With freight rates in free-fall shippers are busy renegotiating their contracts with container lines, who are facing up to the reality that the liner party is fizzling out. The SCFI spot box freight rate index stood at 2,848 points on Friday, down 10% week-on-week but remain still more than three times the 2019 average. Rates on the Shanghai-US west coast route fell by more than 20% week-on-week to $3,959 per feu. Overall, last week’s SCFI performance was the worst weekly drop since 2016. FBX futures indicate China to US west coast rates are close to $3,000 per feu for November including the bunker adjustment factor and are at $2,500 for Q1 next year. While long-term box freight rates continue to climb, they are finally showing signs of coming under pressure too. “I don’t know a single medium-large BCO who is not renegotiating right now or gearing up to do so within the next month,” commented Bjorn Vang Jensen, a vice president at consultancy Sea-Intelligence, via LinkedIn.

There’s plenty of economic data lending credence to the growing feeling that liner fortunes are in for a reversal and this year’s peak season has failed to manifest. Chinese exports rose 7.1% in August from a year earlier, slowing from an 18% gain in July, official customs data showed on Wednesday. “It seems the export softness arrived earlier than expected, as recent shipping data suggests that demand from the US and EU has already slowed as shipping prices have been falling significantly,” Zhou Hao, chief economist at Guotai Junan International, told Reuters. Across the Pacific, the downturn in US manufacturing is also cause for concern. The US manufacturing PMI has fallen from 63.7 in March last year to 52.8 last month. “When production slows, demand for labour weakens, weighing on household incomes. Consumers in turn cut back spending, including expenditures on imports. When US demand slows, finished good exports from other countries decline,” a recent report from Singapore-based Eastport Maritime suggested, pointing out how South Korean exports have slowed from over 40% year-on-year growth last year to just 6.6% year-on-year in August.

Summing up why rates are in decline, Lars Jensen, CEO of consultancy Vespucci Maritime, highlighted three key factors in a recent LinkedIn update. “We are faced with a trifecta of events impacting the strength of the market: Continued injection of more vessel capacity due to diminishing bottleneck effects, weakening sales prospects in North America and Europe where inflation and potential recession looms causing importers to worry about an inventory overshoot and continued wide-scale shutdown of production in China caused both by Covid as well as power issues related to low water in the Yangtze River. All indications are therefore pointing to a continued downwards trend,” Jensen wrote. Spot rates on the main hauls are going “clearly downwards”, Peter Sand, chief analyst at freight rate platform Xeneta, told Splash. “The trend will stay like that as the peak season is cancelled, demand is falling, schedule reliability is moving slowly up, and congestion is coming down in certain places,” Sand said, saying this pattern would be felt most keenly on the eastbound transpacific, the trade with the most non-alliance carriers. Spot rates do remain profitable; however, they are already down by 42% since the end of February on the main two trade lanes, Asia-Europe and the transpacific, according to data from Xeneta. “Latest rates offered by transpacific carriers have already breached the $3,500 mark, guaranteeing further drops in the published rate indices in the coming weeks with all trade lanes out of Asia remaining under pressure,” the latest weekly report from Linerlytica reported, adding that the freight market weakness is spreading quickly to the charter markets, with a rising number of sublets being offered by carriers who had previously committed to long term vessel charters only to find the current rates unprofitable for them to continue. Some analysts are pinning their liner hopes on long-term contracts holding up.

In widely read recent report looking at Q2 profits, liner veteran John McCown, who heads up Blue Alpha Capital, argued that too much focus had been spent by analysts and media this year on the declining spot market, which he said accounted for only 10% of boxes shipped, a ratio contested by other experts. Contract rates remain massively elevated and are the reason McCown is forecasting liner shipping will make a cumulative net profit of $244.9bn for the full year of 2022, a remarkable 65.2% improvement over 2021’s record results. “The folks who focus on spot rates and are predicting a near-term earnings collapse are substituting narrative for analysis and will be proven wrong. We may be at or near the peak, but no earnings collapse is imminent,” McCown wrote. “As long as contract rates remain intact, the industry is likely to see a widening two-tier market differentiated by those carriers who have signed long-term contracts at elevated rates, and those relying on the softening spot market,” the latest weekly report from Alphaliner predicted. Nevertheless, there is growing evidence that long-term rates are now coming under pressure. “It’s only a matter of time before the long-term contract market begins to weaken at faster pace too,” Xeneta’s Sand warned today. According to Xeneta data, the transpacific right now has a gap between the spot market and where long-term contracts are signing of $2,000, whereas the gap on the Asia to North Europe trade lane is only $500 per feu. The cooling of the container market from its record highs is having knock-on effects in other sectors that have profited from taking boxes onboard over the last 18 months with Drewry’s multipurpose shipping index in clear decline and dry bulk owners also having to get used to the fact that containers are an unlikely source of cargoes going forward. “Container freight rates have declined significantly in the third quarter with slower growth in container trade demand in response to high inflation rate and endemic consumer pattern. After the third-quarter peak trade season is over, de-containerized trend is expected to be reversed and some of container spillover-related minor bulk cargo demand will gradually return to container boxes which would put backhaul geared dry bulk freight rates under further pressure,” commented Daejin Lee, lead shipping analyst at S&P Global Market Intelligence.

President Vladimir Putin claims that Russia has been “screwed over” by the West following the UN-backed deal to export Ukrainian grain from previously blockaded ports. He wants to reopen discussions over the scheme, designed to dampen soaring prices and reduce the threat of global hunger. It is the only deal agreed between Russia and Ukraine in more than six months of war.

“We are honoring the agreements,” Putin told an economic forum in the eastern Russian port city of Vladivostok. He claimed that the West “have just royally screwed us over, and not just us but the poorest countries whose interests were the pretext for doing all this”, Reuters quoted him as saying. Ukrainian officials dismissed the comments as “unexpected and groundless”. The UN said on Wednesday that about 30% of the shipments have gone to low or middle-income countries.

Putin spoke about potentially limiting exports to the European Union and said he would discuss the matter with Turkish President Recep Tayyip Erdogan, who helped to orchestrate the original deal.

The UN said 100 vessels carrying 2.3 MMT of grains and other foodstuffs have left three Ukrainian ports previously blocked by Russia since the deal was signed on 22 July. More than one-third of the cargo has gone to EU nations, while countries including Somalia, Sudan, Lebanon, and Iran have received shipments. The largest single destination is Turkey.

The market appears to have attracted only a few ships from the mainstream bulk carrier trades, with lower-value older, smaller bulkers largely picking up the trade, according to TradeWinds analysis. London war risk underwriters have said they will back the trade and are quoting on business into the Ukrainian grain ports.

The bulker earnings peak has already passed this year and worse is to come for owners, a leading analyst believes. S&P Global Market Intelligence is forecasting a drop in the Baltic Dry Index (BDI) of between 20% and 30% going into 2023, before markets begin to recover. TradeWinds reported that the BDI had dipped below 1,000 points at the end of August, as demand drops away. Daejin Lee, S&P’s lead shipping analyst, believes bulkers face a volatile path.

Rates in the sector, as well as container ship freight rates, have continued to fall over the past three months. “Due to the seasonality of the market, dry bulk freight rates would typically peak in the third quarter,” S&P said. But it views the second quarter as probably being the peak of 2022. S&P’s rate models predict that the BDI will average 1,300 to 1,400 points in 2023. It will then recover to average between 1,400 and 1,500 points in 2024.

Lee pinpointed much-reduced port congestion levels, along with weaker cargo arrivals, as big reasons behind a significant decrease in freight rates. Based on an expectation of weaker trade volumes, “we do not expect extremely high congestion again in the coming quarters”, he added.

The Carbon Intensity Indicator (CII), one of the IMO’s new decarbonization regulations scheduled to be implemented in 2023, will result in higher demurrage costs to reduce idling time, the analyst predicted. And he argues that significant drops in rates will discourage potential sailing speed increases. In the medium and long term, the engine power limitation impact of the Energy Efficiency Existing Ship Index will be limited on commercial speed, according to S&P. But CII will start to hit speed from 2024 onwards, as well as boosting scrapping sales.

Earlier-than-expected changes in China’s zero-Covid policy and a ceasefire in Ukraine remain potential boosts for bulkers, the company believes. But S&P sees strong domestic coal production in China and fast-declining container demand along with global recession fears remain serious downside risks in the medium and long term. Lee said: “Although we expect some seasonal improvements in the dry bulk market in coming months, a volatile path to lower rates is expected in the near term due to slower-than-expected economic growth with continued weakness in mainland China’s real estate sector as well as the absence of high congestion. Eventually, overall dry bulk freight rates may return to the level we have seen in the pre-pandemic period in coming months.”

Limited growth in ship supply driven by the new IMO regulations and lack of newbuilding orders will help the market recover in the second half of 2023 and 2024, he believes. Container freight rates have declined significantly in the third quarter with slower growth in container trade demand in response to the high inflation rate, Lee said. After the third-quarter peak trade season is over, a trend to “de-containerize” cargoes is expected to reverse. Some minor bulk cargo demand will gradually return to containers, “which would put backhaul-geared dry bulk freight rates under further pressure”, he cautioned.

The capesize bulker segment fell for the second straight day on Wednesday, continuing a pullback from a three-day rally, as the panamax market kept improving. The Capesize 5TC spot rate average across five key routes has slipped 22.3% over two sessions to hit $5,442 per day on Wednesday, after a three-day rise of 180%. “Capesize rates remain under pressure after a brief rise seen last week and at the start of this week,” Jefferies analyst Omar Nokta said in a note. “Rates overall are weak due to thinner iron ore volumes, brought on by a tough steel market backdrop.”

The entire dry bulk market is “very quiet these days”, John Kartsonas, founder of asset manager Breakwave Advisors, which runs a dry-bulk exchange-traded funds platform. He noted that the panamax segment is “rallying quite hard” due to strong coal demand and high coal prices. The Panamax 5TC has risen 29.6% since 31 August to $14,196 per day on Wednesday.

Pan Ocean Shipping fixed Efnav’s 82,410-dwt Captain George (built 2014) to ship grain from the North American west coast to Asia at $16,500 per day after getting loaded on 12 September. Element hired Ariston Navigation’s 81,922-dwt Atrotos Heracles (built 2014) to send grain on the same route at $14,000 per day, Loading is set for 3 and 4 September. “But for capesizes, unfortunately there is low demand for iron ore transportation at the moment, and thus not a lot of movement to report,” he told TradeWinds. “As we head into the end of the month, my expectation is for better breath in terms of cargo flow which should help rates recover a bit.”

Rio Tinto hired two unnamed capesizes on Wednesday to ship 170,000 tonnes of iron ore from Dampier, Australia, to Qingdao at $7.80 per tonne and $7.90 per tonne. Loadings will take place from 22 to 25 September. The Australian mining giant hired an unnamed capesize on Monday to ship the same commodity on the same route at $8.80 per tonne. Loading is set for 19 to 21 September.

Softer bunker prices helped to offset the lower spot rates for capesizes, as most voyages from Western Australia to Qingdao traded at around $7,000 per day, Baltic Exchange analysts said. “Some brokers saw more backhaul enquiries appear in the market including both short runs from South Africa and longer durations from east Australia to the Continent,” they said.

The analysts also remarked that the east coast of South America exports of grain to Europe have boosted panamax spot rates.

A newbuilding capesize is reported to have locked into a four-year charter as period rates continued to follow the spot market downward. The 180,000-dwt newbuilding scored a rate of $21,000 per day with an unnamed charterer, according to reports from the Baltic Exchange and Fearnleys.

Fearnleys, the Norwegian shipbroker, described the rate as “very unimpressive” for a Japanese-built ship of its “Cadillac” specifications. The Baltic Exchange said in its daily bulker charter report said that the vessel in the deal is believed to be Navios Maritime Partners’ Navios Astra, which is due from Japan Marine United shipyard next week. The US-listed company could not be immediately reached for confirmation. The charterer was not named.

The deal will be more lucrative than today’s spot rates, which sank to $5,442 per day on Wednesday. But period rates have been following the spot market downward, with Fearnleys’ assessment of a one-year charter for a 180,000-dwt capesize coming at $13,000 per day this week. That’s tied with the prior week for the lowest level since February, and it represents a 61.8% slump from the peak of $34,000 per day in May.

“Spot woes keep translating into negative forward views and consequent brutal paper and period level dives,” Fearnleys said Wednesday in its weekly report.

Rates for one-year charters have followed a similar trajectory for supramaxes and panamaxes. On Monday, the Baltic Exchange reported that Pacific Basin Shipping’s 58,000-dwt Chiloe Island (built 2013) was locked into a one-year charter at $18,000 per day. That’s better than Fearnley’s assessment of a $14,500 per day rate for a 12-month charter on a vessel of that size, but it is far below the $28,000 per day rate in May.

According to Chinese customs authorities, iron ore imports for August came in at 96.2 MMT, up 5.4% MOM while down 1.3% YOY, taking the YTD total to 723.4 MMT, which is down 3.2% compared to 2021 and 4.8% compared to 2020. Despite being somewhat down YTD YOY, the YTD total is broadly in line with its 5-year average of 723.6 MMT.

Furthermore, coal imports came in at 29.5 MMT for August and showcased an increase of 25.3% MOM and 5.4% YOY while still down 15% YTD YOY, as domestic coal production continues at elevated levels. In our view, the MOM and YOY increase in coal imports are explained by the widespread domestic heat waves, which have led to rising coal-fired power generation amid surging demand for air conditioning. However, industry sources state that the coal-fired power generation has gradually declined lately as temperatures have fallen and Covid-19 restrictions have hampered industrial activity.

China imported 96.2 MMT of iron ore in August.  This marks a month-on-month increase of 5 MMT (5%) but is down year-on-year by 1.3 MMT (-1%).  As we have continued to stress, there remains a good chance that China’s iron ore imports will continue to climb higher during the second half of this year.  Iron ore port stockpiles remain well below this year’s high, Brazilian and Australian iron ore production remain poised to continue to undergo seasonal strength, and steel production has continued to rise in recent weeks.

China imported 29.5 MMT of coal in August.  This marks a month-on-month increase of 6 MMT (26%) and is up year-on-year by 1.4 MMT (5%).  While coal imports might easily maintain the recent strength in the near term, we continue to stress that there remains a good chance that China’s coal imports will end this year showing a year-on-year contraction.  China’s domestic coal production has continued to fare much better than thermal coal-derived electricity generation.  Coal imports this year are so far down year-on-year by 15%.

China imported 7.2 MMT of soybeans in August.  This marks a month-on-month decline of 700,000 tons (-9%) and is down year-on-year by 2.3 MMT (-24%).  Weakness in Chinese animal feed production has continued to put pressure on soybean import demand along with robust global soybean prices.

Russia’s Gazprom has indefinitely shut off natural gas flows to Europe through the Nord Stream 1 pipeline, citing technical issues brought about by European sanctions. Energy price surged following the announcement. ICE Dutch TTF October gas futures rose by 14.6% on Monday, closing at €245.926/MWh. EEX German year-ahead baseload power contracts rose by 12.1% on the day to €570.33/MWh. The euro also hit a 20 year low against the dollar on Monday, falling to $0.9879 in early trading.

European aluminum production from January-July 2022 has also fallen 12.8% YoY to 1.7 MMT, according to International Aluminum. Several aluminum plants have already been forced to close; a last resort given the costs of restarting smelters, with this same trend now kickstarting on the steel-side. Imports of bauxite were down 29%, totaling 990k tonnes in August in part due to the seasonal slowdown in Guinea in Q3, but also a lack of demand as smelting capacity is reduced.

EU leaders are currently debating emergency measures, which may include a cap on wholesale gas prices and a windfall tax on power company profits. If the proposed policies fail to curtail prices and prevent wider closures of European heavy industries in the coming months, we expect a considerable reduction in EU demand for several non-coal dry bulk cargoes. EU countries imported 8 MMT of iron ore in August, down 2.6% YoY.  Capes accounted for 62% of this trade, followed by Panamaxes at 21% and Supras at 17%. Steel imports also decreased by 13% YoY to 2.7 MMT.

EU countries imported 1.9 MMT of coal from South Africa in August, the highest monthly total on record. EU imports of South African coal have increased more than seven-fold to 5.8 MMT in the 5 months since sanctions on Russian coal were announced in April. Of these volumes, 56.1% were shipped by Panamaxes in August, followed by Capes at 30.6%, and Supramaxes at 13.3%. The full implementation of EU sanctions from 10 August resulted in a loss of approximately 2.6 MMT per month in Russian volumes. In total EU coal imports were up 44% YoY in August, as states stockpile the energy resource before winter and higher water levels in waterways between ports and inland power stations ease congestion.

Some countries have freed up volumes for European buyers in South Africa by opting to continue to import discounted Russian coal. Indian imports of South African coal fell 55.4% YoY in August to 889k tonnes, while imports of Russian coal more than doubled to 1 MMT. The mine-to-port constraints facing South African miners have improved in Q3 because of the increased use of private security guards by mining companies. This bodes well for shipments to Europe continuing at these levels going forward.

Danish liner giant AP Moller-Maersk is among some of the world’s biggest polluters which are failing to disclose the impact of climate-related risks in their financial statements, a new UN-backed report has found. Maersk was among 134 major companies and their auditors who were found to be failing in the quality of reports they are providing investors, as scrutiny continues to increase on the gaps between companies’ public pledges and policy. In a detailed assessment of companies accounting for up to 80% of corporate carbon emissions, independent think tank Carbon Tracker said all but eight did not provide sufficient information to demonstrate how their financial statements include consideration of the financial impact of ‘material climate matters’.

“Companies failed to disclose the relevant quantitative climate-related assumptions and estimates used to prepare the financial statements, even when they indicated that climate risks may impact these assumptions,” Carbon Tracker said in the second annual edition of the study of recent financial reports. Maersk is the only shipping company in the companies studied that comprise the Climate Action 100+ group. “Given that Climate Action 100+ focus companies were selected for engagement by investors because of their exposure to climate issues, it is difficult to argue that climate is not material to them,” the report said. Among the many other household names to fail the assessment were Anglo-American, BMW, Bunge, Chevron, Dow, Exxon Mobil, General Electric, PetroChina, Petrobras, RWE, Aramco, Coca-Cola, and Volkswagen.

Maersk says it has set a net-zero emissions target for 2040 and has set tangible near-term targets for 2030. This includes a 50% reduction in emissions per transported container in the Maersk Ocean fleet compared to 2020 and a principle of only ordering newbuilt vessels that can be operated on green fuels. However, Carbon Tracker found Maersk and its auditor PwC — and all other companies assessed — failed the two tests it set to assess whether financial statements or its audit report met established standards for net zero. “No company used assumptions and estimates that were aligned with achieving net zero by 2050 or sooner. This was despite a significant majority of companies having targets or ambitions to achieve this drive,” Carbon Tracker said. Maersk has been approached for comment. “These findings are despite the fact that the IASB, FASB and IAASB — the standard-setters for global company reporting and auditing — have made clear that material climate change issues should be considered in the preparation and audit of financial statements,” the report said.

Carbon Tracker compiled the report with collaboration from the Climate Accounting and Audit Project, which is supported by the UN’s Principles for Responsible Investment network. Eight companies achieved ‘partial’ scores by providing all the required information for at least one of the seven metrics used. They were BP, Eni, Equinor, Glencore, National Grid, Rio Tinto, Rolls-Royce, and Shell. “Although scores were generally poor, some progress has been made by select companies, which demonstrated how climate-related matters can be taken into account and adequate disclosures provided,” Carbon Tracker said. Maersk this week ordered a further six container ships able to burn methanol as fuel, bringing its total of methanol dual-fueled ships on order to 19. The six additional ships will save about 800,000 tonnes of CO2 each year, Maersk claims.

Profits for the booming container ship industry have more than doubled in the second quarter while posting seven consecutive quarters of record earnings, according to a financial advisor focused on the sector. The industry posted a “mind-altering” $63.7bn in net income for the three-month period, versus $28.6bn recorded during the same period last year, according to estimates by Blue Alpha Capital founder and former liner industry executive John McCown. “With stair-step increases over the last two years, this is the seventh straight quarter of record earnings,” he wrote in his latest McCown Container Results Observer report. “The container shipping industry has literally gone from being near or at the bottom in terms of overall industry performance to at or near the top in terms of overall industry performance.”

He estimated total sector earnings by figuring that total teu capacity for the 11 highest-earning liner operators made up 64.5% of total sector capacity and then assumed remaining owners had similar per-teu earnings. McCown forecast that total sector earnings will total $245bn, up 65.2% from total profits made in 2021, due to liner operators blanking sailings due to short supply. “The folks who focus on spot rates and are predicting a near-term earnings collapse are substituting narrative for analysis and will be proven wrong,” he said. “We may be at or near the peak, but no earnings collapse is imminent. A key tool to watch that the industry has new appreciation for is blanking sailings.”

He said that the frequency of blank sailings will slowly diminish as pandemic-driven port congestion eases, but liner operators may keep blanking them to keep supply down and prevent freight rates from falling. The pandemic caused sector earnings to skyrocket to unprecedented levels as supply-chain disruption and increased demand for consumer goods caused boxship demand to reach never-seen-before levels. McCown noted that the container shipping profits have been higher than combined profits at multibillion-dollar internet technology companies Facebook, Amazon, Netflix, and Google, collectively known as FANG, over the previous two quarters.

How much higher? According to McCown’s analysis, the sector’s profits were 14% higher than FANG’s earnings for the fourth quarter of 2021, 103% higher for the first three months of 2022 and 145% higher than this year’s second quarter. In his report, McCown put Maersk as the top-earning liner operator, making $8.17bn for the second quarter against $3.36bn a year ago. Maersk also made the most total profit since the first quarter of 2016 by taking in $35.5bn in total profit over that time, according to McCown’s figures. CMA CGM posted the second highest profit for the second quarter at $7.6bn against $3.48bn a year earlier. Its earnings since 2016 came in at a second-highest amount of $34.3bn. Cosco Shipping Lines came in third place on the list. The Chinese operator made $5.52bn in the second quarter, compared to $3.35bn in the same time frame in 2021. Its total profit since 2016 totaled $24.4bn.