Ida made landfall in south-eastern Louisiana on 29 August as a Category 4 hurricane, wreaking havoc across the state and causing power and water outages that may persist for weeks. More recently, the weather event has caused serious flooding in regions to the north. The destruction has both directly and indirectly hit infrastructure critical to the US’ cargo import and export capabilities. On the energy side, Ida forced 1.8m b/d of US Gulf (USG) crude production capacity (17% of total output) to temporarily shut, on top of about 4.3m b/d of refining capacity equating to about half the state’s total.

Meanwhile, vulnerable supply chain infrastructure in the area, such as barge and rail facilities, have reportedly been forced to close until damage assessments have been completed. These effects may impact the flow of goods like petcoke and coal, at a time when the latter is in extremely short supply on the seaborne market.

But perhaps most importantly for the dry market, several grain terminals have been taken offline by the hurricane, either due to direct damage or power outages.

The USG typically makes up about two thirds of total US grain shipments, which in turn accounts for 22% of the world’s total export market. Some ports, which have reopened, have done so with draft restrictions. Further, barge operations along the Mississippi River, which are crucial to the flow of grain to the export market, have also been disrupted by debris and obstacles in the channel. According to the Louisiana Ports Authority, deep draft vessels operating in the river are restricted to daylight transits only. As such, the fallout from Ida could have a meaningful impact on the short-term dry market fundamentals.

So far, we have not seen too many ripples from the hurricane in the dry markets. Soybean futures in the US have dipped, anticipating slightly lower exports and greater domestic supply, but this may also be due to expectations of better harvests due to the increased rainfall. The shock has come at a critical time when US soybean shipments are just beginning to ramp up for the Q4 peak export season. Many ships have repositioned to take advantage of the typical ramp up, and so if power outages do indeed last for several weeks, we could see congestion start to swell. For now, queues of bulk carriers in the Gulf are yet to build up, and remain at average seasonal levels of about 708k dwt.

And if the disruption is more persistent, there are other ways the dry market may be affected. For importers, an alternative to US supply could be that from South America, though for soybeans specifically, we are currently in the seasonal low point for shipments from this hemisphere. Additional tonnes could come from stockpiles in the country, but buyers of animal feed may need to look to other commodities, such as wheat and corn, to fill the gap. If cargoes can be found, greater voyage lengths to customers in China would likely translate to a slight increase in vessel demand.

We have also heard reports that some US grain exporters are redirecting cargoes to their facilities in the Pacific Northwest (PNW). It is unclear how much rail capacity there is to move these volumes towards this coastline, but the shift could leave some bulkers better off than others. Even if total exported volumes are unchanged this season, more shipments from the PNW would likely benefit the Panamax market. Panamaxes and Kamsarmaxes typically account for about 62% of grain shipments from this region, as opposed to 36% from the USG.

But there is a trade-off. In terms of demand per tonne of cargo moved, grain shipments on Panamaxes from the PNW are about 33% less impactful than those from the Gulf, given the shorter voyage duration to the Far East. For Supramaxes, PNW shipments are about 29% less demand-intensive, though total volumes are far lower.

So, while it is not clear exactly how this event will shape the market over the next few weeks, there are several aspects to keep an eye on.

China’s 49.2 manufacturing PMI indicates falling activity in August, but is not yet a cause for concern, according to Bimco. The latest reading of 49.2 shows the first contraction in activity since the first wave of COVID-19 and related restrictions hit output hard in April 2020, said Bimco.

Industry in China continues to suffer from outbreaks of COVID-19, recent examples of COVID-related shutdowns in the port sector in Yantian and Ningbo show the impact confirmed cases can have.

China’s economic movements have a significant impact on world trade and thus shipping demand, from its output of manufactured goods and their place in the container trade, to its intake of dry bulk commodities like coal, iron ore and grains.

“The August PMI report just revealed that Chinese goods producers have recorded the first fall in output, a sub-indicator of the composite, since February 2020,” says Peter Sand, Bimco’s Chief Shipping Analyst. “Also in August, the sub-indicator “new export orders” fell below the threshold-level of 50 for the first time since February 2021, reaching 46.7. This an indicator of future activity in foreign trade and therefore also an indicator for container shipping demand,” he said.

“Is it a worrying development? Well, if the drop into negative territory is the first of many months in sub-50 territory – it’s a problem, if it’s merely a one off, keep calm and carry on,” says Sand.

According to Credit Suisse, the National Bureau of Statistics’ (NBS) official PMI is best at explaining GDP and industrial production and manufacturing in general, whereas the Caixin/Markit PMI is the better indicator for exports, said Bimco.

“The NBS official PMI reading of 50.1 in August 2021 indicates the smallest amount of expansion for the manufacturing sector. As the better gauge for industrial production, this is relevant to dry bulk shipping where a lot of imports are related to heavy industries such as steel production and power generation,” said Sand.

“In terms of overall economic growth, the quarterly GDP for the second quarter indicates a solid GDP growth in China, but also a relative slowdown.” 

Shares in Mitsui OSK Lines (MOL) and NYK Line have been boosted after a top Japanese investment bank predicted that healthy container rates would continue well beyond the Covid-19 pandemic. Containership rates are likely to remain higher than prior to the pandemic as lifestyle changes including spending more time at home ensure consistently strong demand for consumer durables, said Nomura.

“Although we expect supply-demand conditions to ease gradually, as growth in demand runs its course in 2022 and container space rises 5.1% year-on-year on the completion of more ships in 2023, we nevertheless think that containership rates will remain higher than prior to the pandemic, as orders for new ships have not been large enough to cause rates to collapse and the consolidation of the global container service industry into three alliances should enable them to manage supply-demand in an appropriate fashion, for example by cutting sailings,” said Nomura transport analyst Masaharu Hirokane. The Tokyo-based bank has raised its target prices for NYK Line from ¥6,750 to ¥10,500 and from ¥7,500 to ¥10,000 for MOL, and from ¥3,600 to ¥5,300 for K Line.

The bank said it makes the largest upward revision for NYK Line because it has the highest stake in ONE of 38% and because it has also raised its forecasts for its air cargo transportation segment. “The Shanghai Containerized Freight Index (SCFI) has continued to rise in August, and conditions now look even more favorable than companies assumed when they revised their guidance at the same time as releasing their first quarter results,” said Hirokane. “Our forecasts now assume that strong consumer spending on goods in the US will enable containership rates to remain higher than we previously envisioned even after the summer peak season for cargo transportation has passed.”

Ocean Network Express (ONE), which is jointly owned by the three companies, generated net profits of $2.5bn in the first quarter of 2021. Hirokane expects the Singapore-based shipowner will now generate net profits of $3.6bn in the second quarter, $2.8bn in the third quarter and $2.4bn in the fourth quarter for total annual profits of $11.35bn against Nomura’s previous forecast of just $6.4bn. “We then expect shipping rates to settle down gradually and forecast net profits of $7bn in 2023 versus our previous forecast of $3bn and $3.4bn in 2024 against our earlier forecast of $2bn,” said Hirokane. “We expect rates to soften from the second quarter of 2022 as growth in spending on goods in the US settles down and containers are returned to Asian manufacturing locations, thereby resolving transportation bottlenecks caused by shortages of containers.”

Nomura has also changed its dry bulker rate assumptions with its forecast of the annual average for the Baltic Dry Index (BDI) raised from 1,630 to 2,530 for 2021, from 1,540 to 2,230 for 2022, and from 1,540 to 2,010 for 2023. “We have factored in increased resource imports in China, which has caused supply-demand conditions to tighten. However, we expect rates to fall modestly from 2022 onwards as growth in demand eases,” said Hirokane.

Golden Ocean Group is actively looking at how its bulkers could be used to carry containers, according to its chief executive. Meanwhile, Star Bulk Carriers has denied it has done a deal to carry boxes on one of its capesizes. Golden Ocean is working with classification societies to investigate how boxes could be carried on vessels ranging in size from ultramax up to capesize, company chief executive Ulrik Andersen told TradeWinds. But the move is more about having options than a concrete strategy, he added.

“What we are doing in practice is to get [the ships] recertified or call it, co-certified as container vessels. They will not stop being bulk carriers. Once certified as container vessels, we shall see if there’s any business that we can do thereafter,” he explained. “It’s very early days for us. We are investigating the possibilities because we always look at whatever opportunities are out there.”

Andersen stressed that container cargoes are not a driver of today’s strong bulker market, “yet, of course, it tells a story about the unique situation we are in across all shipping segments“. Containership capacity is so scarce right now that owners of handysize bulkers and multipurpose vessels have been modifying their ships to be able to carry boxes to cash in on sky-rocketing freight rates. The adaptations being made are mainly unsophisticated, in-hold modifications that do not need the services of a shipyard or approval from classification societies. Laden boxes are also being carried below deck in standard bulkers with non-box-shaped holds.

A capesize bulk carrier was last week said to have been fixed to carry containers from the European continent to China. Star Bulk was said to have been the carrier, but chief executive Petros Pappas denied the rumor. “No, Star Bulk has not done any work towards loading containers on a capesize vessel. The rumors are wrong as usual,” he told TradeWinds on Wednesday. The unnamed vessel is said to have been fixed at a rate that would equate to $43 per tonne on the Brazil-China voyage basis. The charterer is paying $20,000 per container for 200 teu, or $3,000 per box for 1,200 empty 20-foot containers.

Golden Ocean has already seized on certain opportunities to carry “unconventional” cargoes aboard its bulkers this year. In April, a Golden Ocean vessel was among the three capesizes fixed to carry logs from Uruguay to China, as TradeWinds reported. Andersen said at the time that Golden Ocean was “excited about finding new business partners and opening up new trades”. Since carrying the logs, Golden Ocean vessels have not transported any further extraordinary cargoes, Andersen confirmed to TradeWinds.

The dry bulk market’s decline in spot rates over the past few days may indicate a pending correction after reaching levels last week not seen in a decade, market watchers say. The capesize 5TC, a spot-rate average of five key routes has fallen to $46,978 per day, registering an 8.7% decline from an 11-year high of $51,472 per day on 24 August.

Spot rates for the smaller ships have also slid, most notably panamax 5TC’s 5.2% drop from $35,202 per day on Friday, according to the Baltic Exchange. “We have been cautious in the last week or so, especially on capesizes,” John Kartsonas, founder of asset-management advisory firm, told TradeWinds. “Although the congestion issue is real and will be with us for a while, I think we are entering a correction phase for dry bulk that will last a few weeks and will bring rates lower, but still above historical norms.”

He said China’s plans to curb steel output is not encouraging higher rates, but dry bulk shipping has always been a cyclical market with continuous ups and downs. “We saw rates rallying for a month, and now it is time for some consolidation. We will find a bottom, and we will rally back higher during the fourth quarter as seasonally the demand increases, but for now, all eyes are on where such a bottom might be.”

The dry bulk market is experiencing some volatility amid China’s intent to lower steel output before Glasgow’s major November climate summit, according to Sevi Katemoglou, founder of broking house Eastgate Shipping. “I’d say that market is taking a breather this week, somewhat correcting from the record highs achieved last week, while port congestion in key regions has been easing,” she told TradeWinds. “However, estimates for Chinese iron ore imports in August as well as projections for the country’s total steel output for full-year 2021 remain positive and are suggestive of a shipping upcycle which has legs.” At the same time, miners are increasing iron-ore production, and India is expected to boost demand for coal imports, she said.

The long-haul grain trade is also supporting spot rates for the medium and smaller bulkers, but Hurricane Ida damage to Cargill’s grain terminal in Reserve, Louisiana may hurt US exports over the next two weeks, she said. “It remains to be seen to which extent this will impact grain cargo flows and seaborne volumes.”

Stamatis Tsantanis, chief executive of pureplay capesize owner Seanergy Maritime Holdings, is not worried at all about “any temporary rate volatility” in the market. “There is obviously some profit-taking activity coming from the paper market, which has a short-term effect on the physical market,” he said. “However, the fundamentals are fully in place for the market to sustain these levels and even go much higher.”

The futures market for capesizes fell slightly on Wednesday but is still bringing in high rates. The forward freight agreement (FFA) rate lost $1,018 per day for September but still came in at $41,875 per day. October’s FFA rate slid $661 per day to $39,964 per day, while the November figure shed $359 per day to $35,929 per day.

Brazilian iron ore shipments approach 36 MMT per month mark

Brazilian iron ore shipments have remained firm as August has progressed and are likely to settle just under 36 MMT. This is a jump of 12.5% MoM and the highest monthly volume since August 2020. Drier conditions have allowed shipment volumes to crank up, which have supported an already-tight Capesize market. We currently count 134.8 MMT of iron ore on the water, up by 1.6% YoY. As monthly shipment numbers have climbed, the Capesize Brazil to China round voyage rates relative to Australia to China round voyage has narrowed to almost nothing. This boost has also contributed to the recent slump in iron ore prices, which are currently down by 32% from their May peak. We expect volumes over September to remain high, with prices significantly higher than break-even costs for miners.

China manufacturing PMI dips further over August

China’s official manufacturing PMI figure for August, which gauges conditions across the country’s factories, fell to 50.1 points in August. This marks a relatively small decline of 0.3 points since July, but the figure was lower than expected, and indicates that China’s industry is only just in expansionary territory (indicated by a figure greater than 50). This also marks the lowest figure since February 2020, when the pandemic hammered manufacturing activity. Manufacturing forms a significant portion of Chinese demand for raw materials, so a slowdown in this metric could indicate weaker demand for dry bulk goods going forward. However, August’s decline also likely reflects the recent spread of the delta variant in some regions which has reportedly been brought under control. The non-manufacturing PMI fell to 47.5 points, a drop of nearly 6 points MoM, indicating the service and construction sectors contracted this month. China’s composite PMI, which tracks activity across the whole economy, fell to 48.9 points this month. Barring early-2020, this marks the lowest figure since 2008.

Dry bulk tonnage is being sold at double the price since the beginning of the year as buyers anticipates strong upside in freight earnings for the next two quarters. According to one broker, buyers remain keen for secondhand bulk carriers as the spot market continues to strengthen, with brokers quoting higher prices from potential sellers, especially for resales.

The Baltic sales and purchase assessments show that secondhand prices for a five-year-old capesize vessels have surged by 38.1% year on year to $37.6m, panamax prices have risen 41.4% to $30m, Supras by 45% to $29m, and handysize prices are up 52% to $22.29m.

Shipowners and investors have been excited about the returns offered in the spot market in 2021, making the first eight months of activity exceed that of 2019-20 for all sizes but capesize, BIMCO chief shipping analyst Peter Sand said. “Capes have behaved like a puppy without a leash on, running fast, back and forth,” he said, “as compared the steady rising spot rates for the other cubs, merely pulling the leash, heading forward all the time.”

More than 550 dry bulk vessels changed hands in first half of 2021, Maritime Strategies International data shows, which is a big jump from the 600 vessels involved in sales and purchase transactions in both 2020 and 2019. MSI estimates the average age of vessels to change hands this year to be around 10 years old with supramaxes and ultramaxes being the most liquid segment.

MSI senior dry bulk analyst Will Fray, said the share of vessels built at Chinese Tier 2 yards has notably increased in the sales and purchase totals over the course of the year, which suggests buyers are having to delve deeper into the pool of available sales candidates to access tonnage. He expects secondhand prices to continue to climb for the remainder of the year, even though he expects earnings to cool as China’s import demand softens and port congestion eases slightly from very high levels.

“Continuing strength in newbuilding prices will help dampen the impact of decreasing earnings next year though older tonnage will not be as well insulated, especially as we expect to see scrap prices slide over the course of 2022.”

Meanwhile, the Olympic appetite to buy secondhand bulk carrier is also seeing several off-market deals, with buyers willing to pay over the odds simply to avoid a competitive bidding process, market observers told Lloyd’s List.

Leading liner operator CMA CGM has seen profits surge and expects a further improvement later this year. Net income for the French liner operator rose to $3.47bn in the second quarter, way up on the $136m in the same period last year. Group revenues rose 77.2% to $12.41bn, compared with $7bn in the same period last year. The result was driven by increased volumes and higher freight rates, according to chief executive Rodolphe Saade. “The strong rebound of global economy has resulted in unprecedented demand for transportation and logistics services,” he said.

The Marseille-based liner operator saw container volumes rise 5.7m teu in the second quarter — an increase of 19.1% over the same period last year. Container shipping activity was “particularly dynamic” on the transpacific, Latin America and intra-regional routes. “While pressure on global supply chains is likely to persist, the group’s strong performance enables us to accelerate our logistics transformation and our investments in industrial assets,” Saade said.

Constraints on container shipping capacity are expected to continue until the first half of 2022, the company reported. “The current environment should therefore allow the group to continue to further improve its results in the second half of 2021,” it said.

CMA CGM is responding to the capacity crunch by reinforcing and upgrading it shipping network. It expects to take delivery of 26 vessels by the end of the year. Nine are vessels of 15,000 teu, of which six are owned and three are chartered vessels. Another 17 ships to be delivered are secondhand vessels, of which CMA CGM is buying 32 in the current year.

CMA CGM used part of its windfall profits to deleverage its balance sheet by a further $725m in the quarter. Net debt stood at $14.9bn at the end of June, down $1.9bn since 31 December 2020. The shipping division saw revenues rise 89.4% to $10bn in the second quarter, up from $5.28bn in the previous period. Ebitda from shipping activities increased from $1bn to $4.3bn.

CMA CGM group fleet of 542 ships carried close to 21m teu in 2020.

Coal ports in the Australian state of New South Wales have seen their activity disrupted by bad weather and an outbreak of Covid-19 cases. Queues outside Newcastle number over 40 vessels as ships are ordered away from anchorages zone due to storms, while delayed Covid testing is straining supply chains.

The weather is expected to clear out soon, but difficulties stemming from the spread of the Delta variant are likely to persist for the foreseeable future. Chinese-owned mining company Yancoal quoted the virus spread as a risk to achieving its production target of 39 MMT for 2021. The challenges come as Australian mines already operate at 10% reduced capacity amid shortage of skilled labor due to border closures.

The queue is driving up demurrage costs, but these are seen offset by record prices for high-grade thermal coal exports out of Newcastle.