Oslo-listed Himalaya Shipping is expecting record earnings from the first two of 12 new bulkers it has chartered out. The company’s debut deal for its newcastlemax newbuildings in China will see the duo fixed to a major commodity company over 32 to 38 months. The deals come with options for another 11 to 13 months. Himalaya did not name the charterer, but said its partner is “committed to the energy transition”.

The series of LNG dual-fuel bulk carriers are due from New Times Shipyard in 2023 and 2024. The first two have been fixed on an index-linked rate, reflecting a significant premium to the Baltic Exchange’s 5TC capesize index, Himalaya said. The time charters also include profit sharing of any economic benefit derived from operating the vessels’ scrubbers or running on LNG.

Himalaya has the right to convert the contracts to fixed rates based on the prevailing forward freight agreement curve from time to time. “The first charter agreements agreed on our vessels shows the attractiveness of our design and fuel consumption. The premium to the Baltic 5TC index we are earning is to our knowledge a new record for the class of vessels we own,” said chief executive Herman Billung.

He added that based on current capesize spot index rates, the premium to the index and the scrubber benefit, the vessels would be generating $35,000 per day if they were operating now. The 5TC index was up 13.8% on Wednesday to $21,175 per day.

Himalaya’s capesize equivalent cash breakeven is estimated at $14,000 per day when all vessels are delivered. “We are in advanced discussions about securing further employment for our fleet,” Billung said.

In June, the shipowner said it was happy to bide its time fixing the new ships in anticipation of rising rates. The company aims to charter out its vessels to large dry bulk operators, commodity traders and other end-users. Himalaya decided in August to fit scrubbers to the fleet, without any slippage of delivery dates.

US investment bank Jefferies has cut its price target for Israeli liner company Zim to $27 from $55 per share in acknowledgement of the weaker freight market ahead. But with a cash position of some $3bn that is close to the size of Zim’s market capitalization, it would take two years of rock-bottom rates of $1,200 per teu for the operator to burn through its reserves, according to Jefferies lead shipping analyst Omar Nokta. That provides confidence for Jefferies to maintain a “hold” rating on the stock, which was trading around $24 on the New York Stock Exchange early Friday.

Jefferies’ action to some extent acknowledges reality. Zim shares have been in decline since hitting a peak of $91.23 on 17 March. Zim has not traded at the previous $55 target since 9 June. After its wild run coinciding with record container markets in 2021 and early 2022, Zim’s current trading price is not so far above the $15 pricing of its broken initial public offering in January 2021. “Freight rates have declined materially over the past two months as slowing demand, high retail inventories and easing congestion have led to a pullback in liner earnings power,” Nokta wrote. “The weakness is not a surprise though the aggressive decline recently has taken the market by surprise.”

On Zim’s bread-and-butter trade between Asia and the US East Coast, rates have fallen to $3,000 per teu as compared to the highs of $5,000 seen earlier this year. Still, even the lower figure keeps Zim solidly profitable, as the pre-2001 long term average on the route was only $1,500 per teu. Jefferies puts Zim’s operating costs at $1,400 per teu, with its lease-adjusted costs at $1,700 per teu. Further weakness is forecast. Jefferies estimates Zim’s average freight rate at $3,060 per teu for the quarter ended 30 September, down from a prior estimate of $3,200. The number falls to $2,150 for the fourth quarter against a previous bet of $2,600. Rates get even weaker for 2023 and 2024. Jefferies sees Zim’s average rate at $1,860 per teu next year against its original projection of $2,210. For 2024 the number falls to $1,640 per teu, down from a prior estimate of $1,880.

Zim’s rising costs are projected to peak later this year or early next. “And we expect they will decelerate as Zim begins to take deliveries of its cheaper newbuildings and renews expiring charters at lower rates,” Nokta wrote. Jefferies projects Zim to turn a profit throughout the period, with full-year 2023 earnings at $7.80 per share and $2.73 in 2024. But if things get tougher, Zim’s massive pile of cash, expected to exceed Zim’s $3bn market cap this month, is expected to see the Eli Glickman-led operator through. “Freight rates would need to fall to $1,200 per teu for two full years before Zim works through its entire cash position,” Nokta wrote. “In our view the probability of such low rates for an extended period is unlikely, especially given the consolidated nature of the industry, a healthier demand-side equation likely at this time next year and tougher vessel regulatory standards.”

Supramax bulker spot rates made some headway this past week on the US Gulf Coast while Asia focused on Golden Week, but they may plateau over the next seven days, brokers said. The average spot rate for the Baltic Exchange’s S1C voyage from the Gulf Coast to Asia improved 8.2% over the past week to $25,086 per day on Friday, while the average rate for the S4A from the region to Europe gained 6.6% over the same period to reach $21,235 per day on Friday.

“The US Gulf bounced back after a recent lull, with the ultramax size now seeing in the upper $20,000s for trips to Singapore-Japan,” Baltic Exchange analysts wrote on Friday in their weekly dry bulk market wrap-up. “With the widespread holidays during the week, action mainly centered around the Atlantic basin.” But grain orders out of the US Gulf Coast have slowed due to drought causing delays in the Mississippi River, causing spot rates from “gaining steam” and below spot rates seen off the US East Coast, according to US brokerage firm BRS Group. “Some owners have even started ballasting to [the east coast of South America] in order to gain from the growing market there, instead of waiting around,” the outfit said in a note on Friday. “With the supply of tonnage growing but at a snail’s pace, we are likely to see rates remain at a similar level next week — but may tick up if the flow of market orders increases.”

The Supramax 10TC basket of spot-rate averages across 10 key routes rose 4.3% over the past week to $18,763 on Friday, reaching the highest point since late August. Other ship sizes saw higher average spot rates over the week.

The Capesize 5TC gained 4.4% over the week to $19,874 per day on Friday over the seven-day period, though it did slip 4.4% on Friday despite brokers remaining more optimistic on the Atlantic basin, Baltic Exchange analysts said. “In the Pacific, there were only a couple of major charterers around looking for tonnage to end the week, as such rates remained relatively steady,” they said.

The exchange’s Panamax 5TC gained 7.3% over thew week to $20,116 per day on Friday, while the Handysize 7TC edged up 2.4% to $18,588 per day over the same time frame. The panamax sector was a “tail of two halves this week as the Atlantic thrived whilst the Pacific floundered”, UK broker Braemar said on Friday in its weekly assessment of the dry bulk market. “The Atlantic was predominantly driven by the grain and mineral markets whilst the transatlantic route provided supplementary support on the back of the early forward momentum. Conversely the Pacific struggled to really get going.”

Container contract rates may take it on the chin next year because of a spot market that has been depressed by lowered port congestion and inflation-tempered consumer demand, according to market analysts. Since late October, spot rates the Baltic Exchange’s Freightos Baltic Global Container Index has plummeted by 90% to reach $2,165 per feu on Thursday.

The plunge has been most pronounced on the transpacific. “Improved congestion levels at the ports of Los Angeles/Long Beach — with waiting ships now in the single digits — meant more active capacity that, along with declining demand, contributed to the steeper rate decrease compared to other lanes,” Freightos research lead Judah Levine said on Thursday in a note. And contract prices may also plunge in reaction to the slumping spot rates, said Peter Stallion, head of air and containers at Freight Investor Services. “And whilst there is talk that for 2022 at least, carrier balance sheets will remain strong, there is fear of a reset in contract prices for 2023 which will crush earnings,” he said in a note on Thursday.

The prediction comes as inflation-slowed consumer demand also resulted in lower transpacific spot rates to the East Coast, but congestion and increases in volumes may have contributed to a slower decline than to the West Coast, Levine said. Transpacific prices to the US East Coast from China fell 71.5% to $6,026 per feu on Thursday, despite container ships diverting to Atlantic ports to avoid the port congestion on the West Coast. “In the last few months, many shippers have opted for East Coast destinations in order to avoid the peak season delays experienced on the West Coast last year, and to steer clear of possible port worker strikes, with stalled talks resulting in the first temporary industrial actions of the dispute late this month,” Levine said. “Some of the improvement in congestion on the West Coast can be attributed to a shift of volumes to Gulf and East Coast ports, where backlogs and delays have become and remain more problematic.”

The freight rates from Asia to northern Europe have also fallen considerably, dropping 57% in the past year to $6,287 per feu on Thursday. “Declining volumes driven largely by inflation pushed prices down,” Levine said. “Labor strikes at Felixstowe and Liverpool late in the month will likely contribute to congestion at alternate ports.”

As secondhand bulkers continue to change hands at strong prices, buyers are betting rates will recover in the long-term to close the gap to asset values. But US-based consultant Urs Dur warned that the opposite could also be true. If earnings do not see a boost, then ship values must fall, he believes.

Durs, writing on behalf of the Baltic Exchange, said in a report that the “current gulf” between dry bulk asset values and freight rates will narrow in coming years. But it is harder to pin down which number will move towards the other, he added. “While macro conditions are daunting, the long-term outlook for dry bulk supports today’s asset values. However, this cannot last forever,” he said.

The correlation between the Baltic Dry Sector Health of Earnings Index (BDHEI) is negative at 56% of the Baltic Dry Sector Residual Value Index (BDRVI). “While earnings have predominantly fallen in the dry bulk sector over the year, asset values have been stable to rising,” Dur said. A five-year-old eco capesize was worth about $46m a year ago and today it is priced at $47m, while freight rates have dropped dramatically over the year. While five-year freight rates, with which the BDRVI is calculated, have fallen, the drop has not been followed by an equivalent fall in asset values — yet. “While shipping asset values and freight rates often lag each other, the current gulf is pronounced,” Dur added. But he said that despite near-term uncertainty, the longer-term appears attractive to investors.

“Those buying bulkers in today’s value/freight environment are betting that freight rates will recover substantially over the next few years in order to justify the valuations of today,” the analyst added. That bet may well be a good one, he believes. The dry bulk orderbook is at 7% — historically low. And owners face a challenge to get any ships ordered today delivered in time to experience the full dry bulk market recovery, Dur argues. “Additionally, propulsion options and environmental requirements have made ordering more complex. These supply conditions support the value of bulkers on the water today,” he said.

There is more relatively positive news for bulkers as well, Dur believes. “There has been a draw of iron ore inventories at Chinese steel mills, just as the Chinese are beginning to stimulate the economy,” he said. “Tightening carbon emission requirements will continue to favor the chartering of modern tonnage while older tonnage may need to power down further, reducing fleet capacity, to meet emission standards,” Dur added. While the Baltic Capesize Index is down 77% year-on-year, five-year-old eco capesize values have risen 2%. “In time, freight rates will move to justify values, or the other way around,” Dur said. “That may sound non-committal because it is. Shipping is deeply cyclical due to the long-lived nature of ships, but the market can be as jagged and as sharp as shark’s teeth within the cycle. Also, the shipping demand side is much harder to handicap than the supply side,” he added.

The BDHEI is an index representing the ratio of earnings against running costs, involving capesizes, panamaxes, supramaxes and handysizes. The BDRVI is calculated by taking the purchase price for a five-year-old vessel and deducting the net earnings over a five-year period.

When the “cargo people” of the Association of Ship Brokers & Agents hold their annual conference in Miami Beach, the program is traditionally closed by an erudite PhD holder in economics from MIT. Marsoft founder and president Arlie Sterling did not disappoint in his usual role on 30 September. But thanks to technology, the MIT graduate now can poll conference delegates on their views, and that is where things got interesting. A robust 54% of those assembled told Sterling they see an 80% chance or better of a global recession in 2023, with nearly everyone else saying the odds are 50% or more. Sterling said it was the most pessimistic group he had polled to date.

So, what does it mean when the people who are the closest to shipping’s cargoes are that gloomy about near-term economic prospects? Streetwise caught up with Boston-based Sterling following the conference to get his takeaways. For starters, Sterling conceded that his previous polling on the recession question was not quite as formal as during the ASBA events: it consisted of some canvassing of Marsoft staff and delegates at the recent Global Maritime Forum in New York. “The previous reaction was more of a 50/50 split on recession chances,” he said. “What I thought was distinctive about the ASBA crowd was the number of Latin American voices reflected in the response.” The annual event often draws heavily from South and Central America, he noted. “Some of the Latin American countries have been hit very hard by higher prices and economies that are not as strong as the US economy is right now,” the economist said. “Prospects within the US are still pretty good, and people are optimistic. But the outlook outside the US is very difficult and much less optimistic.”

Sterling was quick to note that his own forecast is not so bearish. While he concedes that the overall picture for 2023 has darkened significantly, he sees a turnaround beginning by mid-year. “Should we go into a recession, we think it will be a relatively short recession that will soon ease,” Sterling said. “The interest-rate policies being used to fight inflation are coming on strong as they need to. We’ll get past what is going to be a very difficult winter in Europe. US oil production will increase. And then the contractionary policies will start to be reversed.”

So, are shipowners more aligned with the ASBA view or Sterling’s relatively moderate take? One tanker owner opined that a recession may very well be in effect now but the most technical metrics, and yet the tanker market is on a bull run. The optics of crowing about that countercyclical prosperity are not the best, he said, leading him to pass on the opportunity. One brave tanker executive who agreed to take the question head on was Svein Moxnes Harfjeld of DHT Holdings, who runs one of the biggest VLCC fleets in the world. “It simply comes down to the central banks and their balancing act. Will they stop increasing interest rates in time or will they overdo it,” Harfjeld said. “The former will provide a softer landing whilst the latter would be a hard line. It is very hard to predict which scenario [will prevail] in my view.”

A dry cargo executive who did not want his name used said he is in line with the ASBA response. “I think a global recession is extremely likely — maybe 80%,” he said. He described the outlook for dry bulk as “tricky. It depends a lot on China, and a little on the US and Europe,” he said. “Coal will do very well, and Europe’s demand for coal is probably not very sensitive to the state of the economy. Also, I expect the scrubber spread to remain high, as it depends on the cost of removing sulphur at the refinery.”

Still, there is another aspect to Sterling’s ASBA appearance that is worthy of consideration. The researcher always presents what he calls the ASBA shipping index, which takes an average of charter rates across the major operating sectors. The number topped $40,000 per day, the highest figure since 2008. “I never thought I’d see those numbers again,” Sterling told Streetwise. “It was mostly driven by dry bulk in 2008, and by container ships today. We fear that market has a long way to fall. I do suspect that the ASBA index could be a very different number come next September.”

Deals to charter LNG carriers could be made at rates as high as one million dollars per day this winter, according to London-based shipping consultancy Drewry. “This market is on fire right now and we expect a lot of records to be broken,” said Drewry Maritime Research senior lead analyst in gas shipping Aman Sud told a webinar. He said such extraordinary rate forecasts reflected the shortage of promptly available LNG carriers available for charter on the spot market. LNG carrier spot rates for Atlantic trading were today assessed at just under $340,000 per day, according to the Baltic Exchange, up 48% in one week and four times levels at the beginning of September.

Europe’s energy crisis is generating profits of more than $130m per LNG cargo delivered to the continent as a chaotic and disrupted gas market motivates traders to retain tonnage via longer-term charters rather than sub-let, as well as idle vessels to ensure they are available when needed. “Deals haven’t reached the $1m-a-day mark so far,” Mr. Sud told Lloyd’s List. “The figure is the expectation of what rates can reach during the winter with the LNG spot (price) above $60 per MMBtu, with ballast bonus and positioning fee added to the cost. “So far, the highest deal done is by Shell which has paid $400,000 per day for Yiannis (IMO: 9879674), while GAIL (India) chartered LNG Schneeweisschen (IMO: 9771913) for $360,000 per day.”

The webinar chronicled an unprecedented winter for LNG shipping, with the very tight market extending into 2025 as European demand continued to climb. Daily rates for the global fleet of around 650 LNG carriers trading would average between $365,000 and $980,000 per day depending on engine type, over the seasonally strongest fourth quarter, according Drewry’s base case. In the consultancy’s highest case, average rates topped $400,000 per day, and some individual charters could surpass a million dollars per day, said Mr. Sud. The lowest average estimate was for the oldest steam turbine LNG carriers and the highest for modern ships with low-pressure dual-fuel engines. Newbuilding prices for LNG carriers are at a record $250m-plus per vessel, gaining 25% in value during the past nine months, with no slots available at shipyards until 2026, according to Drewry. Demand for newbuilding resales would drive prices as high as $260m to $270m, Mr. Sud said.

The LNG carrier orderbook stood at 285 vessels, with 186 alone ordered this year and the fleet-to-orderbook ratio now at 43% based on the consultancy’s estimates. Current market conditions have upended normally stable LNG trades, expected to reach 395 MMT in 2022, up 6%. Base case forecasts had trade rising to 407.3 MMT in 2023 and 428.1 MMT by 2024. Japanese, Chinese or South Korean energy suppliers that were supplied LNG under long-term, oil-linked pricing deals are reselling to European buyers over the third quarter, generating hundreds of millions in profit, and adding to tonnage capacity shortfalls. European purchases of LNG to boost storage capacity were tallied at $55bn in 2022 so far, as cargoes replaced Russian natural gas imports that now supply 10% of regional demand, compared with 40% last year.

A dozen LNG carriers are tracked at anchor off Malta and near Gibraltar, or the Suez Canal, as traders waited for gas price gains to take advantage of price arbitrages available in Europe and Asia. Asia’s LNG imports dipped in the first seven months of the year, with China down 20% alone, Drewry figures showed. Europe, including Türkiye, accounted for about 20% of all LNG imports in 2021, while Asia is the biggest buyer, at 70% of trade. Falling Asia demand this year has been offset by European imports which climbed by 118% from Belgium, 91% for Netherlands and 60% for the UK.

John Fredriksen’s Golden Ocean Group is ready to spend $100m on its own stock after steep price falls this year. The bulker company’s board has authorized a share buyback program of up to 10m shares on the Oslo and Nasdaq exchanges. The price can be no more than $10 each over the next year. The stock closed at $8.16, up 5%, in New York on Tuesday. The share price started the year at $9.80 but has fallen nearly 17% from this level, and 30% in the last six months. The peak came in June at $16.06 before vessel rates started to slide.

Chief executive Ulrik Andersen said the uncertainty in the global economy has hit capital markets and near-term dry bulk freight sentiment. But he added: “Following the recent share price development, we find it in our shareholders’ interest that the company has the authorization to repurchase our common stock as part of its capital allocation strategy.” Andersen continued: “Given the strength of our balance sheet and our constructive long-term market outlook, the board has decided to add the opportunity to allocate part of our financial resources to pursue such share buyback.” He said the plan reflects the owner’s confidence in the market and its strategy to invest for long-term shareholder return.

Last month, the shares received a boost after US investment giant BlackRock become the second-biggest shareholder. A filing to the Oslo Stock Exchange revealed the New York group had passed the 5% threshold with 5.07% — a slice worth $93m at that time. Analyst Anders Redigh Karlsen at Kepler Cheuvreux said: “We do not foresee any major share price movements following the announcement but having access to this option may end up being a positive for shareholders.”

Fearnley Securities said in a note it assessed Golden Ocean’s net asset value at $11 per share based on second-quarter numbers. The Baltic Exchange’s capesize index was up 10% at $18,600 per day on Tuesday. Golden Ocean last went on a major buyback spree in 2019, while Fredriksen’s LNG carrier company Flex LNG carried out a $31m share repurchase plan last year. But earlier in 2022, Fredriksen’s VLGC operation Avance Gas said the prospect of buybacks was limited by the tycoon’s 77% holding.

The market for capesize bulkers leapt forward on Wednesday, surprisingly undeterred by China’s celebration of Golden Week. The Baltic Exchange’s Capesize 5TC basket of spot-rate averages across five key routes jumped 13.8% on Wednesday to $21,175 per day, reaching its highest point since late July. “It’s surprising actually because spot volumes have been somewhat limited this week due to the holidays in the Far East,” Jefferies analyst Omar Nokta told TradeWinds. “It’s a good sign that we’re seeing these moves higher despite the holidays.”

Nokta was not the only market watcher who was surprised the capesize market performing better during Golden Week. “This is a little unexpected since a lot of the Far East is on holiday,” Alibra Shipping founder Giuseppe Rosano told TradeWinds. But the market may be benefitting from Russia sanctions adding tonne-miles to bulker trade routes and China implementing stimulus measures to get the economy moving again, he said. “Hence we are now seeing the stimulus measure coming into fruition,” said Rosano, whose firm is a UK broking house.

Port congestion and low supply are also supporting higher spot rates, he said. The Baltic Exchange’s daily fixture information for Wednesday was not yet available. Capesize spot rates are rising, as expected, and may rally to $30,000 per day as seasonality approaches, said John Kartsonas, founder of asset manager Breakwave Advisors, which runs a dry-bulk exchange-traded fund. “There is more activity in the Atlantic basin for iron ore cargoes and given that due to the recent weakness not a lot of vessels were ballasting, the supply/demand balance has now tilted towards the owner’s favor,” he told Tradewinds. “Indeed, capesize rates are on the rise and it is also helping panamax rates to recover as well.”

The Panamax 5TC rose 4.5% on Tuesday to $19,847 per day. Kartsonas and Rosano kept to their bullish forecasts, though the falling forward freight agreement (FFA) market indicated lower physical rates in the months ahead. November contracts slid 6% on Wednesday to $16,643 per day, while December contracts declined 5% to $15,214 per day and those for January lost 3.3% to land at $9,236 per day. The February numbers came in even lower, falling 2.6% to $6,450 per day. “It takes time to feed through,” Rosano said. “This industry is very fickle.” The futures market is very unpredictable and changes quickly and often, Kartsonas said. “FFA is a sentiment driven market,” he said. “People are cautious cause the whole world is messy.”

The record car carrier market is showing no sign of hitting the brakes, and rates may even surge to $150,000 per day, according to one analyst. Daniel Nash​​, head of vehicle carriers and ro-ros at VessesValue, said the sector went into overdrive in mid-August after Nissan extended a $100,000 per day rate on Eastern Pacific Shipping’s 6,178-teu Lake Geneva (built 2015) just four weeks into the one-year deal. The analyst said this was a “record-breaking fixture setting a higher high in a raging bull market, paralyzed by short pure car truck carrier (PCTC) supply following years of underinvestment.” The “stunning” rate is 174% higher than January deals and up a staggering 488% compared to December 2019, Nash added.

Brokers are now reporting that another modern panamax unit is about to be fixed out at $120,000 per day. “If concluded, [this] forces us to consider the possibilities of a $150,000 per day fixture in this current cycle, which is mind-boggling,” Nash said. “It’s optimistic but by no means insurmountable, looking at the net fleet position and forward trading environment, supported by slower steaming and reoccurring port congestion,” he added. Nash expects to see average rates of $125,000 in 2023.

He believes giant Oslo-listed owner Wallenius Wilhelmsen is using this bull cycle to steer the market away from spot contracts, establishing higher contract freight rates to boost returns to shareholders. “Short supply is firmly priced in for another 12 months, possibly 24, barring no major shocks such as a global war,” Nash said. “In a nutshell, we are witnessing the biggest bull run in the history of the sector, which is showing no obvious signs of easing,” he argued.

PCTC supply became seriously squeezed in September as ships faced heavy delays at major ports in North-west Europe, most notably Bremerhaven in Germany, Nash noted. One ship took 11 days to complete cargo operations there, and another 10 days. Wallenius Wilhelmsen then took drastic action by informing clients that all liner bookings for October and November voyages from Europe to the Far East, North America, Oceania, and Middle East would be “temporarily” stopped until further notice. The company cited congestion and increasing cargo demands, leaving no storage space for deliveries. Nash called this a “dramatic move which surprised the market.”

He also explained it was perhaps partly strategic to protect capacity for original equipment manufacturer (OEM) accounts in a tightening market, whilst simultaneously kicking off less interesting spot export cargoes. Ship supply will also be hit next year by the new IMO emission regulations, which will force owners into slower steaming. VesselsValue estimates a 5% to 10% capacity cut because of this. On the demand side, car maker Tesla is ready to scale shipments from its Gigafactory Shanghai to global destinations in 2023. And seller VinFast in Vietnam is courting PCTC operators to call in the country regularly, after six stores were opened in California.

Everything in this article can equally apply to dry bulk shipping where we have been hurt by slower demand from China. Khalid