is especially problematic as real volume growth in demand for tanker shipping over the past decade has primarily been driven by the countries that currently have low vaccination rates and which are now facing new outbreaks as a result,” said BIMCO’s chief shipping analyst Peter Sand.

“Just as global demand for oil is currently below its pre-pandemic levels, demand for shipping is on the decline because the stocks that were built up over the summer last year are now being used.” US crude oil stocks are currently at their lowest level since January 2015, at 1,053m barrels, down from their peak in June 2020, when they reached 1,195m barrels. Mr Sand said that “lower stocks and rising demand indicate that either the US will have to start producing more crude oil or look to increase imports, a scenario that would be beneficial for the shipping industry.”

As the northern winter approaches, which is traditionally tanker shipping’s strong season, demand will remain subdued, he said, “with little hope of tankers achieving profitable freight rates on open trades this year, unless seasonal issues can stimulate underlying demand to boost earnings. As demand is forecast to exceed 2019 levels in 2022, the outlook for tanker shipping is better next year,” he conceded. “That said, better and good are not always the same thing and profitable rates may not be a reality until the second half of 2022.”

Meanwhile, with countries enforcing quarantine and testing requirements, and ports facing sudden disruptions due to local and regional outbreaks, the congestion that is draining the market of capacity will continue to support earnings in the dry bulk market, said Mr Sand. He expects the market to stay strong into 2022 until the factors that are currently beneficial to the dry bulk sector, such as congestion and pandemic-related delays, spill-over from the red-hot container market, stimulus-driven demand and strong growth in the manufacturing sector become less apparent. However, he is cautious over the longer term as the underlying volumes may be less supportive.

After strong growth in the first half of the year, China seems keen to clamp down on the steel and other heavy industries to limit emissions. One big question, he says, “is how strictly these measures will be enforced and whether they will start to constrain economic growth.” 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. “Imports of both of these goods stood at a record high in 2020, and as government restrictions come into play, it seems increasingly unlikely that these levels of imports will be repeated,” he said.

Previous container shipping cycles tended to end in vicious rate-cutting grabs for market share. In 2021, the most extraordinarily profitable year in liner history, rate topping rather than cutting is happening.

France’s CMA CGM shocked fellow liners yesterday by publicly announcing it will stop all spot rate increases through to the beginning of February. The liner, led by Rodolphe Saade (pictured with the French president last week), said the preemptive move was designed to prioritize its long-term relationship with customers in the face of an “unprecedented situation” in the shipping industry. The rates announcement will stand for all the group’s brands including CNC, Containerships, Mercosul, ANL and APL.

Drewry’s composite World Container index increased by 1% or $97 to $10,083.84 per 40ft container yesterday, 309% higher than the same week in 2020. CMA CGM recently recorded a record EBIT of $3.81bn for the second quarter, firmly putting it on track to post its greatest ever annual results.

Pouring cold water on the announcement, German liner Hapag-Lloyd insisted it had done similar for several weeks already. “We have been doing this for some weeks and for the time being. We also believe that spot rates have peaked, and we do not pursue further increases. We hope that the market will slowly start to calm down,” Tim Seifert, director of corporate communications at Hapag-Lloyd, told Splash today.

Commenting via LinkedIn on the surprise tactics by CMA CGM, the world’s third largest carrier, Bjorn Vang Jensen, vice president at container consultancy Sea-Intelligence, predicted some coffee will have been spilled in carrier boardrooms across the globe. “One cannot but admire this brilliantly executed and deliciously diabolical ‘heads I win, tails you lose’ move,” Jensen wrote, going on to explain: “Worst case, CMA in isolation looks like a hero. Best case, the industry will be forced to follow – in which case CMA still looks like a hero. And best of all: lost in all the excitement is the fact that rates will remain sky-high, they just won’t increase further!”

A new container shipping report from BIMCO this week noted: “Years of low freight rates resulting in rigorous cost cutting by carriers have left them in a great position to maximize profits now that the market has turned. Looking to the future, they have proven adept at using their upper hand at the negotiating table to lock shippers into longer-term contracts at today’s higher freight rates.”

The Shanghai Containerized Freight Index (SCFI) – a key spot pricing benchmark – rose by another 65.51 points today to hit a new all-time high of 4502.65 points.

The Suez Canal Authority (SCA) has confirmed a “very brief grounding” of a bulk carrier on Thursday, stressing the event did not impact traffic on the key waterway. The authority’s chairman and managing director Adm. Ossama Rabiee said in a statement that the incident involving the 78,100-dwt panamax Coral Crystal (built 2012) was handled quickly and that traffic was uninterrupted.

The canal saw 61 vessels travel between the Mediterranean Sea and the Red Sea on Thursday, the SCA said. “The incident was resolved in a professional manner through the aid of SCA tugboats, and the ship resumed its transit through the canal,” the authority said. “Traffic was not negatively impacted in any way since it was directed to the eastern branch of Al- Ballah bypass.”

The statement follows on various media outlets reporting that four ships coming from Port Said toward Suez had been held up by the vessel. But GAC managing director Mohammed Badawi called those reports into question, telling TradeWinds that the Coral Crystal simply suffered an engine fault and was sailing under its own power. The Coral Crystal is owned by Lua Line/Okino Kaiun of Japan and is managed by compatriot company World Marine, according to Equasis.

A total of 37 vessels were due to transit the Canal in a southbound convoy on Thursday, according to Leth Agencies. Twenty-four vessels are booked to complete the northbound transit.

Suez Canal traffic was halted for six days in March by the 20,388-teu containership Ever Given (built 2018), which ran aground. In addition to fueling congestion that rippled across shipping, particularly in the container sector, the casualty is predicted to be one of the largest general average settlements to date. The Evergreen Marine-chartered ultra-large containership finally unloaded its cargo at the Port of Rotterdam in July, four months late.

Capesize bulker spot rates keep rising amid tight supply and China’s high iron-ore demand, but they may start collapsing amid growing shipping costs, according to an analyst. The capesize 5TC, a spot-rate average weighted across five key routes, improved 4.6% on Tuesday to $56,269 per day, continuing an upward trend from $40,518 per day on 8 September.

These elevated rates may not last, however, because they have led to costlier transportation costs for iron ore while prices for the commodity have fallen, BTIG analyst Greg Lewis said. “These two factors have the potential to force an air pocket in the seaborne iron ore market, which should weigh down cape rates into early next year,” he wrote in a note on Tuesday.

The rates, which have benefitted from Southeast Asia’s typhoon season pushing boxed goods onto bulkers, port congestion and firm demand, may also decline with the February approach of the Chinese New Year and Beijing Olympics, he said.

“Iron ore transportation costs as a percentage of the cost of iron ore have shot up to about 25% to 30%, as Chinese iron ore prices have dropped 45% since July, while cape spot prices are the highest, they have been since the super-cycle of 2008,” he wrote.

Brazilian miners as a result see much lower profits from the commodity, which is now selling for $115 per tonne, he said. BTIG lowered its rating on Diana Shipping to neutral from sell, meaning it does not expect the stock to appreciate or depreciate meaningfully over the next year.

Champagne corks are popping but adjust for the impact of China’s port delays and the outlook shows greater fragility writes Will Fray from Maritime Strategies International. The dry bulk freight market has gone from strength to strength since the publication of MSI’s Q2 report, with spot earnings increasing to over $30 k/Day for all benchmark vessels on average in July. This is the first time this has happened since August 2008, notwithstanding changes to the benchmark vessel and route compositions since then.

Given rising sentiment and surging freight markets, it would be natural to assume that trade in dry bulk commodities this year had exceeded previous estimates. The reality, however, contrasts with expectations; in its Q3 Dry Bulk Market Update*, MSI’s estimate for trade growth in 2021 has been cut from 6% yoy to 4%. The largest downgrade has been made to iron ore trade, now forecasted to rise by just 1.4% yoy, from over 6% previously. Coal trade growth has also been cut, to 3.6% yoy from 5.4%, and minor bulks trade has also seen a marginal downgrade, mainly due to a downwards adjustment for bauxite. Bucking the trend has been more positive grains trade, however a 6 MMT uplift (driven by strong shipments from the US to China) is heavily offset by the 80 MMT cut to iron ore, 21 MMT cut for coal and 12 MMT cut for minor bulks.

The change to MSI’s view for China’s imports this year stems from several factors. Perhaps the most powerful signal is the recent historical trend: Chart 1 plots China’s monthly iron ore imports by year – 2021’s trend is now on a downwards trajectory, although we note that the second half of the year is usually stronger than the first.

Lower cargo growth in 2021 means our estimate for tonne-mile demand growth has declined from 6.3% yoy in our view published three months ago to 4.6% yoy in this update. Notably, our headline Dwt demand outlook is barely changed at a robust 6.4% yoy as we have again increased our assessments of days in port for 2021.

Chart 2 plots the average days spent waiting to discharge in China for the Panamax, Handymax and Handysize bulker segments according to data from Oceanbolt. Since this time last year, time spent waiting has been far higher than any period since 2015.

Note that with China accounting for such a high concentration of cargo, increasing time in port there has leveraged the impact of cargo volumes on the requirement for ships. To understand the impact of higher port days, we ran a scenario through our market model on MSI HORIZON with port days in 2021 at the 2015-2019 historical average. The outcome is startling – in this scenario the dry bulk fleet employment rate would be 81%, like the weak markets of 2015 and 2016. Handysize 1 Yr T/C rates would be only $7.8 k/Day in 2021, compared with $18 k/Day in our Base Case.

To MSI this is critical to understanding the drivers of the current freight market strength, and to build an informed sense of its likely direction. To put it more clearly, port congestion is a major reason behind high freight earnings. The outlook for port delays, therefore, remains a critical factor in assessing the outlook for the dry bulk earnings. This is a position that MSI has held front and center of our analysis for much of this year and has been reinforced by the latest market developments.

The overthrow of Guinea’s government on Sunday has some stakeholders in dry bulk shipping quite concerned, while others aren’t that worried at all. Special armed forces within the world’s largest bauxite exporter stormed the country’s capital Conakry and ousted Alpha Conde, its president for the last 11 years. The capesize 5TC, a spot-rate average weighted across five key routes, has fallen 9.5% over the past two days to $42,200 per day on Tuesday, according to Baltic Exchange data.

The paper market has rebounded after pulling back on Monday. The forward freight agreement rate for the fourth quarter improved 3.2% on Tuesday to $34,263 per day. “Whenever you have such breaking geopolitical news that is tight to shipping, it is natural to be concerned on any potential disruption,” John Kartsonas, founder of asset-management advisory firm Breakwave Advisors, told TradeWinds. “Guinea bauxite exports occupy some 5% of the global capesize fleet, which is meaningful and much higher than a few years back.”

The political upheaval could hurt capesize freight rates and tonnage demand by disrupting Guinea’s bauxite volumes and forcing major importer China to scour the globe for the commodity, Breakwave Adivors shipping economist Ulf Bergman wrote in a note. “However, if Chinese buyers are successful in sourcing replacement volumes elsewhere, such as Indonesia and Australia, some of the tonnage demand could on the other hand shift to the panamax segment,” he wrote. The panamax 5TC slipped 3% over the past two days to $31,468 per day on Tuesday.

Diana Shipping has fixed the 77,525-dwt panamax Crystalia (built 2014) from 19 September to at least 1 October 2022 at $26,100 per day with Uniper Global Commodities. But the coup has resulted in mostly handwringing across dry bulk shipping and should not have any meaningful impact on the long-term market, said Jeffrey Landsberg, managing director of Commodore Research. “Overall, any new government, regardless of if it has come into power by force, desires to keep bringing in revenue, and the new Guinea government is no different,” he told TradeWinds. “The situation in Guinea of course is still in flux, but for now it appears that no major changes in bauxite production and exports are likely to occur.”

Guinea’s total bauxite exports last year reached about 85m tonnes and accounted for almost half of China’s bauxite imports, Bergman wrote. The overthrow has left 14 bulkers, including eight capesizes, waiting for bauxite off Guinea, amid a slight disruption to bauxite production, according to Arrowhead Shipbroking Group. But Stamatis Tsantanis, chief executive of capesize pureplay owner Seanergy Maritime Holdings, expects the country will continue exporting bauxite at normal levels very soon. “I am not concerned about the situation in Guinea,” he told TradeWinds. “If there would be any disruptions, it would be temporary.”

Noble Capital Markets analyst Poe Fratt said any change in Guinea’s bauxite shipments could be negative to dry bulk shipping, but rates will probably be more impacted by disruptions to grain shipments out of hurricane-stricken New Orleans. “It is often volatile, but it seems like the dry bulk market is factoring in potential negative news quickly and looking for a reason to correct form very high rates,” he told TradeWinds.

A bulk carrier pressed into carrying containers was forced to return to a port in China after suffering a collapse of stow under deck, the International Union of Marine Insurers conference has been told. Neither the ship nor the port involved was named during the presentation. But speaker Michael Hird, director of marine claims consultancy WK Webster, subsequently confirmed that he was referring to an incident involving Great Beauty (IMO: 9792876) in late July.

The 38,645 dwt unit is said to have experienced a shift of containers stowed in holds 1 to 4 during high winds and waves arising as a result of Typhoon In-Fa while en route from Taicang, China to Savannah, US. The vessel returned to Taicang anchorage for inspection and remedial works. Containers stowed in hold were reportedly heavily affected, while the shift in the other holds was less serious. Containers stowed on deck were unaffected. According to the WK Webster website, the firm has received instructions from unnamed cargo insurers. Mr Hird said that he was reticent to go into further details in what for Webster is a live case. “It’s only raised an alarm bell for us in that we’re aware of the pressures to get containers moving from the Far East to the US and the limited vessel capacity there is to fulfil that. In this case, something went wrong but we don’t know what that is yet. This case is still under investigation.

However, the incident is likely to reignite the controversy over the carriage of containers on bulk carriers, which have been deemed safe in principle by specialists, albeit with some reservations. It emerged in recent weeks that the current surge in demand for container slots had seen a handful of bulkers deployed as makeshift containerships, carrying containers not just on deck but in their holds. Small and medium size brackets up to panamaxes were deployed in the first instance, and there have been subsequent reports of capesizes used for such purposes. This is certainly permissible, although there may be obstacles to clear with flag, class and P&I club.

But safety experts point out that bulk carriers are just not designed to haul boxes. Potential drawbacks include lack of securing mechanisms, crews without appropriate training, and increased risk of weather damage to deck loads. Mr Hird’s comments were made as part of a wider presentation on the spate of container overboard losses seen in the Pacific in the last northern hemisphere winter. Between November 2020 and February 2021, six large containerships lost more than 3,000 containers. One Apus (IMO: 9806079) lost 1,800, Maersk Essen (IMO: 9456783) 750 and Maersk Eindhoven (IMO: 9456771) 260, with three lesser incidents in addition. That compares to 1,382 boxes lost annually on average in the previous 12 years, with even that total distorted by the one-off MOL Comfort casualty in 2013, with the loss of 4,300 containers.

“While there was a precedent for container losses of this magnitude, to have this many vessels suffer a similar fate on the same voyage seems a little unusual,” Mr Hird pointed out. Now that we are approaching the next northern hemisphere winter, the obvious question is whether there will be a repetition of the casualties. Far East-US box rates remain high and ship capacity is still limited, with port operations hit by the pandemic, trade imbalances resulting in widespread mispositioning. Mr Hird described that situation as “not the greatest,” adding that in recent weeks there has been “examples of bulk carriers being used as containerships on the same route”. “At least one of these ships has already suffered a collapse of stow under deck, forcing it to return to China,” he said.

The cause of last winter’s losses is still being examined, but factors likely to include bad weather, deficient seafaring skills and navigational decisions, ship to shore communication failings, lashing and securing, stowage and voyage planning, and even ship design issues. “We may also need to consider a non-typical cause for these events, that being the pressures exerted on this particular shipping route, ultimately caused by the Covid pandemic that triggered the trade imbalance,” said Mr Hirst. However, some of the ships are known to have been heavily loaded, with stack heights up to 10 or 11, and few if any empties in top tiers. That could have increased risks in winter weather. Around 10% to 15% of cargo on a boxship is typically uninsured, which may amount to 2,000-3,000 boxes on a single ship for the largest vessels. However, most of the losses will have been covered by cargo underwriters, depending on which Institute Clauses applied to any given voyage.

According to Chinese customs authorities August figures, Chinese imports of coal and iron ore amounted to 28.0 MMT and 97.4 MMT, which is down 7% MOM and up 10% MOM, respectively.

For coal, August imports were up 35% YOY but down 15% compared to 2019 and has YTD declined 10%. Seemingly, Chinese coal imports are thus far following the H2 pattern of 2019-2020 and is YTD 1% above its four-year historical average.

For iron ore, August imports were down 3% YOY but up 3% compared to 2019 and has YTD declined 2%. Disregarding current regulatory pressure on Chinese steelmakers, China’s iron ore imports usually sees a stronger H2, with recent figures pointing to a similar trend for 2021. YTD, Chinese iron ore imports are up 5% compared to its four-year historical average.