A surge in newbuilding orders to one-in-five of the boxship fleet has again raised the prospect of structural overcapacity. It comes as the value of containerships ordered in the first half of the year rose to levels nearly three times greater than any corresponding period in the past 20 years. Some 286 vessels of 2.5m teu have been ordered in the year to date with a value of $21.52bn, according to VesselsValue estimates. That breaks the previous record of 99 ships ordered in the first half of 2011 with a value of $9.2bn.

The value this year is expected to grow with pending orders anticipated from carriers including Ocean Network Express, Maersk, Yang Ming Marine and Cosco Shipping and its affiliate Orient Overseas Container Line (OOCL). Alphaliner puts the tally of orders in the first half at over 300 vessels of 2.88m teu. It estimates these helped take a rather anemic container ship orderbook from a low point of 2.29m teu a year ago to 4.94m teu as per 30 June. But orders penned or expected in the second half of this year could help lift that tally by another million teu slots to around 6m teu. The orderbook-to-fleet ratio would then reach about 24% of today’s liner fleet when it expects owners may need to show restraint, the analyst said.

“Anything approaching or even passing the 25% mark, could however raise the specter of structural overcapacity a few years down the line,” Alphaliner added. The orderbook-to-fleet ratio has already risen from 9.4% a year ago to 19.9% at present, it said.  Boxship newbuilding orders in the first half of the year were almost triple their previous half-year highs. The vast majority were in the neo-panamax sector where 112 vessels were ordered with a value of $13bn, according to VesselsValue. That follows a paltry 32 ships ordered for $1.97bn in 2020.

“The ordering market for containerships is at historic highs,” said Olivia Watkins, head cargo analyst at VesselsValue. Orders are up 790% in the first half compared with the same period last year. The $21.52bn orderbook so far compared with 120 containerships of $8.8bn in 2020 and 106 vessels worth $6.8bn in 2019. “The current container market has increased owners and operator’s confidence which has led to an ordering spree across the sector,” she said.

Tonnage provider Seaspan Corp dominated the list with 40 ships of 603,000 teu, with a value of $3.95bn. Liner operator Evergreen is next with 22 ships of $2.82bn, followed by rival carriers CMA CGM, Wan Hai Line and HMM.

The proportion of ships on order to fleet size varies between different sizes, Alphaliner notes. The orderbook-to-fleet ratio stands at 50% for 11,000-teu to 25,000-teu vessels and 8% for vessels in the 1,000-teu to 7,500-teu range, the analyst said.

The corresponding figure in the 7,500-teu to 11,000-teu segment, where there are no orders, is zero.

Developing world countries and their small and medium-sized enterprises (SMEs) are taking a huge blow from the current situation in liner shipping as for many of them the tariffs are prohibitive, and they cannot ship their products. The latest edition of the United Nations Conference on Trade and Development (UNCTAD) webinar series highlighted SMEs as the losing side of the container shipping crisis while large carriers and their alliances, as well as big freight forwarders, are reaping all the benefits.

“We see a complete crumbling of the supply chain of SMEs because they cannot absorb the cost of transportation,” said Denis Choumert, chair of the Global Shippers Alliance. Choumert described today’s liner scene as a stage of war. “Everybody is trying to get the best out of these cash cows, and nobody wants to imagine something different,” he said. Even with the top exporting countries, such as China, which has seen exports rise 32% in the last six months, shippers need more containers for the US and Europe and that they have no choice but to pay the price.

Chaichan Charoensuk, chairman of the Thai National Shippers’ Council and representative of the Asian Shippers’ Alliance, said that if the price continues to increase, shippers will collapse very soon. He called on cooperation and competition authorities to help look at the freight costs. “If we do nothing, I cannot see the end of the tunnel, because the freight cost is unstoppable,” Charoensuk said. He stressed that the whole sector needs to look under the iceberg. “There are huge invisible costs, such as the opportunity lost because of not being able to export due to container shortages and freight costs.”

John Manners-Bell, director of Foundation for Future Supply Chain, said the problems lie in the whole supply chain, which is saturated with cargo. “I’ve never experienced levels of animosity between all supply chain partners. Everybody involved is at each other’s throats,” Manners-Bell said. He said that the developing world are the real losers from this situation, with many countries being sidelined as major shipping lines are not calling at their ports anymore. “SMEs, which are dominant in many developing countries, have lost out. They can’t book space, even if they do, they are not able to afford the prices in today’s spot market,” he said. Manners-Bell compared the shipping system to the situation in 2008 and 2009 when developing countries lost support from many banks and turned to China, which could probably be the result of this crisis again.

Teresa Moreira, head of the competition and consumer policies branch at UNCTAD, noted that the maritime sector has raised issues from a competition law and policy point of view for decades as having the potential to lead to abuses of market power. “It is certainly a situation that deserves to be looked into and demands action from several public authorities in dialog with business associations,” Moreira stated. She said that governments can put a stop and temporarily control a very high rise in prices when such prices are having a negative impact on SMEs.

According to Global Shippers Alliance’s Choumert, regulation and competition authorities will not be able to solve the problem soon by capping and banning. The future is framing the market, not regulating it. “We have to find ways to set different contracts and we need a more transparent market,” he said. Choumert said the key to unlocking this present crisis is better collaboration in the market. “Shippers together with carriers and forwarders should look in the future for solutions to increase the efficiency of supply chains and better use of ports. Digitalization will be, of course, an important part,” he suggested.

Shipowners and charterers are refusing to get carried away with talk of super cycles in commodities markets. Speakers at TradeWinds’ Shipowners Forum Singapore 2021 said that while bulker rates are strong, they are not yet in the rarefied territory that could justify categorization as a sustained period of expansion. Analysts have said iron ore is in a super cycle and Mark Williams, managing director of consultancy Shipping Strategy, said these supercharged commodity markets are driving bulker gains. He said there is “not yet” a dry cargo shipping super cycle. “But it has the potential to become one,” he added. “It’s good but it’s not super yet.”

Williams believes a shortage of construction materials will stretch global supply chains, while fleet growth will also be limited. “That supply side discipline may be what turns what I’m calling the mother of all recoveries into a super cycle,” the analyst added. The Chinese construction boom from 20 years ago was the last confirmed super cycle.

Bulker rates in June were at their strongest since September 2008 and more than double the 2020 average so far this year. But Rashpal Bhatti, vice president of maritime and supply chain excellence at BHP, told the webinar that he does not see rates reaching the peaks of that earlier period. He believes not enough emphasis has been given to the supply side of commodities, with all the focus on demand. Bhatti argued these supply constraints have contributed to the rise in iron ore prices. This year could see only an extra 14m tonnes shipped from Australia, which he said would not meet demand. “Right now, the congestion rate for capesizes is at 14%, and we think that adds about 1.5% to utilization,” Bhatti said. “And when the Covid constraints unravel and get back to some kind of normality, that congestion will come away and that capacity will come back in the market, and that will of course dampen some of the spikes that we see.”

James Marshall, chief executive of Berge Bulk, said super cycle is “obviously a strong word”. “We see it in iron ore, but we haven’t seen it in shipping freight rates,” he said. “We’re not there, although rates are good, particularly for the smaller sizes. Capesizes are okay, we’re happy, but you need these rates for many years to have a sustainable long-term business.” Marshall said that after several tough years, $30,000 per day for capesizes “is kind of what you need over a long period. We’ve built up our fleet based on a recovery that we are seeing, but there is a long way to go until we see very high rates.” However, Marshall added that the second half looks very positive from a capesize perspective. He expects a lot more supply out of Brazil, maybe an extra 40m tonnes in the second half, compared to the first six months. There is also a lot of restocking of coal needed in China. Marshall said congestion has become worse with the Delta variant of Covid-19, with ships getting held up in quarantine.

Baltic Exchange chief executive Mark Jackson said there was general support in the market across all ship sizes. “We’ve got inefficiency going on, things are not quite tying up,” he added. Jackson added that small delays are causing ships to not quite be in the right place at the right time, due to Covid or even the weather. Converging rates for capesizes and smaller vessel sizes also mean cargoes cannot be split up now. “It’s not cheaper to go downsizes,” Jackson said.

Bhatti said BHP has a clear view of what it wants to pay in freight. He explained that only a small number of its chartered vessels are spot, with the majority priced last year on term deals. Bhatti said there is only a $100-per-day gap between rates for capesizes, panamaxes and supramaxes due to inefficiencies. “How does that make sense?” he said. “But efficiency will come back.”

Williams is positive for bulker markets in 2022, predicting they will be very firm — and there is a good chance this will continue into 2023. In terms of newbuilding supply, he said shipyard capacity has halved from the boom years, although it would be quite easy to put bulker capacity back in place. But he added: “There is still some way to go before newbuilding prices will encourage expansion of yard capacity.”

The stunning amount of boxships ordered so far this year is set to continue with big names such as Cosco, Ocean Network Express (ONE), Yang Ming and Maersk all tipped to be in discussions with Asian yards.

More than 300 boxships were ordered in the first half of the year, according to data from Alphaliner. Combined with a healthy number of newbuilding contracts signed in late 2020, the 2021 order frenzy has gone from a low of 2.29m teu a year ago to 4.94m teu as of June 30.

The overall orderbook to fleet ratio has more than doubled from 9.4% a year ago to 19.9% at the end of H1, Alphaliner data shows.

July has also kicked off with sizeable deals for 7,000 teu ships for TS Lines and Seaspan.

In its most recent weekly report, Alphaliner suggested ONE is looking at adding more mainline ships, while Cosco is close to ordering six 13,000 teu vessels and fourteen 15,000 teu ships at its joint venture yards with Kawasaki Heavy in Nantong and Dalian.

Yang Ming, meanwhile, is being widely tipped to be closing on a contract for its first 24,000 teu class vessels, while Maersk is understood to be in touch with a Korean yard for larger methanol-fueled ships, having made recent history with its order for a first 2,000 teu methanol-fueled ship.

If these rumored orders all go ahead, and assuming a few more top-up orders from other owners, the container ship orderbook might easily grow by another 1m teu slots to reach 6m teu, Alphaliner is predicting. The orderbook-to-fleet ratio would then reach about 24%.

Containership newbuild prices have leapt 15% so far this year.

Coal trades may be subject to short-term disruption following a derailment in South Africa and a new wave of coronavirus infection in Indonesia. Some delays in cargo being delivered to South Africa’s Richards Bay port were reported following a 30-wagon train derailment earlier this month, according to local ship agents. It is the second such incident this year. But while the situation was improving as one line had re-opened albeit at reduced speeds, civil unrest in the country this week has had a negative impact on port operations. The dry bulk and multipurpose terminals were currently not in service, the ship agent said, as roads are blocked, and employees are unable to get to work safely. A suspension to all port movements, including coal loadings, has been issued from July 12 until further notice. Wilhelmsen ship agents said that Transnet, the country’s port authority, was endeavoring to continue operations at the terminal where labour was available.

According to Lloyd’s List Intelligence, 19 bulk carriers are destined for the port in the week to July 16. They comprise eight capesizes, eight supramaxes/ultramaxes, with the rest panamaxes. As of July 9, seven bulkers were at port, the data shows. Only two have been in anchorage for more than a week. South Africa’s exports dipped to 32m tonnes in the first half of this year compared with 36m tonnes in the year-earlier period, according to London-based Maritime Strategies International. The figure is also 7m tonnes lower than the past six months of 2020. MSI expects reduced exports in the second half of this year given the country’s infrastructure problems. Brokerage Braemar ACM saw a boost in capesize sentiment when the situation looked to be returning to normal, although the effect was seen as small given increased iron ore starting to emerge from Brazil. The relatively expensive freight on panamaxes has also likely nudged shippers to up stem sizes, providing support to the capesize segment. When the derailment news broker out however, the July Forward Freight Agreement contracts dropped 14% to a one-month low. Capesize spot rates fell 3.2% to $30,272 per day at the close on the Baltic Exchange on July 13 from the day before. Capesizes have lifted 56% of the coal exported from Richards Bay so far in 2021, according to Braemar, with supramaxes responsible for 31%. Most of the coal, 13.8m tonnes, headed to India in the first six months of this year, followed by China at 8.9m tonnes, the highest level on record.

Meanwhile, Indonesia — China’s largest supplier — also has some downside risks to coal flows this quarter after an increase in coronavirus cases in coal-mining regions of the country. At least one miner was heard declaring force majeure. Arrow’s head of research Burak Cetinok said that seaborne supply may also be affected by wet weather and miners directing more coal to domestic power plants as per a 2018 government directive. That could cut exports later in the year. However, an upcoming religious holiday next week in Indonesia is seeing frenzied barge movements to anchored capesize vessels in ship-to-ship transfers. According to Lloyd’s List Intelligence, there are five capesize vessels in anchorage around main Indonesian ports, with two that have not shown any signs of movement for two-to-three weeks. One Hong Kong-based charterer said that coal shipments to China have so far not been affected, with safe loading being reported as there is minimum interaction between vessels, although there were restrictions on ships from India, Pakistan, and Bangladesh, which had to complete 14 days of quarantine before being allowed into port.

China was in a restocking drive for summer requirements, according to a Singapore broker, who did not see any impact to shipments despite virus cases in the Kalimantan region. In the first six months of this year, Indonesia’s exports fell 4.3% to 162.9m tonnes versus the same period last year, according to data from Banchero Costa. That was partly due to the virus, but also because it has struggled to remain competitive, with Australian supplies picking up share in markets like India and Japan. While volumes from Indonesia increased 13.5% to China at 69.7m tonnes in January to June 2021, it “was not enough to compensate the declining volumes to India and Japan,” said Banchero’s head of research Ralph Leszczynski. Despite the apparent downside risks, global coal trade is steadily recovering “in an encouraging way,” he said. Total coal loadings in June rose 8.1% to 101.9m tonnes compared with the same month last year, and were the highest since March 2020, although January-to-June volumes were down 0.5% year on year to 577m tonnes.

According to Arrow, shipments have been increasing from Colombia in recent weeks, and with Newcastle coal futures surpassing $140 per tonne, it expects exports to continue ramping up over the coming months. “Indonesian exports may underperform, which could encourage Asian buyers to seek even more cargoes further afield,” Mr Cetinok said, adding that the capesize segment is primed to benefit from incremental Atlantic coal volumes as they are increasingly tonne-mile heavy. MSI echoed the view, saying that while Colombian volumes have recovered from a very weak latter half of the past year, they are still 16% lower than the first six months of 2020. With a tight global coal supply market, MSI expects exports from the South American country to increase later this year, although the pandemic remains “an acute” downside risk.

A top commodities analyst at Goldman Sachs has claimed the ferrous metals markets looks set to enjoy a prolonged super-cycle. Nicholas Snowdon, Goldman Sachs head of base metals and bulk research, said on Tuesday that he believed the price increases for raw minerals over the past 12 months are part of a pricing trend that points towards the beginning of a super-cycle.

Speaking at the Singapore Iron Ore Forum, Snowdon claimed the underlying trends that look set to play a role include the drive for decarbonization, regional manufacturing and supply chain shifts and a dose of discipline on the part of mineral producers. Snowdon said the broad focus by governments on decarbonization will require an expected $16trn in new infrastructure investments. “Green infrastructure and renewables are going to be very metals/commodities intensive,” Snowdon said. Rod Dukino, BHP vice president of sales and marketing for iron ore, concurred. He claimed that decarbonization will require two times the amount of steel currently produced, four times the amount of copper, as well as significant increases in the amount of cobalt, nickel, and manganese — all key ingredients in lithium batteries. “We are super optimistic of the role we will play among that demand,” Dukino said.

Snowdon said the Covid-19 pandemic played a strong role in the rise of commodities prices. “The pandemic has taught us that global supply chains are incredibly fragile,” he explained. This, according to Snowdon, has led to pivotal shift towards regional manufacturing. This contrasts with the trend over recent decades to consolidate manufacturing in one location — China. “Global trade volumes are under pressure. Trade is becoming more local. We will see manufacturing development in other economies very much linked to green capex,” he said.

China, Snowdon added, is seeing its advantages in the global supply chain diminish. “Labour costs in China are no longer a significant advantage,” he explained, adding that China’s significant decarbonization efforts are also playing a role. Furthermore, China, no longer has the weak environmental oversight it had during its earlier push for rapid industrial growth. “What will result is a remapping of global commodity flows and stronger buffers in supply chains,’ Snowdon said.

Simon Farry, Rio Tinto vice president of sales and marketing for iron ore, indicated that the beginnings of this trend could already be seen. Chinese mineral demand was not affected by Covid-19; in fact, it grew during 2020, Farry explained, while Rio Tinto’s sales to customers in other countries were significantly cut back. However, Farry said buying volumes from non-Chinese customers during 2021 “came rushing back at rates our customers were not ready for and we did not expect”. Tracy Liao, vice president of commodities strategy at Citi, said the Ukraine, Canada, South Africa, and a few other marginal iron ore producing countries used to export the bulk of their pellets to China, but this year has seen some redirection of exports to non-Chinese markets.

Tight market supply in minerals has been caused in part by disciplined capex spending among the world’s largest minerals producers, a move that Snowdon described as the “revenge of the old economy. We have seen a substantial diversion of capital from the old economy to the new [technology] economy and have now entered a point where there is very little appetite to invest in the old. Total capex investment for commodities is a third of levels in the 2010s, and there is still very limited appeal to swing back to previous levels. Investment is substantially lower than in the last super-cycle, which is a key feature for a bullish cycle.” Snowdon said demand growth rates for minerals will be stronger during the 2020s but will be set against a restrained supply side. “Prices will have to rise to supply this tight supply market,” he said. Snowdon cited iron ore as a “poster child example of a revenge economy”. Iron ore, he noted, has enjoyed a bull run for the past two-and-a-half years, but supply growth has not responded to high prices as producers are displaying “really clear discipline” in capex spending. With no risk of a major supply growth response, Snowdon said it was likely that iron ore prices would remain more than $200 per tonne over the next few years.

Goodbye Centerbridge Partners, hello Fidelity Investments. In another sign of gathering confidence in the duration of a dry bulk bull market, iconic US buy-and-hold investor Fidelity has become the top stakeholder in New York’s Genco Shipping & Trading. Fidelity unseats private equity’s Centerbridge Partners, which has been gradually reducing its stake this year after helping to rescue the bulker owner during a financial restructuring in 2016.

The transition at the top from a distressed-debt player to a so-called long-only institutional investor, disclosed in a securities filing on Tuesday, carries symbolic heft not only for John Wobensmith-led Genco, but for the entire dry sector as its bull run continues. “This is certainly a vote of confidence in both the likely extended duration of the strong cycle as well as the importance of having a bullet-proof balance sheet with the likelihood of paying substantial dividends,” said Jefferies lead shipping analyst Randy Giveans in a message to TradeWinds.

Genco has had a lot of changes in the first half of 2021. One has been the exit of private equity shareholding, dubbed “Prexit” by some, as longtime top holder Centerbridge sold down while two other top holders, Strategic Value Partners and Apollo Management, sold out. The second has been Genco’s shift to a low-debt, high-dividend payout model expected to take effect in the fourth quarter with first payment in 2022.

Fidelity’s filing on Tuesday indicates the Boston-based company has accumulated nearly 5m shares, or an 11.9% stake in Genco. It began building the stake in the first quarter, when it held 3.7m shares or 8.8%. The updated Fidelity holding moves it ahead of Centerbridge’s 4.88m shares and 11.66% stake. At today’s share price of about $17.90, Fidelity’s Genco stake is worth about $90m.

It is the first time Fidelity has held a reportable position in Genco since 2008, when dry bulk was nearing the end of a so-called rates “super-cycle,” a term that some bulls have applied to prospects for the current dry market.

“As we’ve been saying, the demand picture remains firm as the global economic recovery is ongoing, the supply picture is the best it has been in 20-30 years, and the micro picture is the best it has been in a decade when looking at the companies’ balance sheets, limited capex obligations, low financial leverage, and high operating leverage,” Giveans said.

“Plus, with many dry bulk companies still trading below NAV, we are bullish on dry bulk equities in the coming weeks, months and years.”

Abigail Johnson-led Fidelity had $10.4trn in assets under management as of March.

Carriers have sought to play down US government fears on competition and erroneous charges. President Joe Biden has issued an executive order demanding the Federal Maritime Commission (FMC) 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.

The World Shipping Council, the Washington DC-based liner lobbying group, has argued that normalized demand, not regulation, will solve the supply chain woes that have bedeviled shippers all year. In the US, the WSC has pointed out all parts of the supply chain are facing unprecedented pressures. “There is a lack of rail and truck capacity, warehouses are full, and ports are bursting at the seams,” the WSC observed in a release issued in the wake of the Biden announcement. “This is not the fault of any given supply chain actor. Supply chains simply cannot efficiently handle this extreme demand surge, thus resulting in the delays, disruptions and capacity shortages felt across the chain. All supply chain players are working to clear the system, but the fact is that as long as the massive import demand from US businesses and consumers continues, the challenges will remain,” said John Butler, president and CEO of the WSC, going to argue that liner shipping remains competitive .

For his part, Daniel Maffei, the chairman of the FMC, America’s maritime regulator, commented: “In recent months, we have increased our scrutiny of the ocean carrier alliances to identify evidence of anticompetitive behavior regarding rates and capacity, and we will continue to do so as the Covid-19 and import surge crisis continues.”

In a note to clients, investment bank Jefferies suggested the Biden order would have more bark than bite. “Although we do not believe there will be any meaningfully impact to international shipping companies, this order does highlight the current strength of ocean shipping and shows that rates are expected to remain elevated going forward,” Jefferies suggested.

“The executive order, aimed at promoting competition across several industries and sectors, will be broad in its scope but limited in enforceable actions, especially as it pertains to international shipping companies,” Jefferies pointed out.

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

The number of ships sold for recycling so far this year has risen sharply, despite red-hot boxship and bulker markets tempting many owners to hang on to older vessels. Figures compiled by demolition broker Ed McIlvaney show 437 units registered as scrapped, against 274 in the first six months of 2020. “Tonnage-wise, this year continues to be further advanced than it was at the same juncture in 2020,” he said.

Sales are “substantially higher” in both wet and dry tonnage, although the average size is only about 30,600 dwt and 7,600 ldt, he added, which falls well below the unit average of 43,900 dwt and 9,700 ldt in 2020. Nine ULCCs or VLCCs have been sold, primarily storage units, while four suezmaxes and 20 aframaxes have been torched. Only one panamax tanker has met its end, but 45 handysizes have gone to breaking yards.

Fearnley Securities has said tankers with capacity totaling 77m dwt are already at, or will meet, the historical scrap age by the end of 2023. “A rebalancing of the oil market will make the handicap for vintage vessels even greater, potentially accelerating the scrapping story,” the Norwegian investment bank believes. A combination carrier and 13 gas vessels also make the demolition list. This month, South Korea’s Sinokor Merchant Marine sold a 37-year-old LNG carrier for demolition, the fourth large gas carrier it has sent for scrap in eight months. The 32,001-ldt ship is reported to have attracted a price of $650 per ldt, or $20.8m in total, partly due to 3,500 tonnes of aluminum content. Brokers named the vessel as the 125,631-cbm Mediterranean Energy (ex-WilGas, built 1984).

On the dry side, 11 VLOCs and capesizes have left the fleet, along with eight panamaxes and 26 handysizes. Only 49 bulkers have been scrapped in total, including smaller units, as rates gain ground all the time. And as boxship markets boom, McIlvaney has logged only 15 demolition sales in the sector.

“There have been a considerable number of offshore units committed, with many tugs, support vessels of the smaller size, as well as [a] considerable number of drillship and rigs with higher ldts recycled or sold for recycling during the year,” he said.

The total for all tankers and combination carriers was 158 ships of 7.5m dwt to 30 June, up from 44 ships of 1.17m dwt at the same point last year.

Dry cargo and other vessel sales totaled 279 units of 5.9m dwt, up from 230 in 2020, but the capacity was higher at 10.87m dwt a year ago.

Of the 437 units sold, 122 went into Bangladesh, whose yards are now closed in a national Covid-19 lockdown. India is next on 103 ships, then Pakistan on 75. Turkey has shown its growing importance as a recycling destination with 50 sales, as old unwanted cruise ships were consigned to history. European Union countries recycled 12 vessels, with four scrapped in the US. China took one vessel and other countries bought in 26 ships.

There were 44 units listed with an optional delivery destination. Despite the Bangladesh closures and the monsoon season, India subcontinent markets are still hungry for tonnage, McIlvaney believes. “We anticipate further encouragement from all the major sectors, including Turkey, where Covid restrictions have started to relax,” he said.

The surging demand for infrastructure-related commodities such as iron ore and coal, along with minor bulks such as aggregates, clinker, limestone is likely to help fuel the dry bulk market rally into the third quarter, with freight levels and time charter earnings setting new records. The dry bulk market has been on a firm footing since the beginning of 2021 and market participants expect the trend to continue in the upcoming quarter. “I expect the peak [for 2021] has not come yet as the [seasonally firmest quarter] is yet to come,” said a Capesize ship-owning source, adding that healthy demand for sub-Capesize sectors would support the Capesize rates, too. The Platts dual Cape T4 index averaged at $30,387/day and $33,615/day in Q2, basis lower sulfur marine fuel for non-scrubber vessels and scrubber-fitted tonnage separately and registered a record high of $44,233/day and $47,433/day on May 5. Meanwhile, the APSI 5 Index averaged at $26,805/d in Q2, nearly surpassing the Panamax KMAX 9 Index at $26,946/d.

Major iron ore miners are expected to lift their production in the second half of the year to meet their sales guidance, lifting the outlook for freight rates in H2 2021, especially Q3, on the key Capesize trading routes, according to S&P Global Platts Analytics. According to the data from Platts’ trade-flow software cFlow, Brazilian miner Vale’s seaborne iron ore exports volumes for H1 2021 was 128.11 million mt, up 10.3% on the year, which showed an annualized run rate of 256.2 million mt, while Vale’s iron ore production guidance for 2021 was 315-335 million mt. Australian mining major Rio Tinto exported 148.83 million mt during H1 2021, down 8% on the year, with an annualized export run rate of 297.7 million mt. The miner is targeting 325-340 million mt for 2021. Additionally, the marginal increases from other iron ore export origins like Canada, South Africa, India, and Chile are expected to add to the ton-mile shipping demand as miners there continue to take advantage of the strong iron ore prices.

The strong grain trade year-to-date has lifted the fortunes of the Panamax and Supramax segments. Imports of Chinese grains — soybean and other products (corn, wheat, barley, sorghum) — over January-May 2021 came in at 38.20 million mt and 22.30 million mt respectively, up 12.8% and 271.5% on the year, according to the data from Banchero Costa.Sale of corn from the US to China is also poised to be firm in the coming quarter with 34 million mt outstanding till August, according to shipbroker Howe Robinson.

The clamor for coal continued to power the freight market. According to the International Energy Agency, or IEA, the current coal demand growth for 2021 will be 4.5% on the year, with China accounting for 50% of the increase. But the mounting pressure from China’s National Development and Reform Commission, or NDRC, to curtail inflation remains a roadblock for dry bulk markets. In June, the NDRC had asked provinces to cut power consumption to curb the rising electricity demand.

Elsewhere in Asia, burgeoning coal and freight prices have compelled traders to rejig trade patterns. With Australian coal not going to China, Indian coal importers are scooping up this coal at a cheaper rate. “Australian coal sellers have to discount to compete with Indonesian coal. There is a rough freight difference of $15/mt for Australia to India compared with Indonesia to India. Indian buyers are able to purchase Australian coal cheaper than they could have,” said a source with a ship-operator. Australia surpassed Indonesia as top supplier of coal to India, with a market share of 36.7% over H1 2021 at 39.46 million mt, according to data from Kpler. Most of it moved on gearless ships — Capesizes and Panamaxes –- with Supramax/Ultramax vessels getting a smaller share. On the contrary, China received more coal tons from Indonesia, Russia, Colombia, and South Africa, with Capesize ships getting a large share.

Notably, low-priced commodities withstood the relentless onslaught from rising freight levels, which were above the product cost. Exports of clinker, limestone, and aggregates from the Persian Gulf saw a rise in H1 2021 compared with the same period in 2020. In fact, limestone exports from Mina Saqr jumped 51.5% on the year. “The traders are not really very unhappy with these trades. They are still able to sell cargoes at these rates, and they can pass on the costs to the end users. Of course, down the line the commodity boom will fuel inflation, but demand has not yet begun to weaken,” said a shipowner source.

The coronavirus has disrupted shipping operations extensively. Crew changes remain a headache for ship-owners as it requires quarantine, and testing protocols. This creates delays and longer wait time at ports. “We think the vessel’s utilization has yet to be normal [due to COVID-19],” said a Capesize ship-operating source. “At the same time, however, we do expect a lot of the inefficiencies surrounding the pandemic to fade as we close out the year, slowly releasing pressure from some markets,” said a shipbroker.