Long-term box freight rates continue to climb but are finally showing signs of coming under pressure. Data from online platform Xeneta shows that long-term rates increased 4.1% in August, standing 121.2% higher than this time last year. “Despite softening spot rates, uneven demand and on-going supply chain issues, the world’s leading carriers remain on course for another bumper year of profits,” an update today from Oslo-based Xeneta stated. Nevertheless, there are signs that new long-term contracted rates are starting to drop on key trading corridors. However, due to the fact they’re replacing expiring agreements with considerably lower rates, the average paid by all shippers is still climbing. “There’s no doubt the major carriers have had it their way in negotiations for some time,” noted Patrik Berglund, Xeneta CEO. “The spectacular results they saw in 2021 will no doubt be repeated, and even bettered, this year, as seen by the huge profits that defined many Q2 financial reports. But there is a sense that change is in the air.”

Multiple liner analysts have suggested that cumulative liner profits this year could top $200bn, a record that marks container shipping as one of the most profitable industries in the world. Long-term rates were inevitably going to follow in the wake of the declining spot markets, with many liner CEOs suggesting of late that the market is heading towards normalization in the coming months. CMA CGM’s chairman, Rodolphe Saadé, told Bloomberg last Friday, “What we’ve been seeing now for many weeks is a decrease of freight rates in almost all sectors. We expect that decrease to continue. I don’t think we’ll see a strong drop but rather a soft landing.” His comments have been echoed by many of his peers recently. Xeneta’s Berglund cautioned today: “Volumes are dropping and as expected, long-term rates are beginning to follow the trend set by the spot market.”

The latest spot rate data published by Drewry’s World Container Index shows an accelerating trend in terms of rate declines on Shanghai to Los Angeles and Shanghai to Rotterdam. The Shanghai to Los Angeles rate dropped 6% last week and has dropped 10% over just two weeks. Prior to that it had taken five weeks to accomplish a 10% rate decline. Shanghai to Rotterdam rates dropped 5% last week and have dropped 9% in total over the past two weeks. Prior to that it had taken eight weeks for the rate to decline 10%. Likewise, last week’s 275-point drop on the Shanghai Containerized Freight Index (SCFI) was one of the largest in its history. “This clearly signals a weakness in the market, especially as we right now ought to be in the midst of the peak season prior to Chinese Golden week in a month’s time,” commented Lars Jensen from Vespucci Maritime.

Hard data available in the market increasingly supports the “light at the end of tunnel” hypothesis for hard-pressed shippers, argued Sea-Intelligence in its latest weekly report. Schedule reliability has consistently been improving since January 2022 – gradually releasing more capacity into the market, Sea-Intelligence pointed out, adding: “Spot rates continue to slide, underpinning the notion that the market no longer suffers from an acute lack of supply.” The end-to-end transportation time measurements from Flexport also show material improvements, especially to the US, and has done so for several months now. “All in all, there is ample data-driven support that this is truly the path back to more normal conditions that the market is on,” Sea-Intelligence concluded. Not everyone is convinced with this hypothesis, however. Online platform Project 44 suggested in a recent market update that shipping lines will continue to use blanking as a tool to keep freight rates high, arguing that prices are unlikely to keep falling and will assume a floor soon. Parash Jain, HSBC’s global head of shipping and ports research, maintained that liner shipping now has a stronger bargaining position thanks to consolidation. “Going forward, we argue that after years of consolidation and the formation of mega shipping alliances, the shipping lines have learnt the capacity discipline and while there might still be volatility in freight rates, the rock-bottom level of freight rates seen in the past decade might no longer persist in the future,” Jain told Splash earlier this month.

As we discussed previously, China’s heat wave and power cuts had been likely to subside by the end of this month, and at present temperatures and availability of power have in fact finally returned to more normal levels.  The most recently released data as of August 28th shows that the daily coal burn rate at China’s six major coastal power plants has come in at only 857,000 tons, which is down week-on-week by 6% and marks the lowest burn rate seen since early July.  The last two weeks have each seen a decline in coal burn.  Prior to these last two weeks, coal burn had set records during four of the prior five weeks.  Of note, though, is that the 857,000-ton daily burn rate is up year-on-year by 10%, but China still remains well supplied with coal. 

Product tanker owners may be about to enjoy record rates as the upcoming European ban on Russian oil turbocharges the sector. Clarksons Securities believes capacity utilization for clean carriers has reached 92%. Analysts Frode Morkedal and Even Kolsgaard said: “When the market is so tight, even a small percentage shift has a significant impact.” They argue that if utilization changes by 1%, LR2 numbers can fluctuate by $12,000 per day. Considering that 1% of the market for seaborne trade is only 230,000 barrels per day (bpd), freight rate fluctuations are to be expected, the analysts added.

If the EU ban ends up shifting 1m bpd of oil products to tanker journeys that are twice the usual distance, this might improve product tanker utilization by 6% or 7%, the investment bank estimates. “Most likely, the difference in diesel prices between Europe and Asia will limit how high rates can go, but if utilization is increased by 7%, LR2 earnings might theoretically reach $250,000 per day,” Morkedal and Kolsgaard said.

There has been no let-up in the product tanker industry’s volatile freight rates, Clarksons Securities said. Last week, earnings for modern LR2s increased by almost 20% to $58,000 per day. LR1s were up 10% to $46,000, while MRs were slightly lower at $35,000, after falling 28% in the past month.

Diesel refining margins are once again rising quickly, explaining last week’s rebound in freight rates. The analysts explained that because hydrogen derived from natural gas is used to remove sulphur in refinery units, the rising cost of natural gas is having a detrimental influence on European refinery output.

Rising diesel prices are attracting cargoes from the Middle East Gulf, and even Asia, causing LR2 rates to rise, they said. And the US government has written to refineries, demanding that US product exports be restricted due to low gasoline and diesel stockpiles ahead of hurricane season. A total ban is reportedly not being considered, however.

“Despite the fact that just 15% of US product exports of about 6m barrels per day went to Europe this year, restricted exports would likely have an impact on European diesel pricing and may result in increased arbitrage opportunities,” said Morkedal and Kolsgaard.

London-listed Taylor Maritime Investments (TMI) is making a takeover offer for Grindrod Shipping that values the Singapore and Nasdaq-listed bulker owner at $494m. Taylor Maritime, which already holds a 26% stake in Grindrod, would use a non-binding cash offer of $26 per share to create an enlarged owner of handysize up to ultramax bulkers. Monday’s disclosure effectively confirms a 6 April TradeWinds report indicating Grindrod was in play after it chose not to seek a permanent successor to retired chief executive Martin Wade. The announcement on Monday provides further fingerprints as to a months-long merger-and-acquisition process underway, as Grindrod disclosed that it had hired Jefferies as financial advisors and three separate law firms as well.

Taylor is understood to have emerged from a pack of suitors that included multiple other public companies. Potential suitors named by TradeWinds in April included US-listed Genco Shipping & Trading and Eagle Bulk Shipping, as well as Hong Kong-listed Pacific Basin. Grindrod’s share price shot up in trading on Monday in New York upon the announcement, with shares up nearly 20% to $24.54 in early afternoon.

The UK group said the offer for an aggregate value of $26 per share would consist of a cash purchase price of $21 paid by TMI for each share tendered in conjunction with a special cash dividend from Grindrod of $5 per share to its existing shareholders. The proposed acquisition is subject to pre-conditions being met and due diligence. The offer price presents a 30% premium to Grindrod’s closing of $20.05 on Friday. The share has not closed above $26 since 7 June.

Though the bid may be below Grindrod’s net asset value, estimated around $30 per share, the all-cash feature may prove attractive to Grindrod shareholders, a finance source told TradeWinds. “All-cash tender offers are exceedingly rare in shipping,” the source said. “It’s similar to someone willing to pay all cash for your house in the real estate market. When such offers have been made, there is typically a much bigger gap to NAV than here.”

In July, the UK-based handysize specialist reported strong profits consisting of net earnings of $253m for the year to 31 March. TMI, which only listed in 2021 and so did not give a comparison, said the results comprised $79m in operating profit and $174m in fair value gain as it benefited from strong bulker markets. “We remain confident that market fundamentals will lead well into 2024,” TMI Chairman Nicholas Lykiardopulo said at the time.

TMI currently holds 4.9m shares in Grindrod. The company would therefore need to win support from a further 21% of Grindrod shareholders to gain effective control of the company.

The UK is providing six underwater mine hunting drones to Ukraine to help detect Russian mines in the waters off its coast. The lightweight autonomous vehicles are designed for use in shallow coastal environments, operating effectively at depths of up to 100 meters to detect, locate and identify mines using an array of sensors. Dozens of Ukrainian Navy personnel will be taught to use the drones over the coming months, with the first tranche having already begun their training.

Russia has been accused of weaponizing food by destroying Ukrainian agriculture and blockading the country’s Black Sea ports to prevent exports. UK Defence Secretary Ben Wallace has described Russia’s attempts to hold the world’s food supply to ransom as “cynical” and that it “must not be allowed to succeed. This vital equipment and training will help Ukraine make their waters safe, helping to smooth the flow of grain to the rest of the world and supporting the armed forces of Ukraine as they look to defend their coastline and ports.”

Admiral Sir Ben Key, First Sea Lord and chief of the UK’s naval staff, said the Russian mines “target shipping indiscriminately”, but particularly affect civilian traffic and trade and have had a “devastating impact on freedom of navigation in the Black Sea”.

The UK’s Ministry of Defence said “a small number of ships carrying grain” have left Ukraine since the United Nations brokered a deal in July to allow food exports. “But efforts to get food out of the country continue to be hampered by sea mines left by Russian forces along Ukraine’s coast,” the MoD claimed. However, figures from the UN said that over 1 MMT of grain and other foodstuffs were moved from three Ukrainian ports as of 27 August.

Since the 29,300-dwt bulker Razoni (built 1996) sailed from Odessa on 1 August the UN-backed Joint Coordination Centre (JCC) has enabled the safe movement of 46 voyages from Ukraine and 57 voyages to Ukraine. The JCC was established in Istanbul and comprises senior representatives from the Russian Federation, Turkey, Ukraine, and the UN.

Under the UN initiative ships are escorted by Ukrainian tug captains through a narrow maritime corridor to the edge of the minefield planted by Ukrainian forces before heading to Istanbul to be cleared for their final routes.

Handysize bulkers saw their lowest rates in more than 18 months on Tuesday, thanks to a weakening market in the Atlantic basin. The Baltic Exchange’s Handysize 7TC, a spot-rate average across seven key routes, slipped to $17,189 per day, marking the lowest level since it came in at $17,011 per day on 22 February 2021. The rate has been on a downward trend since mid-May when it topped out at $30,004 per day on 16 May.

The HS3 route from Brazil to Europe showed the biggest one-day decline in spot rates that make up the 7TC basket, falling 2.4% to $20,223 per day on Tuesday, Baltic Exchange data showed. “Owners are playing the waiting game in order to see the market increasing soon but for the moment it seems very flat,” German handysize operator Vogemann said in a report on Thursday.

Vogemann noted that handysizes “with dirty cargo”, those that require vessel cleaning after the voyage, to Europe have been getting spot rates “in the mid-teens” for 20 to 25 days. But bulker owners do not prefer these cargoes because such fixtures do not pay well and make for dirty ships.

The 32,376-dwt Kotor (built 2014) was rumored to have been fixed for a trip from the Black Sea to Bangladesh “in the high teens but further details had yet to emerge”, Baltic Exchange analysts said on Tuesday.

The east coast of South America market has also fallen sharply in the past week due to a lack of new fixtures, referring to the HS3 route’s average spot rate losing almost $4,000 per day in that time. Meanwhile, the US Gulf Coast market continued to move sideways as the average spot rate for the HS4 trip to Skaw-Passero stayed at around $15,500 per day, Vogemann said.

The market for the Mediterranean and Black seas has also remained stagnant since last week, according to Vogemann. “Quite a few cargoes are coming out of Ukraine and Russia, but unfortunately there are uncertain circumstances which make these cargoes difficult to fix,” the company said.

Container spot freight rates witnessed their steepest fall since the start of the pandemic this week as the Shanghai Containerized Freight Index plunged by more than 8%, losing 275 points over the week. The sharpest decline on the main east-west trades was on the Asia-US west coast transpacific route, which saw rates dip by $648 per feu, or 11.2%, to $5,134 per teu, taking rates down to a level not seen since last July. The Asia-US east coast trade was firmer, as congestion continues to affect ports on the eastern seaboard, but still fell 2.1% to $8,801 per feu. Volumes destined for Europe also saw lower rates, with the Asia-northern Europe leg and Asia-Mediterranean both falling by over 7% to $4,441 per teu and $5,071 per teu, respectively. The SCFI comprehensive index has now dropped by almost 40% since it peaked in January, and other indices show similar fortunes for freight rates. Except for a small and brief uptick at the beginning of June, the index has fallen in every week since the first week of January.

The slide in spot rates across the board comes at a time when rates are normally at their highest as shippers push to get slots for peak season cargoes. But as Lloyd’s List reported earlier this week, declining spot rates on transpacific trade have yet to find the floor, with the lowest price reported to be at $3,700 per feu on routes to the US west coast. Data from Shifl also shows that the freight rate from China to the US west coast is set to fall below the $5,000 per feu mark for the first time since the pandemic-driven price hike. It expects the China-US west coast rate to fall to $4,900 per feu on average in September, a fall of 72% from a high of $17,500 per feu in September 2021. “While spot rates continue to decline, they are still more than three times higher than they were prior to the pandemic,” said Shifl chief executive Shabsie Levy. “The rates are at levels far lower than at the beginning of 2022, when consumer demand was very high. The pace of this continued decline points to the market returning to some semblance of the new normal.”

Xeneta chief analyst Peter Sand warned that this year’s peak season was likely to be “different this time around. Right now, the market is full of uncertainty. Not only is there the geopolitics, but there is also the global economic situation. There is a question over where volumes are heading.”

Analysts at Maritime Strategies International also warned that the peak season this year was likely to be a flat affair. “Overall, it is now clear that the industry’s traditional peak season and the port congestion in China, Europe and the US east coast are not enough to increase freight rates or even keep them at their still abnormally high current levels,” MSI said. “The significant downward risks on the demand side will keep pushing spot freight rates on the main lane head hauls further down in the coming weeks.”

The reeling capesize bulker market reached its lowest point since May 2020 on Friday after another week of spiraling downward, but China may have provided hope for some sort of turnaround. The Baltic Exchange’s Capesize 5TC, a spot-rate average across five key routes, dropped 46% over the past week to $3,413 per day on Friday, marking the lowest figure in roughly 27 months.

Clarksons Securities analyst Frode Morkedal pointed out that this average rate pertains only to capesizes of up to 10 years old that are non-eco vessels and not fitted with exhaust gas scrubbers. He said that Clarksons estimates that capesize eco-vessels, those with fuel saving technology, could earn $10,100 per day. The firm estimated a non-eco vessel with a scrubber could make $12,600 per day. An eco-vessel with a scrubber could possibly bring in $15,700 per day. “The fact that non-eco vessels are being pushed down to $3,400 per day versus operating expenses of more than $6,000 per day, indicates a significant overhang of ships, with the market currently being driven by eco- or scrubber-equipped vessels,” he wrote in a note on Friday.

Morkedal predicted that the average spot rate for non-eco capesizes will reach $14,500 per day in the fourth quarter based on the futures market, which Clarksons considers to be “a conservative market outlook” for that type of capesize, he said. The Baltic Exchange’s forward freight agreement (FFA) rate for the three-month period lost $77 on Friday to land at $13,895 per day. But Morkedal also pointed to reports of a stimulus boost from Beijing. China has raised its latest economic stimulus package by 17.2% to a whopping CNY6.8trn ($1trn), earmarking most of that money toward infrastructure projects. This cash infusion toward erecting new infrastructure could mean better days ahead for capesize spot rates, which are driven by China’s demand for the iron ore that it imports for new construction.

For now, Baltic Exchange analysts are scratching their heads as to how much further the 5TC will descend, having plummeted 99% since mid-July. “With rates so low and the outlook remaining poor, there is some speculation as to how far the sector will, and can, go,” they wrote on Friday in their weekly wrap up of the dry bulk market. They said that the Atlantic Basin “has fallen dramatically from grace” as the spot rate for the transatlantic C8 roundtrip voyage between Brazil and Europe cascaded 61% over the week to $3,111 per day on Friday. “Scrubber-fitted vessels were heard to be particularly aggressive in the region on the little cargo availability,” the analysts said. They also noticed that the transpacific West Australia-to-China C5 trip settled at $7.625 per tonne on Friday as China’s iron-ore demand continued to fall.

Seacon Shipping Group fixed an unnamed capesize owned by a company listed only as Anglo on Thursday to ship 180,000 tonnes of ore from Western Australia to Qingdao, China, at $7.50 per tonne after it gets loaded from 12 to 15 September. Pacbulk Shipping hired an unnamed capesize a week earlier to move 170,000 tonnes of the commodity on the same route at $7.50 per tonne. Loading is set for 2 to 4 September.

“It remains to be seen what the upcoming week holds in store for the sector,” the Baltic analysts said.

Onomichi Dockyard has reportedly struck separate newbuilding deals for up to five 40,000-dwt bulk carriers through a new top-heavy payment scheme. The deal is indicative of a structure involving a larger-than-usual initial payment, offered by some Japanese yards, to take advantage of the recent low value of the yen against the US dollar. The yen has been sliding against the dollar since the US Federal Reserve started raising interest rates to counter inflation earlier this year.

By opting for a heavy upfront payment, rather than the usual tail-heavy terms, Japanese yards can immediately get more yen for the dollar, and do not have to hedge the risk in the currency markets. Part of the advantage of the cheap yen can also be passed on to the owner through a lower contract price.

Conventional payment terms involve up to 70% of the contract price of a newbuilding paid on delivery. According to local media reports, a combination of Japanese and foreign owners are behind the orders at Onomichi. The average newbuilding price for a handysize bulker is around $30.5m. The vessels are designed to meet Phase 3 of the International Maritime Organization’s Energy Efficiency Design Index. Delivery is scheduled into 2025.

Japanese yards are eager to take advantage of the low yen, as they have struggled to compete on price with their main rivals in China and are even losing the custom of compatriot shipowners to Chinese yards.

Mitsui OSK Lines ordered four 210,000-dwt capesize bulkers at CSSC Qingdao Beihai Shipbuilding, while Doun Kisen has ordered four open-hatch bulkers at Jiangmen Nanyang Ship Engineering.

The only way is up for the capesize bulker market, according to the chief executive of shipowner Golden Ocean Group. Ulrik Andersen told TradeWinds that there are plenty of reasons to realistically expect an upturn in spot rates by the end of this year — and in any case, Golden Ocean has already hedged much of its exposure to the capesize and panamax markets for this quarter.

For the third quarter, Golden Ocean has 80% of its available capesize days booked at an average rate of $27,900 per day and has 96% of its panamax days covered at $27,100 per day. But the firm has left its options more open for the final quarter of 2022. It has forward bookings for 25% of its available capesize days at $29,500 per day on average. Its panamax fleet is booked at an average daily rate of $21,900 for 27% of available days. As of the market close on Wednesday, the Baltic Exchange’s forward curve indicated rates of $13,551 per day for the third quarter and $15,407 per day for the final three months of 2022.

The Oslo- and Nasdaq-listed owner’s second-quarter results comfortably beat analysts’ estimates and the firm added an extra 10 cents to its quarterly dividend, distributing 60 cents per share to its investors. Andersen said the result was generated through a combination of a commercial pivot and stronger scrubber economics. “We took a meaningful amount of fixed-paying contract cover during May and June,” he said. “And the other part of it, of course, is that we have a very modern fleet, which is fuel efficient and that means that we make more money than a Baltic [Exchange benchmark] vessel.”

Around 60% of Golden Ocean’s 96-vessel fleet is fitted with scrubbers, which have helped save costs. The price of very low-sulphur fuel oil surged by roughly 20% over the course of the second quarter, while the price of heavy fuel oil declined slightly. “I think the most important thing is to look forward. When we look towards the rest of the year, it’s clear that there are headwinds, and that the macro backdrop right now is uncertain,” Andersen said. “And therefore, we are also happy with being able to say that we have fixed 56% of our available vessel days for the remainder of this year. We feel we have a good hedge against the low markets, and we have protected our capacity to pay dividends in the coming quarter because of these fixed-paying contracts.”

Weak sentiment is weighing heavily on bulker markets in the absence of much positive economic news. Average capesize spot rates fell below $4,000 per day on Thursday, the lowest level in two years. Panamax spot rates have fallen below $13,000 per day on average, not seen since early January 2020. Andersen thinks that, at this point, the only way things can go is up. “We have a very weak market environment at the moment, but we do believe that there’s got to be a rebound before the turn of the year, driven by increasing iron ore output from Vale, continued inefficient allocation of coal and restocking in China,” he said.

Andersen pointed to the fact that China, the world’s largest importer of dry commodities, has eased its Covid-19 restrictions, increased its economic policy stimulus measures, and has cut lending rates. It will, of course, take time for the positive effects to translate into demand for bulk carriers, but the green shoots are there. But it is evident that markets will not reach the high levels of seen in 2021, he added. “I think it’s fair to say that there’s more upside than downside from here,” he continued. “Congestion has unwound and it’s probably the single largest contributor pushing the markets down where they are today. But there are some other factors now coming into play as we get into the fall. And I think those factors will be enough to pull the cape[size] market out of today’s levels and into a territory where we start generating profits.”

Andersen also expects the coal trade to continue to be one of the big demand drivers for bulkers this year as the fuel makes its way from far-flung exporters to markets such as Europe, which has this month implemented its final ban on Russian coal. “We expect to see even more tonne-miles coming from coal,” Andersen said. Meanwhile, Golden Ocean is actively looking at how its vessels can engage in trade with Ukraine. “There’s a lot of things that need to be aligned when it comes to [Ukraine], of course — from insurance to the safety of the crew, the vessel, to having a stem that fits with one of your vessels, et cetera. But we are open to the idea and are looking at it,” Andersen said.