New York-listed Pangaea Logistics Solutions has chalked up “record breaking” results for the second quarter as it guides to even better bookings in the current market. The Newport, Rhode Island-based owner did find itself in the odd position of time charter equivalent (TCE) rates lagging the benchmark supramax and panamax index rates, largely owing to its strategy of contract coverage fixed at rates below the soaring spot market.

Pangaea has been the top performer of all dry bulk owners for three years running in earnings rates premiums to the Baltic indexes, as measured by Danish researchers Anders Liengaard and Soren Roschmann. Still, this is a high-class problem to have as the Ed Coll-led outfit turned out its best quarter ever. “Our second quarter results were record-breaking. Market levels not seen in over a decade helped push our Ebitda above $21m for the quarter, and our net income was $19.2 million, while [earnings per share] was $0.44 for the quarter,” Coll said in Pangaea’s earnings statement.

“Our average TCE earned of $21,053 increased almost 100% compared to the second quarter of 2020 and was up approximately 27% from our TCE earned in the first quarter of 2021.”

Total revenue soared to $144.5m, more than doubling the $70.4m recorded in the second quarter of 2020, mainly attributable to TCE rates. Net income was $3m in the year-ago quarter. Pangaea did not offer specific guidance on rates booked in the current quarter but referred to general improvement. “Our TCE earnings continue to improve heading into the third quarter, and we remain optimistic about the fundamentals in the dry bulk market with a historically low order book and a stable demand outlook,” Coll said.

The other major earnings theme was Pangaea’s continued efforts to renew the fleet. The niche-market owner took delivery of the first two in a series of four ice-class 1A post-panamax newbuildings from Guangzhou International Shipyard in China. Pangaea also took delivery of a secondhand acquisition, the Bulk Promise, a 2013 Shin Kurushima Toyohashi-built 78,228-dwt bulker, for $18.3 million. The unit was formerly known as Robin Wind according to VesselsValue.

Pangaea will have a total of 24 owned vessels when the final two units in the newbuilding program are delivered later this year.

Brokers SSY estimate that less than 25% of bulkers and tankers will attain the required level of EEXI under new regulations by the IMO to reduce shipping’s carbon emissions. The Energy Efficiency Existing Ship Index (EEXI) is a key part of the IMO’s short term measures to reduce CO2 emissions from shipping.

While the IMO’s short term measures have been criticized for not going far enough according to SSY’s half year report much of the existing bulker and tanker fleet will fail to meet the levels required without taking further measures to reduce emissions . “SSY EEXI/EEDI estimates suggest that less than 25% of Bulkers and Tankers will attain compliance leaving most of the fleet facing either EPLs (engine power limitations) or another form of CO2 abatement,” the report said.

While there are a range of options available for non-compliant vessels to reduce EEXI including use of alternative carbon-based fuels, hull coatings, wind power, and waste heat recovery to name but a few, speed reductions are seen as a highly efficient way of reducing emissions.

While alternative carbon-based fuels such as LNG have attracted significant attention, particularly in container shipping, SSY sees the penetration of such fuels as relatively low in the tanker and bulker segments. “There has been some interest in transitionary fuels, such as LNG and Methanol, as a means of reducing CO2 while very low or zero carbon fuel technologies were developed. However, a combination of relatively low new building activity and the plus 20-year lifespan of most vessels, has seen an increasing focus on the outright adoption of very low or zero carbon fuels, such as green ammonia and hydrogen,” the report said.

However, use of EPLs to meet EEXI will reduce the flexibility to speed up when it is required, for example to meet a laycan, tidal change or to eligible for time charter. “It is this option to speed up that the EEXI limits,” SSY said.

With operational speeds are frequently under 50% MCR (maximum continuous rating) this means the practical operational effect of EPL will be more limited.

German coal-fired power generation has now overtaken gas amidst soaring energy prices in recent months. Futures prices indicate that coal may prove the cheaper option for power generators until 1Q 2022.

Australian coal exports for July totaled 33.2 MMT in July increasing by 24% YoY and the highest monthly total so far in 2021.

Indonesian coal exports totaled 38.7 MMT in July, rising by 26% YoY. Indonesian coal trade has seen a resurgence in 2021, particularly to China, as countries deal with extreme heat and look to stockpile ahead of the winter months when energy demand is at its highest.

Gary Vogel knew the question was coming. He even said so. “I’m not surprised it’s the first question out of the box,” Vogel said after Jefferies lead shipping analyst Randy Giveans asked him about instituting a shareholder dividend. But that didn’t mean Vogel was ready to say “yes.” And in the end, he essentially danced around the query as he has for several months now amid an escalating dry bulk market that had just delivered Eagle’s strongest quarter as a public company.

“Returning capital to shareholders has been a clear goal of mine and the company since we restructured the balance sheet in 2016 when I joined,” Vogel said. “Having said that, it’s really important that when we do something like a dividend policy, we have clear visibility. And I think we’re in a situation now where there is clear visibility, but it needs to be both meaningful and sustainable.”

Vogel recounted how Eagle has acquired nine ships since November, has watched them appreciate and has put minimal debt on the additions in a bid to de-lever Eagle’s balance sheet. Three remain to be delivered. “So, we’ve been focused through these deliveries on strengthening the balance sheet and de-levering. Once we finalize these deliveries, I think that with clear visibility and strong cash flows we’ll be in a position to substantively address capital allocation whether that’s share buybacks or dividends.” And then Vogel pivoted from the discussion with a line he has used several times in recent months. “I’ll end it with ‘watch this space,'” he said.

The numbers show Eagle produced adjusted net income of $40.3m or $3.31 per share, reflecting the best Ebitda since it went public in New York in 2005. The owner of supramax and ultramax bulkers recorded time-charter equivalent rates of $21,580 per day, its best in 11 years. But it has bettered that number in the current quarter, reporting TCE of $28,300 per day as of Thursday, with 75% of available days booked.

Amid the bumper-crop results, Eagle has watched New York-listed dry bulk peers Genco Shipping & Trading and Star Bulk institute or return to policies aimed at paying out a large percentage of their free cash to shareholders as dividends. Not surprising, then, that analysts would have questions. “Looking ahead, we expect [Eagle] to prioritize returning capital to shareholders and will likely look at share repurchases and/or instituting a dividend policy following the delivery of the final three vessels in the coming months,” Giveans said in a client note following his dialogue with Vogel.

Eagle’s liquidity position has strengthened to $139.8m after the second quarter, up from $119.7m one year ago, noted analyst Liam Burke of B Riley Securities in a client note. “Eagle’s liquidity position should continue to improve with strong free cash flow driven by a healthy spot rate environment. Eagle has successfully grown its fleet while not significantly increasing the financial risk of the firm,” Burke wrote.

Spot rates for capesize bulkers have hit their highest point in three months amid strong fundamentals that may push them even higher — but how high depends on whom you ask. The capesize 5TC assessment, the average spot rate weighted across five benchmark routes, on Thursday surpassed $36,000 per day for the first time since mid-May. The assessment rose by 2.6% on Wednesday’s level and reached $36,608 per day.

The China-Brazil benchmark voyage supported the upswing by gaining $1,650 per day to achieve $34,686 per day, according to the Baltic Exchange. “Indeed, we are slowly moving higher as the supply-demand balance for the end of August and early September looks favorable for capes,” John Kartsonas, founder of US-based asset management advisory firm Breakwave Advisors told TradeWinds. “For now, it is the North Atlantic that is keeping the index from moving closer to the symbolic $40,000 [per day] mark, but I still think the odds are favorable for cape rates to exceed such levels soon.” The futures market currently implies that rates could reach that high by next month.

Capesize forward freight-agreements (FFAs) for September settled at $40,086 per day on Wednesday and, though they suffered a slight sell off on Thursday, remain around the $40,000 level. October FFAs closed at $39,164 per day on Wednesday, but bidding was around the $38,500 level late in the trading day on Thursday. Kartsonas also noted higher spot rates for panamaxes and supramaxes have helped the Baltic Dry Index rise by 58 points to 3,376 points on Thursday. Handysize rates, too, are at multi-year highs. “Now all segments are moving up in tandem,” he said.

Kartsonas said the trend is “not overly surprising as we went through a period of slow activity in July yet without a significant drop in spot rates. Now that there is some more activity it is not surprising that rates move higher from a significantly higher base.”

Stamatis Tsantanis, chief executive of pure-play capesize owner Seanergy Maritime Holdings, expects rates to go well past $40,000 per day as iron-ore miners export more in the second half. Continued port congestion should help keep rates firm, he said. “A sizable amount of dry tonnage is held in congestion, which is not expected to unwind any time soon, therefore we believe that rates should exceed $45,000 to $50,000 in the next months,” he told TradeWinds.

Jefferies analyst Randy Giveans also foresees better capesize spot rates amid robust activity in the Pacific and Atlantic basins that may include taking loads from costlier sub-capesize bulkers. But they may not reach as high as $50,000 per day, he said. “There is much concern on Chinese steel production as a sign of potential weakness, but I would point to increasing non-Chinese steel production and Vale ramping up iron-ore exports,” he told TradeWinds. “I think we will see $40,000 [per day] before we see $30,000.”

New York-listed Eagle Bulk Shipping achieved its best-ever results in the second quarter although its headline numbers were blunted by non-cash accounting losses on derivatives. The Gary Vogel-led owner became the latest dry bulk owner to report eye-popping results, with adjusted net income of $40.3m or $3.31 per share, reflecting the best Ebitda in company history. However, $31m in accounting losses on freight forward agreements (FFAs), which the Stamford, Connecticut-based owner uses to hedge its spot-market positions, brought down the result to $9.2m or $0.76 per share. The owner of supramax and ultramax bulkers recorded time-charter equivalent rates of $21,580 per day, its best in 11 years. But it has bettered that number in the current quarter, reporting TCE of $28,300 per day as of Thursday, with 75% of available days booked.

Eagle’s adjusted net income is substantially above analyst consensus expectations of $3.09 per share, although it falls below the $3.76 figure projected by Jefferies equity analyst Randy Giveans. Under Vogel, Eagle has adopted an active-management model for its fleet under which it prefers to use paper contracts to hedge spot exposure rather than entering physical time charters. At least from an accounting standpoint, that dampened the picture for the past quarter as the spot market roared to near-record highs, creating non-cash losses against the FFA positions when compared to FFA indices.

“The market for the midsize drybulk segment continued to strengthen in the second quarter on the back of robust demand across the commodity spectrum, and especially for grain and infrastructure-related cargoes that we carry such as cement, manganese ore, and steel,” Vogel said in the earnings statement. “We achieved our best ever operating performance, producing an adjusted Ebitda of over $62m, as the Baltic Supramax Index rose by almost 60% during the quarter, reaching levels not seen in more than a decade.” Vogel said asset prices had rallied accordingly in recent months, with values of mid-aged vessels up about 75% year to date, thereby boosting Eagle’s 53-ship fleet. “Given both positive demand and historically low supply-side fundamentals, we maintain an optimistic outlook on market developments going forward,” Vogel said.

Revenue for the quarter soared to $129.9m compared to $57.4m in the corresponding months of 2020. Eagle’s adjusted profit of $40.3m compared to a loss of $20.5m, or $1.99 per share, in the first quarter of 2020.

Eagle explained the adjustments to net income as follows: “Adjusted net income is net income that is adjusted to exclude non-cash unrealized losses on derivatives. The company utilizes derivative instruments such as FFAs to partially hedge against its underlying long physical position in ships. The company does not apply hedge accounting, and as such, the mark-to-market gains or losses on forward hedge positions impact current quarter results, causing timing mismatches in the statement of operations. We believe that adjusted net income is more useful to analysts and investors in comparing the results of operations and operational trends between periods and relative to other peer companies in our industry.”

Global brands from Toyota to Nike are being forced to down tools at key production sites in China and Vietnam as the two communist export powerhouses batten down swathes of their populations to fight rising levels of Covid-19 cases. Global supply chains, already reeling from one of the most challenging years ever recorded in peacetime, look set to face greater disruption.

Toyota and Honda, Japan’s top two car manufacturers, have been forced to close plants in Guangdong and Wuhan respectively in recent days due to Covid-19 outbreaks. In Thailand too, Toyota, the world’s largest automaker by sales volumes, had to suspend production last month at three factories due to a pandemic-related parts shortage. A spokesperson for Honda revealed yesterday the company has made a downward revision of its sales volume outlook due to the Covid resurgence around the world but centered around Asia, as well as the impact from a global shortage of chips.

A global semiconductor chip shortage has hit most automakers hard this year. General Motors said earlier this week it will shut down several North American plants because of the shortage.

Since July 20, community-spread infections have been confirmed in about 30 cities across China, including Beijing, Shanghai, and Chongqing. Apart from the three provincial-level metropolises, infections have been found in 12 provinces and autonomous regions such as Sichuan, Henan, and Yunnan. 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 14-28 days if they previously berthed in India or performed a crew change within 14 days of arriving in China.

Meanwhile, in increasingly locked down Vietnam, one of the world’s most important apparel manufacturers, roughly one third of the country’s textile and garment factories are currently closed because of Covid-19. Data from the Vietnam Textile and Apparel Association (Vitas) shows 30 to 35% off the nation’s apparel factories are currently shuttered, with Nike one of the big brands struggling with this outage.

Electronics firms including Samsung and Foxconn are also reported to be struggling with production due to the lockdown rules in place across parts of Vietnam. The south of the nation has been in lockdown for nearly a month with massive ship queues building in the South China Sea.

New York-listed Genco Shipping & Trading has won a $450m refinancing of existing credit facilities in another key element of its new low-debt, high-dividend strategy. The refinancing was one of a raft of developments disclosed by John Wobensmith-led Genco as it celebrated its best quarter since 2010, albeit slightly missing even higher expectations from equity analysts.

Genco also locked away three ultramaxes on two-year charters that previously had been hard to find in the dry bulk sector, lending further support to the dividend-payout plan through predictable income streams. And the Manhattan-based owner is forging a new joint venture with The Synergy Group for technical management of the fleet, serving withdrawal notices to current managers Anglo-Eastern and Wallem Shipmanagement.

The action-packed quarter saw Genco record net income of $32m, or $0.76 per share, just a penny shy of the consensus estimate of Wall Street analysts. This reversed a net loss of $18.2m or $0.43 per share from the second quarter of 2020, as revenue climbed to $121m from $74.2m. Genco’s best quarter in 11 years has been followed by even stronger fixtures in the current quarter. Second-quarter time charter equivalent (TCE) rates were up 73% from the first quarter but have increased a further 31% in third-quarter bookings to date. Capesize rates were $23,760 for the first quarter but $31,304 with 66% of days booked in the current quarter. Ultramax and supramax averages of $19,215 jumped to $25,273 with 75% of days booked.

In addition, Genco appear to confirm a TradeWinds report from July that it had acquired three Navigare Capital Markets secondhand ultramaxes. TradeWinds reported Genco had paid around $72m for the Chinese-built trio: the 63,000-dwt Navigare Bellus, Navigare Beatus (both built 2017) and the Navigare Bonitas (built 2014). They have been renamed Genco Madeleine, Genco Constellation and Genco Mayflower.

In its headline refinancing, Genco said it will retire existing credit facilities of $495m and $113m. The new facility will feature a 5-year term loan of $150m and a revolving credit facility of up to $300m. Pricing is between Libor plus 215 basis points and 275 basis points with no restrictions on dividends. Lenders were not identified.

“The foundation of our value strategy, which was announced in April, is our strong balance sheet and capital structure. Our recently agreed upon global credit facility refinancing further enhances Genco’s capital structure, providing additional flexibility, reducing our cash flow breakeven rates to industry lows, and supporting sustainability of quarterly dividends through diverse market environments,’ Wobensmith said in an earnings statement. “Additionally, we continued to opportunistically expand our fleet at a unique point in the cycle, seeking to capture the disconnect between decade high freight rates and asset values that have yet to catch up, which has resulted in compelling return on capital opportunities.”

On the charter front, the owner has fixed two vessels for between 20 and 23 months. These are the 63,400-dwt Genco Freedom (built 2015) at $23,375 per day and 63,500-dwt Baltic Hornet (built 2014) at $24,000 per day. It also fixed 63,300-dwt Baltic Wasp (built 2015) between 23 and 25 months at $25,500 per day.

Shipping will need to start to make contingency plans if cases of Covid-19 continue to escalate in China, the world’s most important nation for shipping movements. The delta variant has broken through the country’s virus defenses, which are some of the strictest in the world, and reached nearly half of China’s 32 provinces in just two weeks. While the overall number of infections — more than 360 so far — is still lower than Covid resurgences elsewhere, the widespread indicates that the variant is moving quickly with many millions of Chinese now in lockdown. “For freight markets, the implications include delays at ports as authorities screen crews of incoming vessels and a hit to China’s oil demand if widespread lockdowns are imposed,” a report from Braemar ACM pointed out yesterday.

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. Similar disruptions are on the cards in the coming weeks, while shipyards are also likely to see their delivery schedules come under pressure if any wider lockdown measures are taken. “As long as lockdowns remain confined to China, the impact on freight markets is likely to be muted, especially in the case of wet and dry freight. The container market seems most vulnerable if we see more severe disruptions to manufactured products supply chains,” commented Plamen Natzkoff, senior trade expert at VesselsValue. On the potential tanker ramifications, Natzkoff said: “An immediate impact of a lockdown in China is reduced population mobility which would have a direct impact on demand for transportation fuels, potentially impacting negatively the tanker market.”

On the possible consequences for the container sector, Alan Murphy, CEO of Danish consultancy Sea-Intelligence, reminded readers of what happened in February 2020 when China first went into lockdown. Carriers responded with a wave of blank sailings. “Assuming that a strict China lockdown would lead to a scenario as in February 2020, we would expect a drop in production of 15-20% for about a month,” Murphy suggested. While that at first might not sound too detrimental, after all that is in rough numbers what happens every normal Chinese New Year, 2021 is not a normal year. “Cargo owners, already stressed beyond sanity from devastatingly high freight rates and absurd surcharges, and with no way to secure neither equipment nor space, would suddenly see their procurement costs sky-rocket in addition to their back-breaking logistics costs,” Murphy predicted, adding that the one possible silver lining for shippers could be that as the production decreases start to wave out to the Chinese ports, pressure would start to ease off on the ocean bottleneck, which could start to bring down freight rates. The added concern Murphy has is if Chinese ports were not able to run at full capacity, like Yantian earlier this summer. “For container shipping, which is more than red-hot at the moment, even a brief halt in Chinese exports is likely to ease the crunch a bit logistically so long as a lockdown only closes manufacturing sectors and not ports and terminals,” commented Peter Sand, chief shipping analyst at BIMCO.

Nick Ristic, a dry bulk analyst at Braemar ACM, said the sector would not be as badly affected as it was at the start of the pandemic last year. “Based on the experience in other countries with prolonged lockdowns, it seems the world has learnt how to keep things running with restrictions in place,” Ristic pointed out. Of greater concern for Ristic is the state of consumer demand and the underlying economy in China, which is starting to slow down. “This could take some real steam out of the Chinese economy and manufacturing base. PMIs are already weakening too,” Ristic said. Factory activity expanded at the slowest pace in 15 months in China last month as new orders dropped. The Caixin/Markit manufacturing purchasing managers’ index (PMI) fell to 50.3 in July from 51.3 in June. Bulk carrier congestion in China hit a five-year high of 50.5m dwt over the weekend, rising by 24% year-on-year as new restrictions were put in place in ports across the country. Current queues are 76% above the five-year average according to data from Braemar ACM as Covid-19-related protocols affect all sectors of the dry bulk market, worsening the crew change crisis in the process. 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 14-28 days if they previously berthed in India or performed a crew change within 14 days of arriving in China. “While it is unclear how long these measures will be in place for, they will likely tighten the dry market in the near-term,” Braemar ACM suggested in a note to clients yesterday.

Ralph Leszczynski, global head of research at Banchero Costa, like most analysts contacted by Splash, was adamant that China would not press ahead with a national lockdown. “Larger scale lockdowns would be unsustainable economically, so can happen at local level – in a single neighborhood or city, but not for whole provinces, not to mention nationwide,” Leszczynski said. China has managed to carry out one of the largest vaccination campaigns this year, with over 60% of the population already vaccinated, and an 80% vaccination threshold likely to be reached by September or October. “China will certainly try now to contain and eliminate the current outbreak, but if they don’t manage to do that, and it spreads uncontrollably nationwide, I think they are more likely to shift towards more of a living with Covid strategy thanks to vaccination in the autumn, similar to what Singapore has announced recently, rather than shutting down the whole country, which would be unsustainable economically and create discontent,” Leszczynski said. Mark Williams, who heads up British consultancy Shipping Strategy, concurred with Leszczynski, telling Splash: “More likely than a national lockdown is a series of targeted lockdowns by province or county. If those lockdowns include coastal regions, key ports, and logistics centers, then globalized supply chains will become chaotic.”

Diana Shipping is getting ready to take full advantage of a dry bulk market that, in its view, is about to get much more visible and even stronger — though it isn’t saying how exactly. The Semiramis Paliou-led owner of 36 bulkers on Tuesday posted its first profit in almost two years amid higher time-charter rates, which its executives believe may go even higher. “I think now it is clearer what is happening in the market,” chief operating officer and secretary Ioannis Zafirakis said during Diana’s second-quarter earnings call with analysts. “We’re going to see the remainder of the year stronger, then the next year beginning very strong and that would be the best time for us to utilize our balances in the best way possible for ourselves. Therefore, you have seen us in a disciplined manner waiting before we release all of our weapons as a company in the market.”

While brimming with optimism, he was short on details as to which of Diana Shipping’s “weapons” will be taken up or how. “I cannot give you an assurance about what is going to happen or what we will do,” he said. “The only thing that is certain … is that we have also options ahead of us to do what we will consider to be the most appropriate risk-reward ratio for our shareholders.”

He said that market “overreaction” to challenges such as carbon emissions and financing have kept vessel supplies at very low levels, which should lead to an even stronger market. “This is our belief,” he said. “Provided the demand stays where it is or improves a bit, we’re going to see that happen. People are very reluctant, looking at the problems, but they don’t understand that there has been an overreaction to those problems.”

Whether the market will get strong enough to see Baltic Dry Index (BDI) rates go as high as they did in 2008 has yet to be seen, however, according to president Anastasios Margaronis. The BDI, which lost one point on Tuesday to hit 3,281 points, reached an all-time high of 11,793 points on 20 May 2008. “To say that it’s likely will make us overly optimistic and very aggressive, which we traditionally never are and never have been, but is it possible?” he said during the call.

“It is and I can envisage a scenario for example where demand continues going up, not in the explosive way that it did in 2008, but in a very healthy manner.” But rates may go higher still if a building boom for boxships and other types of vessels slows expansion of the global dry bulk fleet. “Suddenly we realize that even if we want to build ships we can’t build them for the next three years,” he said.

“You don’t need an enormous shortage of ships to have rates going up by a lot, so if we see a persistence shortage of bulk carriers and psychology moves in the right direction, we could conceivably see numbers of the order that we saw back in 2008.”