The UN has urged renewal of a deal to export Ukrainian grain as its expiration date nears and vessel delays are piling up. According to Ukraine President Volodymyr Zelenskyy, about 150 ships are currently clogged in the Bosphorus, waiting for international surveyors to inspect them under the terms of a humanitarian seaborne trade corridor agreed in July and running out on 22 November. That would be a stark increase from the 120-ship backlog that the UN acknowledged on 7 October. The Istanbul-based Joint Coordination Centre, the UN body in charge of operating the inspection scheme, said at the time that the congestion was a result of the success of the scheme and to failure by some shipowners to comply with its inspection procedures. Zelenskyy, however, blamed Russia. “This is an artificial queue,” he said in a speech on Friday. “It arose only because Russia is deliberately delaying the passage of ships.” Zelenskyy didn’t elaborate on how Russia is supposedly slowing down the process.

The only conceivable way Russia could obstruct would be by failing to send more surveyors to Istanbul to speed up inspections. Under the terms of the Black Sea Grain Initiative, empty inbound and laden outbound ships must be vetted by UN, Turkish, Russian, and Ukrainian officials to check documentation and make sure there are no weapons or unauthorized cargo and personnel on board. “The rate of inspections has put a significant demand on the available… inspection teams,” the coordination centre said on 7 October. To cope with the backlog, the JCC said it increased surveyor teams from two to four, and occasionally five. This made 11 inspections per day possible, up from four in August, when the scheme got up and running. As TradeWinds already reported, high freight rates of more than $20,000 per day net of insurance lured shipowners to rush sending vessels in war-torn Ukraine to help ship its grain out. According to the latest UN Conference on Trade and Development (UNCTAD) figures, nearly 8 MMT of grain and foodstuff have left Ukrainian ports under the scheme. Ukraine’s seaborne grain shipments, who had collapsed to near zero after Russia invaded on 24 February, thus reached between 40% and 50% of their pre-war level. Before the war, 90% of Ukrainian grain was exported through seaports. Following Russia’s invasion, the share dropped to 20%. After the grain initiative, it rose to 36% again.

Ukrainian grain exports out of the ports of Odesa, Chornomorsk and Pivdennyi/Yuzhny are not just critical to boost Ukrainian coffers. They are also instrumental in keeping world food prices down. “It’s critical to renew the initiative next month,” UNCTAD said. According to the agency, the grain initiative has helped push down historically high maize and wheat prices. But now, they’ve started climbing again. “Prices have begun to rise again amid mounting concerns about whether the BSGI will be renewed, and the threat of further disruptions to trade in the Black Sea and the closure of grain corridors,” UNCTAD said. Speculation that the agreement might not be extended have intensified as its initial expiration deadlines nears and the Ukraine war turns against Russian President Vladimir Putin. Putin has already said that Russia has been “screwed over” by the deal. The Russian will probably seek to leverage the deal against the lifting of some western sanctions against his country. Putin has also criticized the deal over the fact that most of Ukraine’s grain exports are destined for developed countries rather than relieving hunger in the third world. The UNCTAD figures released on 20 October partly bear out that criticism. According to the UN agency’s report, 999,200 tonnes of Ukrainian wheat have been transported to developed countries since the BSGI started. Least-developed countries, by contrast, received just 424,600 tonnes of wheat over the same period. The lion’s share of that, 210,000 tonnes, went to Bangladesh. According to UNCTAD, developed countries have also scooped up 68% of all maize exports under the scheme. Dozens of grain-laden ships left Ukraine since August but only six of them were chartered by the UN World Food Programme for poor countries such as Yemen. Meanwhile, Russia is said to continue to siphon off large amounts of looted grain from occupied Ukrainian territory. According to latest reports by German broadcaster NDR, 20 bulkers laded with such grain have left the Crimean port of Sevastopol since the war began for destinations such as Syria, Russia or Turkey.

VLCC spot rates are set to soar past the $100,000 per day barrier soon, according to Clarksons Securities. Earnings surged last week by as much as 30% to reach more than $80,000 per day, the investment bank said. The Middle East Gulf has become increasingly active, driving up rates. “The availability of ships in the Atlantic has also been limited, forcing charterers to pay more,” analysts Frode Morkedal and Even Kolsgaard said. “While things may appear to be quieter right now, we expect significant rate rises in the next weeks and months.”

In August, Clarksons Securities forecast potential VLCC earnings of $100,000 per day by the winter. “This threshold may be breached in the coming weeks, and rates could potentially increase significantly higher than that, we now argue,” the analysts said. They attributed the strengthening to Europe having to replace more than 1m barrels per day of Russian crude oil imports due to the European Union ban coming into effect on 5 December.

The barrels will be travelling at least twice as far to reach buyers, Morkedal and Kolsgaard argued. And the US continues to sell crude oil from strategic storage facilities, maintaining export levels. UK shipbroker Howe Robinson Partners assessed VLCC rates at $74,500 per day on Friday.

But the London shop is less optimistic about earnings in the short term. “The MEG [Middle East Gulf] got some real traction at the start of the week, with steady fixing, predominately off-market, pushing rates up,” Howe Robinson added. “However, the week ended with a lull, and [we] expect rates will be tested as we go forward.”

The Baltic Exchange assessed average rates from the Middle East to South Korea at $69,400 per day on Friday, 25% up on the week. The exchange also said that five-year secondhand values for VLCCs have surpassed the threshold of $90m. This is the highest level since March 2009, according to Oslo broker Lorentzen & Co.

Since the end of 2021, VLCCs have increased 24.4% in price, according to the Baltic’s index.

Carl Martin Faannessen, CEO of Manila-based crewing specialist Noatun Maritime, dismisses two of the main arguments circulating about future fuels. At Maritime CEO Forums we hear much talk about decarbonization. I am on record here on Splash, saying that the fuels of the future will be green ammonia and e-methanol. That has not changed, if anything I stand by this with even more conviction than last time.

One thing that is changing is the conversation around these. Where the concerns earlier were diffuse, the concerns now are sharper. The two mainstays are: “The new fuels will have more volatile pricing”, and “Shipping will be crowded out by other sectors and can’t compete for these new fuels.” Both are profound misunderstandings, which need to be addressed.

Fossil fuels are subject to highly volatile pricing, and it is a pricing and a volatility that shipowners cannot influence. To take an example, 380cst in Singapore was below $185 a tonne on April 1, 2020, and on May 1, 2022, it exceeded $580 a tonne. That is a 313% increase in just over two years, how is that for volatility? Shipowners and charterers are price-takers, as the bunker price has an almost perfect correlation with the price of crude oil. This is the market shipping is used to. There are quoted benchmark prices, quality and variety in the commodity being traded, a near-automatic 30-day credit and a large network of parties involved.

How will the price of new fuels be set? Green fuel companies will invest in green fuel projects when there is a bankable commitment from a customer. This is like many shipowners’ thinking: You order a ship when you have a long contract to back it up with.

To make this work, the shipowners and the green fuel developer need to sign a long-term agreement which provides a predictable price and a bankable commitment from the shipowner to buy a given volume. This volume and price will allow the banks to recoup their loans and the developer to make a reasonable equity-return. In other words, a shipowner can lock in a much more stable price for fuel than is the case today, without having to resort to hedging. And this agreement ensures delivery of the agreed quantity of fuel to the shipowner; no other industry will come in and take it for a higher price. The agreement is locked down, that is what makes it bankable. From a shipowner and charterer perspective it is possible to achieve near-perfect price predictability for green ammonia. For e-methanol, the price of biogenic carbon is, as of today, uncertain and this adds a measure of volatility to the price. But this volatility is unlikely to exceed the volatility seen in fossil fuels. Once there is a long-term market for biogenic carbon, this volatility can also be reduced significantly.

Green ammonia and e-methanol are both going to experience a lot less price volatility than fossil fuels. The contract structures provide the shipowners protection from any other industry wanting to buy the same molecules. With these green fuels, shipowners get less price volatility plus assurance of supplies. As a bonus they get a fuel that is identical from place to place, allowing for direct mixing. Less hedging, less time and money spent on testing and segregating fuels, and full predictability in fuel-pricing. What’s not to like?

Hong Kong’s Pacific Basin has raided the secondhand bulker market, showing its dedication to Japanese-built ships.

Sales registers show that the Martin Fruergaard-led Handymax and supramax specialist has grabbed an 11-year-old scrubber-fitted ultramax, the 62,000 dwt, Oshima Shipbuilding-built Ultra Wollongong. The Hong Kong-listed owner paid $22.2m for the ship. The owner is also linked to the slightly smaller Shin Kasado Dock-built, 61,400 dwt Ultra Dynamic which was sold for some $23m in September.

The new purchase has ended a 10-month absence from the secondhand market for the owner who added eight ultramaxes in 2021.

Pacific Basin operates around 250 bulkers, of which 116 are owned, making it one of the largest shipowners in Hong Kong.

Liverpool dockworkers are downing tools for another two weeks from today as a bitter pay dispute between Peel Ports and trade union Unite shows no sign of resolution.

Peel Ports chief operating officer David Huck commented: “It’s hugely disappointing that Unite has staged yet another outdated show-of-hands mass meeting which has, very predictably, failed to support our improved 11% pay offer. This is the highest percentage increase of any port group in the UK by far and would see average annual pay rise to £43,275 ($49,016).”

The port has faced several strike actions in recent months with carriers forced to reroute calls to other ports around the British Isles. Pay disputes also saw a strike at the country’s top box port, Felixstowe, in the summer.

Unite general secretary Sharon Graham said: “The Unite team negotiated in good faith with Peel Ports. But the talks ended in farce, with the deal agreed between Unite and senior management being pulled by the board. Strike action by our members and with the full support of Unite will go ahead. Peel Ports’ untrustworthy behavior and its attempts to threaten the workforce are only escalating the dispute.”

According to Chinese customs authorities, iron ore imports for September came in at 99.7 MMT, up 3.6% MOM and 4.3% YOY, taking the YTD total to 823.1 MMT, which is down 2.4% compared to 2021 and 5.2% compared to 2020 but slightly below the 5-year average. Despite being down YTD, the latest data point indicates a positive momentum for iron ore imports with a third consecutive MOM increase. Furthermore, coal imports came in at 33 MMT for September and yielded an increase of 12% MOM and a marginal increase of 0.5% YOY, but still fall short YTD with a decrease 12.9% YOY.

Additionally, Chinese steel production climbed above the 5-year average of 80.6 MMT as the National Bureau of Statistics reported production of 87.7 MMT for September, up 4.5% MOM and 20.3% YOY, for a 3.1% decline YTD compared to last year. The raw material intensive pig iron production was 73.9 MMT for September, up 3.6% MOM and 13.4% YOY, and YTD now stands 1.4% above last year.

However, Chinese coal production followed suit for the production statistics with a MOM growth of 4.4%, a YOY growth of 15.7%, and now stands 14.9% above the same period last year. Overall, the latest data point indicates an uptick in both production and import levels and provides some support for the dry bulk segment despite the looming macroeconomic uncertainty.

Data released today shows that China’s electricity production in September totaled 683 billion kilowatt hours.  This is down month-on-month by (-17%) but is up year-on-year by 7.9 billion kilowatt hours (1%).  A large month-on-month decline is seasonal and occurs every September.

Of significance this year, though, is that hydropower output has come in at a very low level as we have anticipated.  Hydropower output in September totaled only 99 billion kilowatt hours.  This is down month-on-month by 23.6 billion kilowatt hours (-19%) and is down year-on-year by 41.9 billion kilowatt hours (-30%).  As we stressed earlier this month, hydropower output at the Three Gorges Power Station has been coming under great pressure due to low water inflow, and particularly noteworthy to us two weeks ago was Q3 Three Gorges Power Station generation data that showed hydropower output at this critical station fell year-on-year by 52%.  Overall, China’s sharp decline in hydropower output has not come as a surprise.  The weakness remains beneficial for China’s thermal coal demand prospects.

Coal-derived electricity generation in September totaled 483.9 billion kilowatt hours.  This is down month-on-month by 115 billion kilowatt hours (-19%) but is up year-on-year by 31.8 billion kilowatt hours (7%).  As with overall electricity production in China, coal-derived electricity generation in September always falls by a large amount on a month-on-month basis due to normal seasonality.  Year-on-year change is more noteworthy, and the 7% growth is significant.

China’s coal production in September totaled 386.7 MMT.  This is up month-on-month by 16.3 MMT (4%), up year-on-year by 52.6 MMT (16%) and marks the second largest amount of coal ever mined in China.  As we have continued to stress in our weekly reports and updates, the Chinese government is no longer primarily focusing on improving safety in the domestic coal market and instead has shifted its focus to increasing production.

China imported 33 MMT of coal in September.  This is up month-on-month by 3.5 MMT (12%) and is up year-on-year by 100,000.  Iron ore imports totaled 99.7 MMT.  This is up month-on-month by 3.5 MMT (4%) and is up year-on-year by 4.1 MMT (4%).  Soybean imports totaled 7.7 MMT.  This is up month-on-month by 500,000 tons (7%) and is up year-on-year by 800,000 tons (12%).

A full breakdown of electricity production by type will be analyzed next week.  Ongoing growth in steel production and overall industrial production will also be discussed.  Overall industrial production in China reportedly grew year-on-year last month by 6.3%. Industrial production has now grown on a year-on-year basis during each of the last five months.

The ongoing party congress in Beijing has thus far shown little hope that China’s draconian lockdowns will relax any time soon. China’s economy may be sputtering, thanks in large part to the government’s “zero-Covid policy”, which relies on oppressive restrictions to contain outbreaks, but President Xi Jinping is not for turning. State media reports have been busy reinforcing Mr Xi’s unswerving strategy, explaining why the approach “is sustainable and must be upheld”. Shipping should not anticipate any respite until March next year at the earliest.

The lockdown in Ningbo in recent days has provided yet another stark reminder of how shipping and logistics companies have fallen victim to the heavy-handed policy. With blocked roads, closed warehouses and stranded truck drivers comes disrupted container transport and increased vessel berthing time at terminals. The Chinese port city has already become experienced in handling Covid-led logistics snarl-ups, which have occurred several times in the past two years. Ad hoc efforts have been made to unclog the traffic, but they treat the symptom not the disease. Container lines have been forced to accept the reality that the lockdowns are now the new normal and that expensive adaptations are here to stay. Many are dispersing equipment into different ports from just a few hubs to spread their risks. However, this comes at the cost of efficiency.

In the dry bulk sector, owners might have to take back their optimism about a recovery in cargo volume late this year or even early next year. Persistent Covid restrictions will continue to weigh on economic growth and hence China’s appetite for commodity imports. A worrying sign is that domestic steel prices have started to decline again following a short-lived rebound. The peak season demand is weaker than expected, said Chinese consultancy MySteel. The World Steel Association expects China’s steel demand to fall 4% this year owing to a slump in the property market. It predicts flat growth next year. Some voices are calling for more government stimulus measures and the removal of strict virus-control rules. The zero-Covid position does not just threaten economic prospects, it also increases the risk of China becoming isolated. It strengthens the impression that China needs to be a different system from those societies that have chosen to move on from the pandemic.

As a result, policy makers could be inclined to prioritize security over reforms. That said, in his nearly two-hour congress speech, Mr Xi only gave two brief references to Covid policy, which perhaps he and his supporters do not want to treat as a long-term challenge. Most of the words were spent on portraying an ambitious development roadmap offered by the Chinese Community Party to modernize China in its unique way, a recognition of the Middle Kingdom’s rise as an alternative to western democracies. Now, all eyes are on the final line-up of new members of the elite Politburo Standing Committee, the party’s highest echelon of power, which will be revealed on Sunday. They are expected to help Mr Xi, who is poised to assume a third five-year term as China’s leader, to turn the ambition into reality.

During his first two terms, the initial excitement of the Belt and Road initiatives gave way to the fear of increased Sino-US tensions. The “helmsman”, as Mr Xi is sometimes called, did warn of “high winds, choppy waters and even dangerous storms on our journey ahead”. Without a turnaround in Beijing’s Covid stance, that will not be news to anyone in the shipping industry right now.

Economic bright spots are hard to find amongst the gloomy backdrop of the IMF’s latest report which focuses on the ongoing Covid pandemic, war in Ukraine, widening inflation, rising interest rates and, perhaps most importantly for dry cargo, the slowdown in China: “More than a third of the global economy will contract this year or next, while the three largest economies—the United States, the European Union, and China—will continue to stall. In short, the worst is yet to come, and for many people 2023 will feel like a recession.” World Economic Outlook October 2022.

However, growth prospects in the Indian Ocean regions appear comparatively healthy. Except for Sri Lanka, most of its littoral countries are expected to grow between 3% and 6% next year while the Indian Sub-Continent itself is forecast to grow by nearly 7%, raising the question as to the extent this region could compensate for trade stagnation elsewhere.

Of course, despite similar populations, the economic size of the Indian Sub-Continent is not comparable to China whose current GDP is almost 6 times bigger than India’s. Whereas industry and construction make up around 26% and agriculture 20% of Indian output, in China the comparable figures are 40% and 7%, which account for its massive imports of both agricultural and industrial bulk materials. At approximately US$4.8 trillion the overall the value of Chinese trade is over four times that of India.

In the alphabet soup that is EEXI, CII and SEEMP, it is hard to know where to start to discern the essential ingredients. So, let’s use a human illustration. The EEXI is like a basic medical that I need to pass to get a job. It purports to prove I am healthy at this point, but just shows I am not at death’s door. Having passed EEXI and got the job, I don’t need to do the test again, even if I fall ill next year. The CII is akin to my annual work performance review. If I am good at the job, I will get an A grade, mediocre a C, and if I am poor I will be rated D. And if I get an E, I should be on my way to being sacked. My job description includes a requirement to keep fit, proving it from the start by showing my manager an exercise regime I will stick to. This is the Ship Energy Efficiency Management Plan (SEEMP) on which my health will be rated in the CII review. But there are few checks on and repercussions from failing my own SEEMP/exercise plan, and no one will enforce the CII/performance review, so I probably will not be dismissed, no matter how bad I am. This is nowhere near a perfect description, but the point is that none of the above elements prove I can achieve the objectives of the job. And that result, not achieving the objectives, sums up the first regulations enacted by the IMO to cut carbon emissions from shipping.

The rules are not sufficiently sharp in the view of climate experts, not fit for purpose according to major charterers and do not work for the owners or operators of large swathes of the world’s fleets. Classification societies have been tasked with judging the exercise regimes, SEEMPs, that ship operators are working on to be ready for the start of 2023. They warn that top-level operators are getting ready, but some smaller companies are approaching the issue as a form-filling exercise rather than one that will require real physical exercise. The job of marking SEEMPs has been given to class, but enforcing the results is being left to the market in a version of trickle-down economics. It is hoped a tiered market will develop in which failing ships are shunned by charterers. But despite being expected before, two-tiered shipping markets have never developed. Big charterers with environmental, social and governance focuses may avoid failing ships, but others are just as likely not to. And there are plenty of opportunities for ships to evade oversight, or to game the rules by increasing mileage on ballast legs that mean they end up increasing emissions rather than cutting them.

At the same time, certain classes of ships, notably steam turbine LNG carriers, cruise ships and many shortsea vessels, are disadvantaged and operators are seeking exemptions that will, in some cases, nullify the objectives of cutting emissions. Disputes may arise if charterers want to speed ships up, burning more fuel, or send them to congested ports where waiting times can damage ratings, but owners will not want the charter or sale value of their vessels reduced by lower gradings. The legal complexities of these potential problems have emerged in the difficulties and delays Bimco has encountered in trying to produce a model charterparty clause that covers the new regulations. The rules’ early-stage requirements are so tame, they are unlikely to start progress towards the IMO’s medium-term carbon target for 2030. The IMO will meet next year to discuss next steps in stiffening its decarbonization efforts, but unless flag states or port states are co-opted into ensuring notice is taken of CII ratings, targets will remain toothless and policing inadequate. A more co-operative relationship between owners and charterers is a benefit that could come out of this mess, but much needs to be done to reframe the rules.