Having learnt lessons from the closure of Yantian Port earlier in the summer, several carriers are not hanging around waiting for Ningbo Meishan Island Container Terminal to open anytime soon, with several ships opting to skip Ningbo this week. One port worker at the terminal was found to have contracted Covid-19 yesterday, resulting in the terminal being closed. Tests on the port’s workforce are underway, and the terminal is being decontaminated. For all other Ningbo terminals, the gate-in of export containers is now limited to two days of a vessel’s expected time of arrival.

“It seems the whole Meishan terminal is closed until further notice. All the shipping agents are running around trying to change to Shanghai,” one well-placed source told Splash today. There has been no official announcement yet on how long the terminal will be closed. The outbreak at Yantian in eastern Shenzhen in late May resulted in a partial lockdown lasting four weeks. The sheer enormity of Ningbo-Zhoushan port, the world’s largest port in tonnage terms, appears to have helped prevent a wider total port lockdown.

Meishan Island is approximately 30 km away from Ningbo’s major container terminal at Beilun, and 60 km away from Ningbo downtown. Meishan accounts for approximately 20% of the near 30m teu that pass through the port each year. There are currently a total of 41 container services calling Meishan, eight into North America, six for Europe, and two for the Red Sea. The Meishan closure mainly impacts the Ocean Alliance, a grouping made up of Cosco, OOCL, CMA CGM and Evergreen. Cosco and CMA CGM have already indicated that several ships will skip Ningbo this week. “With this sudden suspension, we expect a delay in planned sailings,” Hapag-Lloyd stated in a note to clients yesterday.

The Covid closure comes at a time where both Ningbo and Shanghai had been experiencing severe congestion, the worst in the world, over the past two weeks. Data provided by MarineTraffic today (see map below, dots represent ships at anchor) shows the unprecedented volume of ships waiting for berth space to open at Ningbo today.

“The liner companies organized in the Ocean Alliance are the main users of the Meishan terminal and will be directly affected, but all others will face indirect ripples from this. Important lessons were learned from Yantian, and to some extent the Suez Canal blockage, and they will all be put to work now,” commented Peter Sand, chief shipping analyst at BIMCO. Sand went on to warn that further Covid-19-related port disruptions in China ought to be expected in the coming month, further sending skyrocketing container freight rates higher.

The World Container Index, published today by Drewry, climbed another $50 higher into record territory. The composite global index shows it now costs $9,421 to move a feu, more than four times the price tracked by Drewry a year ago.

Ningbo is also a large port for oil tankers and dry bulkers discharging in China. “They could see support to freight rates from increased congestion,” Sand suggested.

Container lines fear further congestion following an outbreak of Covid-19 at a container terminal at Ningbo port’s Meishan Island. Ningbo Meidong Container Terminal, a subsidiary of Ningbo Zhoushan Port Co, suspended operations on 11 August after a worker tested positive for Covid-19. That has led carriers to warn shippers of disruption to ship schedules as the prospect rises of worsening congestion in China’s eastern ports. “With this sudden suspension, we expect a delay in planned sailings that might affect your cargo planning,” Hapag-Lloyd said in a customer advisory. The carrier said it was “working on alternatives” and asked for understanding on “a matter which is beyond our control”.

Others, including France’s CMA CGM, are reportedly rerouting ships to Shanghai or skipping port calls at Ningbo altogether. The French operator and its Ocean Alliance partners — Cosco Shipping Lines, Orient Overseas Container Line and Evergreen — use the Meidong terminal for their services between Asia and Europe.

Other carriers, including Maersk, rely on terminals in the Beilun port area of Ningbo. The incident has rekindled fears of a repeat of the disruption caused by outbreak of Covid-19 at Yantian port in Shenzhen in late May, which led to long operational delays for most of June. “If the closure is prolonged, the effects may be significant, as the other terminals in Ningbo cannot fully absorb Meishan’s volumes for an extended time,” according to freight operator Norman Global Logistics (NGL).

Meishan is one of Ningbo’s newest and biggest terminals and processes 7m teu annually. “We are seeking clarification of the closure length and the actions that carriers and ports may take to rearrange cargo to other terminals in the Ningbo area,” NGL added. NGL, which has an office in Ningbo, said the port is already turning away ships from the terminal. “Effectively operators cannot pick up empty equipment or not gate-in containers to the terminal,” the company said.

The disruption looks set to aggravate problems of liner operators struggling to handle peak-season shipments from China to Europe and the US. Refinitiv data revealed up to 40 containerships were listed at the outer Zhoushan anchorage on Thursday, up from 30 on Tuesday, Reuters reported.

GardaWorld, a security consultant, said that shippers should consider alternative methods for shipping critical freight. Ningbo Zhoushan port, China’s second-largest container port by handling volume after Shanghai, handled 18.68m teu in the first seven months. The Meidong terminal accounts for around 25% of its cargo throughput.

Spot rates for capesize bulkers have reached their highest point in three months as fixtures for iron ore deliveries from Brazil to China escalate amid tightening supply. The capesize 5TC, a spot-rate average weighted across five key routes, jumped 5.1% on Thursday to $38,217 per day, according to the Baltic Exchange. Higher rates for the benchmark Brazil-China round voyage provided the greatest support, leaping 6.5% to $37,519 per day.

“There is definitely more activity out of Brazil while vessel availability is tightening for the next month,” John Kartsonas, founder of asset-management advisory firm Breakwave Advisors, told TradeWinds. “The only relative outlier is the North Atlantic market that is still lagging behind versus the other key markets.” He reiterated his forecast for capesize spot rates averaging above $40,000 per day, especially with backing from higher panamax and supramax rates. “Overall, things are looking up for the large ships, and once again the seasonal upturn of early- to mid-August is proven right,” he added.

Firm spot rates out of Brazil are boosting capesize rates, but iron-ore demand may fall if China lowers steel output, said Sevi Katemoglou, founder of Greek broking house EastGate Shipping. “Chinese authorities are making concerted efforts to rein in the country’s major steel mills’ output so that demand for iron ore is controlled and the commodity’s price rally somewhat tamed,” the shipbroker told TradeWinds. “It remains to be seen whether this strategic approach will manage to actually distort the supply-demand fundamentals for iron ore.”

Capesize spot rates are also benefitting from plenty of enquiry in both the Atlantic and Pacific basins as well as port congestion off China, said Rebecca Galanopoulos Jones, research analyst for London broking house Alibra Shipping. “I think there are a few factors at play here,” she told TradeWinds. “Sentiment for this market is positive going forward, supported by the futures market, which is looking pretty strong for the remainder of 2021.”

Capesize spot rates may also be getting further support from US coal exports, which skyrocketed 71% year-over-year in June to 7.1m tonnes, according to Kepler Cheuvreux. The spike, driven by China’s continued ban on Australian coal, is boosting spot rates for both capesizes and panamaxes, Katemoglou said.

The panamax 5TC gained almost 1% on Thursday to reach $31,939 per day. “China … is now sourcing the commodity from farther destinations such as the US, South Africa and Colombia, therefore increasing travel distances and tonne-mile demand,” she said. “At the same time, Australians are selling their coal stems also to farther receivers in India, South Korea and Japan.”

Kartsonas said the higher US coal exports, mostly caused by the 2020 US-China trade deal, is having an impact on capesize rates, but only marginally. “It definitely draws ships, but these are smaller capesizes primarily due to draft restrictions,” he said.

Hapag-Lloyd profits rose tenfold in the first half of the year on the back of the exceptionally strong container market. The world’s fifth-largest liner operator reported group profit of €2.72bn ($3.3bn), compared with €285m in the first six months of last year. Revenue was up 37% to €8.75bn thanks to higher freight rates, from €6.7bn in the same period last year. “In a market with very strong demand for container transport, we have benefited from significantly improved freight rates and look back on a very good first half-year,” said chief executive Rolf Habben Jansen.

The German company attributed the rise in freight rates to high demand, scarce transport capacities and severe infrastructure bottlenecks. Average freight rates climbed 46% in the period to $1,612 per teu. Volumes were 4% higher at around 6m teu and bunker costs dropped 6% to $421 per tonne.

“Among other things, we were able to reduce our net debt by $1.5bn, although we paid out a significantly higher dividend compared to the prior year,” Habben Jansen said. “We are naturally pleased by this extraordinary financial result. But the bottlenecks in the supply chains continue to cause enormous strains and inefficiencies for all market participants and we have to do our utmost to resolve them jointly as soon as possible.”

While demand remains high in the current congested market, it is leading to a shortage of available weekly transportation capacity. For that reason, the company expects earnings to remain strong in the second half.

“Looking at the market environment today, we, however, do not believe that the situation will return to normal any time soon — despite all the efforts made and the additional container box capacity that is being injected,” Habben Jansen said. “We currently expect the market situation only to ease in the first quarter of 2022 at the earliest.” In May, the company had expected a gradual normalization in the second half of the year.

As announced in preliminary results on 30 July, Ebitda for the full year is expected to be in the range of €7.6bn to €9.3bn. That compares with around €2.7bn for the 2020 financial year and €1.9bn in 2019. Ebitda in the first half of this year was €3.5bn, up from €1.2bn in the same period last year.

Bulker owners may not always see eye to eye, but many agree that their red-hot market will not cool down anytime soon. Since August 2020, spot rates across the sector have skyrocketed amid a perfect pairing of soaring demand and low supply that has caused the Baltic Exchange Dry Index to more than double. Several of them recently expressed confidence during their second-quarter earnings calls, telling analysts that they expect this rally to last amid a host of other fortunes.

Star Bulk Carriers, an owner of 128 bulkers, listed Brazilian iron-ore giant Vale’s slow recovery from the disastrous 2019 dam breach at Brumadinho as an example. “Vale reiterated the target of 400m to 450m tonnes of production capacity by the end of 2022,” chief executive Petros Pappas told analysts. He also said that coal tonne-miles should expand by 5.3% during 2021, backed by a strong recovery in global coal demand in Indonesia and India during the first half of this year.

At the same time, China’s strong demand for grains and strong global GDP growth should boost tonne-miles by 4.3% this year, he said. “Our outlook for the market remains positive,” he said. Dry bulk shipping also stands to benefit from strong GDP growth and higher seaborne cargo volumes, said Ioannis Zafirakis, chief operating officer of Diana Shipping. “This pleasant scenario could be ruined by an abrupt drop in demand due to factors unrelated to shipping or a sharp increase in newbuilding orders,” he told analysts. Eagle Bulk Shipping, which owns 25 ultramaxes and 28 supramaxes, expects dry bulk shipping to benefit from robust trading of grain, fertilizer, and steel amid heavy stimuli. “This positive demand picture, combined with a record low orderbook … supports our constructive view on market developments looking ahead,” chief executive Gary Vogel said.

Eagle Bulk posted time-charter equivalent (TCE) rates of $21,580 per day — the highest in 11 years — in the second quarter. It did even better in the current quarter with TCE of $28,300 per day as of Thursday last week, with 75% of available days booked. Eagle, which generally prefers to use forward freight agreements (FFAs) as a hedge rather than physical time charters, has fixed a 58,000-dwt ultramax on a 11 to 13-month charter at $27,250 per day from October. Vogel pointed out that the Atlantic market averaged $22,600 for the quarter, up 11%, while the Pacific was up 74%, averaging $26,100. He attributed the Pacific outperformance to a higher number of backhaul trades, including cargoes that typically move in containers. “We estimate up to 10% of all cargoes moving on bulk carriers from the Far East to places like west coast South America, Europe and the US was container cargo spilling into the conventional bulker market as a result of much higher container rates,” he said. “These cargoes include smaller semi-finished steel parcels, fertilizer in bags, bagged cement, chemicals in bags and lumber. “Given the ongoing strength in the container market, which is due in part to supply-chain inefficiencies, we expect this dynamic to continue at least through the balance of the year.” He said supramax spot rates have averaged $22,600 per day so far this year, with the forward curve currently averaging around $31,000 for the balance of the year. “If the forward curve plays out, 2021 would be the best year for the BSI [Baltic Supramax Index] since 2008,” he said.

Capesizes are seeing their strongest market in a decade because of the optimal supply-demand balance across dry bulk shipping, according to Stamatis Tsantanis, chief executive of pureplay capesize owner Seanergy Maritime Holdings. “After years of market imbalances, we seem to have entered a long-term period of strong demand and slow fleet growth,” he told analysts. His company has spent $160m this year on getting his pureplay fleet to 14 capesizes, while selling two assets. He said demand is expected to rise 4% in 2021 and 2% in 2022 on a tonne-mile basis against fleet growth of 3.3% for this year and 1.2% for the next. “These figures are very constructive for the dry bulk market, especially when viewed in the context of strong fiscal spending and infrastructure construction in many parts of the world,” he said.

The stage is set in Washington DC for a bitter fight between global carriers and politicians. A bipartisan pair of lawmakers, pressed by agricultural exporters, yesterday introduced the Ocean Shipping Reform Act into Congress, a bill which would put in place new minimum requirements for service contracts and give the Federal Maritime Commission (FMC) greater powers. Carriers have responded to this possible clampdown arguing it is unfair and risks making goods in the US more expensive.

American supply chains have been stretched like never before in peacetime this year, while carriers are on course to post record profits. The control of shipping by a handful of ocean carriers has really eliminated competition

Representative Dusty Johnson, a co-author of the bill, commented: “It makes it clear that there can be no unreasonable refusal to carry freight. Number two, it improves the enforcement, it does things like, allowing the FMC to self-initiate investigations. It allows registration and shipping exchanges, it puts into place anti-retaliation safeguards and, critically important, shifts the burden of proof to the carriers. Then finally, this legislation does a lot to increase transparency with quarterly reports and annual reports to Congress.”

California Democrat John Gerimundi, the other co-author, hit out at what he sees as an oligopoly in container shipping. “The problem was severe, the control of the shipping by a handful or two handfuls of ocean carriers, really eliminated the competition that had been in place for many, many years prior to the increased consolidation,” Gerimundi said.

The Washington DC-based World Shipping Council (WSC), container shipping’s lobby group, said the proposed act was flawed. The WSC said in statement that liners were not solely responsible for the current supply chain congestion, while the legislation was “infused with fundamental unfairness”. “The supply chain congestion is widespread. Every link in the supply chain—from marine terminals, to truckers, to rail cars and warehouses—is under tremendous strain. It is unrealistic, inequitable, and unproductive to try to address these supply chain-wide challenges by regulating only one class of supply chain participants—ocean carriers,” the WSC argued, suggesting the legislation was designed to tilt the market in favor of shippers in commercial disputes.

The bill is due for further discussion this month, while other parts of Washington DC are also trying to iron out today’s severe supply chain constraints. Last month president Joe Biden issued an executive order to address competition in shipping, tapping the FMC to take all possible steps to protect American exporters from the high costs imposed by the ocean carriers and to crack down on unjust and unreasonable fees, including detention and demurrage charges.

In June, the White House also announced the creation of a Supply Chain Disruptions Task Force. Led by the secretaries of commerce, transportation and agriculture, the task force aims to bring together stakeholders “to diagnose problems and surface solutions – large and small, public or private – that could help alleviate bottlenecks and supply constraints”.

Other nations, including China, Vietnam, and South Korea, have also investigated tackling high shipping costs over the past year.

Operations at a terminal of the world’s largest port were suspended today following a single case of Covid-19 being detected on a 34-year-old worker. Ningbo-Zhoushan port has started to turn ships away this morning in the wake of the positive nucleic test. The worker resides in a dormitory and tested negative on the 8th, before being retested on the 10th.

Initially, the ports authority claimed that its operating system was down early this morning before the Ningbo Municipal Health Commission came clean with the news. The infected worker was part of the workforce at Ningbo Meidong Container Terminal.

Splash had already reported on Monday about the unprecedented volumes of tankers, bulk carriers and containerships backing up outside Ningbo-Zhoushan port. Data provided today by Danish consultancy eeSea shows the huge volume of boxships at anchor waiting for berth space outside Ningbo-Zhoushan (as attached).

Ningbo-Zhoushan handled 1.17bn tons in 2020 making it the largest port in the world by some distance. Its annual box throughput is approaching 30m teu, making it the third largest container port in the world.

When a Covid-19 outbreak was detected at Yantian Port in late May, operations at the key southern Chinese export hub were slashed by 70% for most of June.

Since July 20, community-spread infections have been confirmed in roughly half of China’s provinces, sparking mass testing operations and localized lockdowns.

Newly reported positive Covid-19 cases in China have recently forced the country to re-introduce restrictions to curb the spread of the virus.

Most ports in the country are now requiring a nucleic acid test (NAT) for all crew, with vessels forced to remain at anchor until negative results are confirmed.

Many ports in the country are also requiring vessels to quarantine for 14 to 28 days if they previously berthed in India or performed a crew change within 14 days of arriving in China.

Taylor Maritime Investments (TMI) has concluded its plans to acquire seven secondhand Japanese-built geared handysize bulk carriers. The London Stock Exchange quoted company said that the ships, which it did not name, range between 28,000 dwt and 37,000 dwt, and have been acquired for an aggregate consideration of $107.8m in cash.

TMI said it is paying for the bulkers through the proceeds of a $75m equity issue that the company undertook in July, along with its revolving credit facility, existing cash, and operating cash flows.

The ships will increase the TMI trading fleet to 32 vessels with an average age of 10 years. The ships will be delivered between September and January 2022. The company said the ships were acquired at an attractive price and will be charter free and ready to sail straight into the market.

“Since the equity issue in July, we have been working hard to put shareholders’ capital to work as rapidly as possible. The market is currently very attractive for handysize vessels, with strong charter rates and a healthy outlook. These additional vessels will reinforce our ability to deliver high quality returns to our investors,” said chief executive officer Edward Buttery.

The company appears to have acquired more ships than it originally planned when it undertook its equity issue in July. At the time, TMI said it had lined up the acquisition of six handysize vessels. It has been eyeing up 14 possible acquisition candidates.

The July share issue was oversubscribed. Company chairman Nicholas Lykiardopulo told TradeWinds: “The level of demand from new and existing investors during this fundraise reflects their confidence in our business model and approach, and we appreciate and value their continued support.”

Dry bulk operators in the Pacific region are concerned about the potential impact of Indonesia’s decision to suspend coal exports from several key producers. The Indonesian government has reintroduced sanctions for producers that fail to meet their domestic market sales obligation (DMO), with 34 companies currently banned from exporting coal because of unfulfilled supply agreements with state-controlled power utility Perusahaan Listrik Negara.

The sanctions bind coal miners to quotas on domestic sales before making their products available on international markets with Jakarta reinstating their DMO to domestic coal producers having previously suspended the legislation in 2020 as companies struggled due to the pandemic. The restrictions will last until the firms fulfil their supply obligations. Rising coal prices have seen producers push their coal for export and overlook local sales, causing tight domestic supply.

Indonesia has remained the primary source of coal imports to China while the ban on Australian coal remains in place. The trade is usually carried out in supramax and panamax vessels. China imported 17m tonnes of coal from Indonesia in June, which is up by 5.8m tonnes as compared with a month before and up by 6.2m tonnes year on year. The rise in Indonesian imports to China have provided a boost to freight rates on the S10 South China trip via Indonesia to South China supramax routes which rose to $30,186 per day on August 10 as compared with just $7,567 a day on the same day a year ago when the informal Chinese ban on Australian coal was declared, according to Baltic Exchange.

In the short term, the abrupt halt of volumes from the 34 sanctioned miners is generally bad news for the dry bulk freight market, while the owners engaged in this trade in Asia could feel a negative influence from the ban because of the loss of cargo. The pain will be likely be limited as there is currently no shortage of other cargoes in the market for Supras and panamaxes to carry. “The latest decree is sure to cause some short-term pain to China, especially for the shipments which have already been fixed but the market would snare up opportunities in the long run,” the broker added.

From a shipping point of view this is certainly bad news, as China would look to neighboring country Mongolia to fill up its stock, which would result in reduced shipping demand. Meanwhile, Indonesian coal shipments faced severe domestic disruptions because of coronavirus restrictions and relative lack of competitiveness compared to Australian and Russian exports, said Banchero Costa head of research Ralph Leszczynski. Total exports from the country were only 193m tonnes of coal in the first seven months of the year, which is essentially flat as compared to the same period last year, and significantly down by 15.5% from the same period in 2019, brokerage Banchero Costa data shows.

While the global coal trade rebounded by 2.5% year on year so far this year, Mr Leszczynski argued that Indonesian exporters faced severe competition as their traditional market were undercut by Australia. “As Australian coal is now banned from China, Australian exporters have successfully targeted other Asia-Pacific markets such as India and Japan, which were the traditional markets for Indonesia.”

Although Indonesia did manage to increase shipments to China this year, by 19.9% year on year to 82.6m tonnes through January to July 2021, shipments declined sharply to India, down — 18.6% year on year to 31.9m tonnes in the first seven months, from 39.2m tonnes in same period in the previous year. Coal exports to Japan also fell by 27.6% year on year to 11.7m tonnes in the first seven months of 2021, from 16.2m tonnes in 2020. “Any new restriction on Indonesian coal exporters from the government will just pile on the already big difficulties Indonesian exporters face on the international market,” added Mr Leszczynski.

A large drop in freight rates registered by the Baltic Exchange’s benchmark container index is being attributed to a technical issue. The Freightos Baltic Index (FBX) on Friday reported its largest correction since inception in October 2016. Rates on the FBX01 route from China to the US West Coast dropped $3,410 in one day to $15,827 per 40-foot equivalent unit (feu) on Friday. The fall looked to have continued, with rates from China to the US East Coast marked down $2,379 to $17,584 per feu. But those drops raised eyebrows with shipping sources describing them as out of kilter with rates being quoted to forwarders. Rates being quoted from China to the US are closer to $20,000 per feu, said one container freight source.

The forward freight market points to even higher rates for the next two months. Indicative freight rates for the route from Asia to the US West Coast (USWC) are still priced at $23,000 per feu for August, and $23,500 per feu in September, according to the Baltic Exchange forward assessments for the FBX. “It’s not a massive drop off, just noise,” said a broker of container forward freight agreements. “There’s uncertainty for next few months, but rates haven’t been going down in the eyes of the physical guys.”

Other freight indices point to a stable container freight market in recent days. The World Container Index produced by Drewry registered a small drop of around 3% from Shanghai to Los Angeles last week. But Drewry director Philip Damas added that rates were more likely to increase in the coming months.

The discrepancy between the FBX and the physical market comes after an attempt to refine the index. Last month, the Baltic Exchange said it had received market feedback that FBX01 (Asia-US West Coast) and FBX03 (Asia-US East Coast) “did not accurately reflect the market”. It conducted “a detailed investigation” and “outlier data was identified and excluded from the benchmarks.” Those changes were expected to lead to an upward movement in the index after 28 July — rises which have been reversed by the steep drop of the past two days.

Brokers say the container freight market remains sky high and attributed the fall in the FBX to changes to how premiums on container shipments are calculated. Container freight rates have become increasingly difficult to calculate in recent months as lines pile on additional surcharges. In a statement to TradeWinds, the Baltic confirmed that the extreme market conditions meant the container index “did not correctly reflect the carrier premium fees when reporting prices”.

“Container shipping is facing an unprecedented shortage of capacity and the surcharges or premiums are constantly changing, almost on a daily basis,” the Baltic said. “We are constantly working on the methodology to keep up with these changes in what are extreme market conditions.” The exchange said it is engaging with the market for feedback on the validity of the recent price swings. A spokesperson for Freightos, the calculating agent for the index, said the company was clarifying the situation.