London-listed Tufton Oceanic Assets has issued a bullish bulletin on shipping as it seeks to keep investing in core sectors. The shipowning fund, managed by Tufton Investment Management, said the industry is in “the early innings of a multi-year upcycle.” The company pledged to keep recycling capital across the tanker, bulker, and containership segments.

In a quarterly update, Tufton Oceanic said its net asset value (NAV) was $312.65m as of 30 June, while the NAV return was 11.7% as containership and bulker values rose strongly. The company noted strong underlying demand and port congestion in the two sectors.

Benchmark 10-year-old containership prices rose 70% in the period due to strong competition to secure capacity, Tufton Oceanic said. But the company added: “Rising containerships asset values relative to time charter rates are leading to compression in yields.” The overall yield on the 21-ship portfolio was up at 14.2%, however.

“Although port congestion and demand growth may moderate in the second half of 2021, limited fleet growth expected over the period suggests that the containership market will find an equilibrium at levels significantly higher than 2019,” Tufton Oceanic said. Tankers remain weak, with global oil demand only likely to surpass 2019 levels in 2022, the shipowner believes. The group’s six product tankers are on long term charters, fixed before current weak market conditions prevailed. “While tanker yields are lower than the other segments at this point, the segment offers higher potential for capital appreciation,” the company said.

Tufton Oceanic is paying out a dividend of $0.01875 per share for the second quarter. Encouraged by the strong performance and increased portfolio yield, the board has raised its annual dividend target from $0.075 to $0.08 per share, starting in the third quarter.

In the quarter, the company sold two handysize bulkers for returns “materially exceeding targets” and added a bulker and a tanker. The fleet has an average charter cover of 2.3 years. Vessel operating profit was $0.028 per share to 30 June.

Grains from the Black Sea region are set to provide support to bulker demand, with wheat and barley exports expected to rise sharply over the coming weeks and months, according to analysts. Danish grains consultancy BullPositions said that Ukraine’s harvest, which has just begun, raises hopes for a record export season. Wheat production in Ukraine is forecast to reach 28.5m-29.5m tonnes, with “the top range being a new record” and 4m tonnes higher than the harvest last year, while barley is estimated to increase by 1m tonnes compared with 2020 to reach 9m tonnes. “Both crops are intensively exported, with the additional production volume likely to be added to the export volume,” said managing director Jesper Buhl.

In addition, wheat and barley crops from Romania and Bulgaria are “looking increasingly good” with current forecasts breaching past records, pegged at above 18m tonnes in total. The 5m-6m rise from 2020 production levels “is likely to be entirely destined for the export market,” he said. The abundant supply will bring prices down, making Black Sea-origin grains more competitive.

Simpson Spence Young said that tonne-miles were being boosted by a shift in trade patterns. Exports from the Black Sea were being supported by demand growth in the Middle East and North Africa due to poor domestic harvests in Iran, Iraq and Turkey, the shipbroker said, adding that imports from the three countries are forecast to rise to 14.4m tonnes in the 2021/22 season from 11.9m tonnes last year. Egyptian wheat imports are also expected to rise to a record 13.2m tonnes.

Although Russian wheat exports are estimated below last year’s level, at 37.2m tonnes, it is still the third strongest on record and the country is “positioned to build on historical trade ties and increase shipments,” according to its research.  In June, Russia shipped its first wheat cargo since end-2015 to Algeria, given lower volumes from its primary supplier France, which had a smaller crop combined with its expanding trade with China, SSY said.

The third quarter will also see a peak in terms of barley exports from Russia and Ukraine. “Significantly from a tonne-mile demand perspective, in a reversal of usual trade patterns, the past marketing year saw a 2m-tonne annual jump in Ukrainian barley exports to China to 2.9m tonnes, while shipments to Saudi Arabia (previously the leading destination) fell to 300,000 tonnes,” SSY said.

“Trade data suggests Australian barley, shut out of China, displaced Ukrainian material in Saudi Arabia, with the latter redirected to China instead. With both Chinese (10.7m tonnes) and Saudi Arabian (6.7m tonnes) barley imports projected to rise this year, and no sign of Australian barley being readmitted to China, this tonne-mile boosting trade reversal looks likely to continue.”

With regards to corn, Ukrainian exports usually peak in the fourth quarter, with shipments “forecast to rebound sharply” to 29.6m tonnes from a three-year low of 23.2m tonnes, SSY said, adding that China accounted for 38% of volumes last year as exports to the country more than doubled to 8.8m tonnes.

A UK freight forwarder is paying the highest rate to date to charter a small container ­feedership. Allseas Global Logistics is paying close to $100,000 per day to deploy a 2,000-teu boxship in a new liner service from China to the UK. It believes the charter makes sense in a market where freight rates are soaring, space is short, and containers are continuously being rolled. The Manchester-based com­pany’s liner agency division, DKT Allseas, has taken the 2,034-teu Aisopos II (built 2016) for between 80 and 100 days at about $95,000 per day. The vessel, controlled by Greece’s Capital Ship Management, had come off a three-month charter with China United Lines at $30,000 per day.

“When we first started talking with [the] owner, we were talking $50,000 per day,” said Allseas and group managing director Darren Wright. “They held out, held out and held out — and we ended up at ninety-five.” Allseas wants the vessel to deploy on a fast and direct 30-day service it has initiated from Ningbo on the central Chinese coast to Liverpool, northwest England. Normally, the trades from Asia to northern Europe are the preserve of larger boxships up to 24,000 teu. But congestion in many ports and surging freight rates mean shippers believe they can compete using smaller ships.

Freight rates for UK shipment from China average $15,000 to $16,000 per 40-foot-equivalent unit (feu) after premiums are factored in, according to Wright, compared with regular liner rates of between $17,000 and $20,000 per feu. “We’re still able to offer an attractive proposition for our customers that is less than [the] regular liner rate on spot market,” he said. “And when we say we’ll ship it, we’ll ship it. We won’t roll it three times. It doesn’t deviate, transship, or call at any other port, so you’re not hit with any ­congestion. “We’re almost getting into the transit times that rail can offer, at a fraction of the cost.”

DKT Allseas launched the China Xpress service in March with the maiden voyage of the 12,325-dwt Ronnie (built 2021), a multipurpose (MPP) vessel with capacity for 869 teu. This week, the company announced that it would extend China Xpress into a weekly liner operation until next February. “We’re now pretty much fixed up for vessel through to December, and we hope to continue for as long as the market demands,” Wright said.

Prior to the fixture of the Aisopos II, Allseas had taken MPPs on rolling charters of up to six months. The choice of tonnage was a result of taking what was available in the market. “The MPP vessels worked for availability and the amount of volume that we started out with,” Wright said. “But we’ve gained traction over the past few months; we could probably fill a 3,000-teu or 4,000-teu containership every week or two.” However, the forwarder is unable to take larger vessels due to lack of availability and is limited to smaller containerships. It is also reluctant to take vessels for longer periods because of uncertainty over the freight market. However, it might look at taking the Aisopos II for a subsequent short-term let. “We may well continue with that vessel. We’ve got first option on it. But it will depend on what the market freight rates are,” Wright added.

The entrance of freight forwarders to the freight market is unlikely to worry the liner operators. “We’re small and insignificant to them. We’re not encroaching on their market. We’re just plugging a gap and trying to keep people’s business alive. Otherwise, this cargo wouldn’t be moving,” Wright commented. “We do book on regular liners as well and we’re still struggling with space, we’re still getting rollovers left, right and center. So, we’re not taking cargoes away from those vessels. There’s just too much demand, not enough space and not enough equipment.”

The new liner ­service has been welcomed by Peel Ports, which owns and operates the Port of Liverpool. “The success of the DKT Allseas pioneering service shows there is demand for a direct China to Liverpool service,” said managing director David Huck.

Congestion outside Chinese ports has tied up 565 bulkers, according to Lloyd’s List Intelligence data. Panamax and supramax vessels were mainly affected, with average waiting times outside key grain and coal terminals rising to about 10 days. There is a total of 39.4m dwt of ships (over 18,000 dwt), now caught up in the logistics logjam.

Analysts said the congestion is being caused by exceptionally strong demand for commodities moving into China combined with coronavirus-related disruptions. “A strong uptick in coal demand from China is one of the reasons behind the recent rise in congestion, but there are also a lot of vessels carrying grain in the line-ups,” said Maritime Strategies International senior analyst Alex Stuart-Grumbar.

In addition, smaller-sized tonnage spends more time in port discharging cargo as they are less automated, he said.

Coronavirus-related delays along with infrastructure constraints were also adding to port congestion, according to shipbroker Simpson Spence Young. Meanwhile, only a dozen of the bulk carriers identified as waiting to discharge were laden with Australian coal.

A trade dispute with Australia saw China ban imports of coal, copper ore, barley, and other commodities in mid-2020, which stranded more than 60 bulk carriers for months into early 2021.

As fleet inefficiencies support higher freight rates, an expected increase in Black Sea grains exports in the coming weeks and months will add to demand for sub-capesize vessels, according to analysts.

A rise in wheat and barley production from Ukraine, Romania and Bulgaria will likely be channeled to the export market as Black Sea-origin supplies become price competitive, said Danish grains consultancy BullPositions.

Supplies from Russia, although seeing a dip from last year, are still projected to be the third strongest on record, with shipments heading to the Middle East and North Africa. Barley exports from Australia are finding their way to Saudi Arabia given the ban by China, with Ukraine taking up market share.

The boxship charter market is changing. Talk of the “highest-ever charter rate” of $160,000 per day may have grabbed the limelight in recent days. But look beyond the astronomical charter rate, and something more enduring is taking place. The container charter market is undergoing a structural shift that will change it for good, chartering sources said. The entrance of new players paying top dollar for short-term fixtures merely casts a veil over a more sustained shift towards longer charters. Containerships are increasingly being locked in by charterers for periods of several years. That is turning the chartering practices of the past 12 years on their head.

Since the financial crisis, tonnage providers have become accustomed to short and flexible charter periods. Charters of between six months and one year prevailed. Anything longer was uncommon. A glance at fixtures lists today shows that owners are reluctant to opt for anything under three years. Some are tempted by the prospect of a short-term bonanza on rates with six-digit numbers on offer. But generally, the shift is towards longer charters, with $100m deals emerging. That includes the 6,966-teu RDO Concord (built 2009) taken by German operator Hapag-Lloyd for five years at $55,000 per day.

The trend is reflected in the German-produced New ConTex, which hit a new all-time high this week of 2,189 points. The index measures fixtures from 1,100 teu to 6,500 teu for a maximum of two years. Such periods have suddenly become difficult to find, making the index difficult to evaluate. Longer deals are also prevalent in the market for smaller vessels. Ships of 2,000 teu up to 3,000 teu are earning $30,000 per day for three years. It is expected that feeders of 1,100 teu to 1,700 teu could be next to follow the trend. The structural shift has wide-ranging implications for the charter market. Longer charters are sucking up tonnage that lines would normally have expected to come open next year. That has led some liner operators to secure tonnage from the secondhand market. The shift to longer fixtures may also develop new chartering practices such as creating a secondary market for chartering vessels, observers said.

While relets are an everyday practice in the tanker and dry bulk sectors, they have never played much of a role in container shipping markets. Most of the ships taken in recent months for longer periods are being fixed by established liner players. Shipowners are willing to fix with new chartering names for short charters to capitalize on the phenomenal rates. That has led to a widening spread between rates in the short and long-term market.

The 2,824-teu Nasia (built 2005) is said to have been taken for $90,000 per day for 45 days by Vasi Shipping of Singapore. That compares with $33,000 per day for the 2,824-teu sistership AS Carelia (built 2006), which Germany’s Hapag-Lloyd has secured for three years. There is even talk of such ships being fixed for short periods at $125,000 per day. Few of the newer players to the charter market appear to be taking vessels for extended multi-year charter periods. That may be partly down to growing concern over perceived counterparty risk.

Chartering sources expressed worries that a sudden drop in the market could leave newer operators with vessels on charter that they do not need. That would be damaging if it happened from 2022 onwards when many newbuildings are delivered. A saving grace for tonnage providers could be stringent environmental laws that could force older ships into demolition. That does not look like happening any time soon. The average age of a ship sold increased from 12 to 14 years in the first half of 2021, according to Alphaliner. It added that vessels built in the 1990s remained in vogue in the first six months, with three ships over 25 years old sold to Mediterranean Shipping Co, Regional Container Lines and Tehama Shipping. Ultimately, the booming freight rates have been a consequence of congestion at ports and changing consumer habits resulting from the Covid-19 pandemic. That will change when the pandemic is brought under control. By then, though, the boxship charter market will look a very different animal.

Ships are backing up Yantian-style off southern Vietnam as Covid-19 wreaks further havoc on Asian supply chains.

The Vietnamese government put the whole southern region into lockdown on Sunday as Covid-19 cases have soared recently. Ho Chi Minh City had already been in lockdown for a week prior with most of its terminals now severely congested. Further south, many ships are at anchor off Vung Tau, an important feeder and transshipment hub, waiting for berth space to open.

Many Vietnamese factories have been forced to close in recent weeks. In 2020, Vietnam only had 1,465 Covid-19 cases for the whole year across a population of around 98m, making it one of the best performing countries in the world against the pandemic. However, latest daily data from Monday shows Vietnam had 4,843 new cases in one day, triple the whole of 2020.

In late May, a Covid-19 outbreak at Yantian port, one of southern China’s most important export hubs, caused chaos to already pressurized liner scheduling. The subsequent four-week cut to port productivity at the eastern Shenzhen port is still playing out in terms of global liner calls.

Clarksons Research is putting greater emphasis on tracking port congestion, as its figures showed one-third of the boxship fleet was tied up in terminals during April. Analyst Trevor Crowe said inefficiencies in the supply chain had led to notable “disruption upside” for containerships, as well as bulkers, with rates at record levels in some markets. Capturing the scope of disruption from port congestion is a challenge, he admitted.

“Indicators derived from vessel position data are not always a perfect reflection of what’s happening on the ground but can be helpful at an aggregate level,” Crowe said. “Our port congestion indices count the daily volume of capacity in port; tracking that gives some indication of the scale of the bottlenecks.” Container demand has rebounded faster than Covid-19 issues have eased in key regions, Clarksons Research said. This has led to a shortage of box availability, with the return of containers hampered by disruption, and major port congestion deriving from efficiency issues related to local pandemic restrictions and vessels waiting for boxes.

At a “hot spot” such as Los Angeles/Long Beach in the US, daily vessel capacity in the first six months of this year averaged about 375,000 teu, up by more than 160% on 2019 levels. There have also been huge backlogs in southern China, particularly at Yantian and nearby ports. The share of total containership capacity in port has increased from an average of 29.2% between 2016 and 2019 to 31.8% since the start of 2020, and 33% in April this year. “That’s absorbing an extra 2.5% of fleet capacity, 0.6m teu, equivalent to 25 ‘megaships’ or more than the fleet operated by the seventh-largest global carrier,” Crowe said.

Clarksons lists Wan Hai Lines as number seven in the global list in terms of the number of ships, with a little more than 600,000 teu of capacity. Units waiting or slowing down while approaching ports and anchorages may be adding to the impact, he added.

Port congestion has also helped drive bulker markets. Clarksons Research calculates average earnings for the sector in the first half at $21,039 per day, the best since 2010. “Congestion has focused heavily on Chinese ports, with the Australia-China coal dispute leading to panamax delays in particular,” Crowe said.

Elsewhere, as well as general Covid-19 related inefficiencies, specific issues have arisen, such as strikes at Argentinean grain load ports and weather-related disruption in Indonesia, the analyst added.

The share of capesize and panamax capacity in ports has risen from an average of 27.1% between 2016 and 2019 to 28.9% in the first half of this year, and more than 30% in June. This extra 1.8% tied up, totaling 11m dwt, is more than the total bulker fleet of the eighth-largest owner, which Clarksons lists as Oldendorff Carriers.

“In addition to more conventional supply-demand trends, ongoing disruption is clearly now an important factor to track,” said Crowe. And pressures that lie ahead suggest that forms of disruption other than congestion are also likely to have an impact, he believes. Crowe concluded: “Whether current bottlenecks prove prolonged, or congestion starts to unwind, it will pay to follow the trends closely.”

A 16-year-old panamax boxship is rumored to have obtained a record-breaking rate for a container shipping fixture. The 5,042-teu CSL Santa Maria (built 2005) is reported fixed for a short period at a rate approaching $160,000 per day. If confirmed, it would be the highest charter rate ever agreed on a container vessel fixture, according to Alphaliner data.

The vessel is operated in the fleet of Andreas Hadjiyiannis-controlled Cyprus Sea Lines (CSL). It is reported to have been fixed for three months by Chinese newcomer BAL Container Line for operation on the Asia-Europe trade. However, BAL told TradeWinds in an email it had not chartered the vessel. If the fixture is correct, it would break the previous record set three weeks ago when the 5,060-teu MSC Maria Clara (built 2004) was reported to be fixed to BAL for 80 days at $135,000 per day.

European brokers believe the astronomical charter rate is credible in a market which is witnessing unprecedented demand. This is partly a result of newcomers from the freight forwarding sector desperate to fix ships. Rates are also pushed higher because of the dearth of supply for containerships, especially for larger vessels where availability has completely dried up. This has shifted charterers’ focus to the smaller boxship segment.

Round-voyage rates for 2,800-teu vessels are purported to have hit a high of $120,000 per day with new players such as China United Lines and Vasi Shipping of Singapore booking ships. Even smaller handysize boxships are obtaining rates close to this level, with the 2,034-teu Aisopos II (built 2016) said to have secured nearly $95,000 per day. The Capital Ship Management-controlled vessel is reported fixed for between one and three months with the charterer believed to be a UK-based forwarder.

“It is unclear how long such a bonanza will last for non-operating owners, but it is hard not to consider the current extremes as a bubble waiting to burst,” Alphaliner said.

Hadjiyiannis-controlled CSL appears to be among the owners profiting most from the exceptional container market. The company is believed to be in the process of selling the 5,060-teu S Santiago (built 2006) for $58m to Singapore-based OM Maritime.

The Shanghai Containerized Freight Index (SCFI) – the benchmark liner spot reference – crossed the 4,000 point for the first time today, quadruple its historical average with liners now firmly on course to record their most profitable year in history. The index, which has languished below 1,000 points for most of the past decade, has been breaking records most weeks this year, passing the 3,000 mark in May and showing little sign of weakening amid extraordinary demand in the US and severe port congestion across the globe.

Likewise, Drewry’s World Container Index (WCI) registered another week of growth. The average composite index of the WCI now stands at $5,871 per feu, which is $3,799 higher than the five-year average and 339% higher than a year ago. Drewry is now forecasting the container shipping industry will post a record $80bn profit in 2021, up from earlier forecasts of $35bn. If freight rates surpass expectations in the remainder of the year, Drewry said an annual profit line in the region of $100bn is not out of the question, more than three times the all-time liner record.

The extraordinary numbers posted across the container shipping universe have prompted politicians and regulators in many countries to get involved, trying to find solutions to ease difficulties for exporters hit by the double whammy of immense freight rates and record delayed box arrivals. “Demand for ocean freight continues to outstrip supply as peak season heats up, pushing Asia-North Europe rates past the $13k/FEU mark, and sending Europe to South America rates spiking more than 30% since last week as capacity is likely being diverted to ex-Asia lanes,” online international freight marketplace Freightos noted in an update yesterday, adding: “Transpac capacity in particular is so constrained that most bookings – if they can be made at all – are relying on offline bidding wars that showcase the progress that remains to be made in terms of industry digitization.” A further spike is very likely next week as key US railway operator Union Pacific initiates a week-long halt moving boxes from the west coast inland to Chicago to clear a huge container backlog.

A recent analysis from the International Air Transport Association (IATA) shows air cargo is about six times more expensive than ocean freight, compared with a normal spread of about 12 times. “Some shippers, desperate for inventory, are shifting from ocean to air, an indication of how strained the industry is at the moment,” commented Judah Levine, research head at Freightos. Soaring container rates have also pushed the multipurpose shipping sector into record territory, Splash reported earlier this week.

The seasonal lull has taken hold of the dry bulk market, but, unsurprisingly, sentiment remains very optimistic. The Baltic Dry Index, the industry benchmark for the strength of dry bulk shipping markets that considers spot rates of main sizes of ships, has dropped since the beginning of the week. It was down to 3,139 points on July 14. The capesize average weighted time charter also fell 6.8% to $29,128 per day, compared with $31,266 on July 12. In line with this low figure, Freight Investor Services said in its daily capesize derivatives update that the paper market was very erratic, adopting a sheep-like mentality “with one minute the market bid with no offers, and then the opposite scenario just a few minutes later”.

“As the weekends, maybe it is time to pause, take a step back and let the market settle down a bit as the fundamentals here are good,” it said, adding that “the sheep won’t want to fall into a bear trap and find themselves as food for other predators.” Although the near-term outlook appears softer, it seems it is part of the natural volatility of the industry, Breakwave Advisors said. “We believe we are in the summer lull period, and as we approach early August, trade activity for forward September loadings will pick up, and with that, spot rates will once again turn higher.”

China has been supporting freight rates for the dry bulk with its stimulus packages. But the accelerating recovery in many other parts of the world have provided the dry bulk market with a new vigor since the beginning of the year. Arrow Research foresees the capesize fundamentals to be tighter in the third quarter versus the second quarter, which depends mostly on Brazilian iron ore exports, coal trade flows and inefficiency unwinding. It noted that the seasonality of iron ore freight demand is driven by Brazil as it increases production during the dry season. This typically results in the third quarter being the strongest month for Brazilian iron ore exports. Conversely with coal, the third quarter tends to be one of the weakest for capesize exports.

“If Brazilian iron ore exports comfortably exceed 2020 levels this quarter, and if capesizes continue to participate heavily in the (long haul) coal trade, then we expect the capesize market to experience further pockets of substantial tightness this year,” Arrow said. As coal prices are at the highest level in a decade, export volumes are likely to increase this quarter. “If this happens and volumes defy the usual third quarter slump, then these coal cargoes will be competing with iron ore cargoes at a time when Brazilian exports typically peak.”