Improved vessel efficiency and slowing demand growth are expected to continue driving down dry bulk earnings until 2024, when the new emission rules have greater impact. Pandemic-induced congestion is the “key factor” that has supported rates in the latest round of market boom, according to analysis by Maritime Strategies International director Will Fray, who leads the consultancy’s dry bulker research. It shows that while cargo volume fell nearly 2% in early 2020, the actual demand for ships in dwt terms increased by almost 3%. And the differential broadened further last year. The calculation takes account of the speed of vessels, the time they spend in ports, their ballast patterns and other fleet inefficiencies. “This represents a major downside risk for the market where there’s congestion unwinding. We’re starting to see that unwinding now,” Mr. Fray told a webinar.

The gap between cargo volume and vessel demand is predicted to reverse in 2023, when the former is to grow 2.5% and the latter to contract nearly 2% as congestion continues to ease, according to his estimates. Some analysts have pointed to the upcoming emission regulations, the Energy Efficiency Existing Ship Index (EEXI) and Carbon Intensity Indicator (CII), which are expected to slow down the fleet, as reasons to be positive. But Mr Fray sees only limited impact, at least in the near term. Fitting power limiters on ships required to meet the EEXI requirements are estimated to slow them down by around 1.5%. “It’s a marginal positive,” he said. “It’s also far offset by this reduction in congestion.”

Meanwhile, the vessel supply picture still looks healthy, with an orderbook-to-fleet ratio at just 7%, well below the peak of 70% more than a decade ago. And new orders are unlikely to surge anytime soon, with tight yard slots and uncertainty over future fuels. “That said, there are still ships on order to be delivered at a time when MSI expects demand to actually fall,” said Mr. Fray. He expects the dry bulker fleet employment rate, which has been high since last year, to fall sharply in 2023. A recovery is foreseen from 2025 with tightening CII requirements and ageing tonnage leading to more scrapping. Prospects for the freight markets, therefore, look bearish, and the smaller vessels, which have benefited more from the bottlenecks, are likely to take a bigger hit. “This unwinding of congestion and the return of containerized cargoes back to the containerships means that there’s a sharper fall over the next two years for the smaller sectors,” he said.

Russia and Ukraine are set to sign an agreement freeing millions of Ukrainian tonnes of grain trapped in the country following February’s invasion. Turkish President Recep Tayyip Erdogan’s office said that there would be a signing ceremony at 4:30pm local time (1330 GMT) in Istanbul on Friday. Talks were brokered by the United Nations and UN Secretary General Antonio Guterres is set to fly to Istanbul on Thursday evening, according to the New York Times and Turkey’s state-run Anadolu Press Agency. In a statement on its website, the Ukrainian foreign ministry confirmed that talks would resume in Turkey on Friday. “Following negotiations, a document can be signed that will contain the obligations of the parties regarding the safe operation of the export routes in the Black Sea,” the Ukrainian diplomats said, adding: “The Ukrainian delegation will support only those decisions that will guarantee the security of the southern regions of Ukraine, the strong positions of the Ukrainian armed forces in the Black Sea, and the safe export of Ukrainian agricultural products to the world markets.“

According to the Economist, a deal would create two co-ordination centers to inspect and oversee the passage of cargo ships in and out of Ukrainian ports. The centers would be staffed by officials from Russia, Ukraine, Turkey, and the UN and based in Istanbul and, possibly, in Odessa. Citing diplomats, the BBC said that Russia agreed to a truce while shipments move. Turkey and the UN would inspect ships, to allay Russian fears of weapons smuggling. The European Union already said on Wednesday it would ease its sanctions against key Russian banks as part of diplomatic efforts to restart Ukraine grain shipments from Black Sea ports. The stakes are high as there is anywhere from 18 to 20 MMT or more Ukrainian grain stuck in the country and unable to be exported due to the ongoing fighting in the country and mines in the Black Sea imperiling ships. A deal may also open the way for several big bulkers trapped in Ukrainian ports since the war began there on 24 February to leave the country.

Ukraine is among the world’s largest grain exporters and their inability to participate in the global market has contributed to the recent rise in grain prices and contributed to worries about a global food shortage. It is also unclear how quickly exports could restart. The Wall Street Journal reported Ukraine has increased the number of mines near its Black Sea ports to prevent Russian attacks. International Transport Workers’ Federation secretary general Stephen Cotton told TradeWinds earlier this month that clearing the mines would take time. “We will probably need the navies of the world to come help us with mine-sweeping, it won’t be easily done,” he said during the Turkish Maritime Summit in Istanbul. Russia has been accused of stealing Ukrainian grain, with one ship arrested in Turkey and then released two weeks ago. Maritime intelligence company Windward said not only are ships simply turning off their automatic identification systems, also known as “going dark”, when loading allegedly stolen cargoes, but are loading in ship-to-ship transfers to further obscure the cargo’s origins.

Vale announced Q2 2022 iron ore production of 74.1 MMT, which is up from 63.9 MMT in Q1 (or 16%) and which compares with 75.7 MMT in Q2 2021 (-2%). Iron ore sales corresponded to 87% of Q2 production, which is up from 84% in Q1, and which compares the 2020 and 2021 average of 88% and 85%, respectively. Of note, Vale lowered its iron ore production guidance from 320-335 MMT to 310-320 MMT, of which 3.5 MMT was related to the sale of its Midwestern System, while the remainder relates to maintaining greater flexibility in its production due to current market conditions. For the remainder of the year, Vale’s iron ore guidance thus suggests a daily production level of 967k tonnes per day (or 986ktpd if including the production from its Midwestern System), which suggest an uptick of 27% from H1 when the company produced 710ktpd in Q1 and 806ktpd in Q2, respectively.

Downward revisions to Vale’s production targets are definitely not bullish in terms of dry bulk trade volumes, but the outlook for H2 still leaves a considerable upside to recent activity levels and is still supportive of dry bulk tailwinds for the coming months in our view as we enter the seasonally stronger part of the year.

What a difference a stinking hot day makes.

“It’s not the end of the world! Just stay cool and carry on,” advised the Monday front page of the U.K.’s Daily Express tabloid. “Listening to apocalyptic climate change pundits and the BBC, you’d think Britain was about to spontaneously combust,” scoffed an editorial in the hugely influential Daily Mail on the same day.

Their tunes changed quite dramatically following a Tuesday on which temperature records were shattered across the country, bringing an array of wildfires that even encroached on the capital’s outskirts. “Britain burns in 40.3C [104.5F] heat,” thundered this morning’s Express. “Nightmare of the wildfires,” read the Mail’s front page, over an image of homes combusting in the east-London village of Wennington.

Life comes at the Daily Express pretty fast… pic.twitter.com/ebU01noTbB

— Harry Wallop (@hwallop) July 19, 2022 Mail editorial yesterday… Mail front page today 🤔 pic.twitter.com/yVKLyee4HY

— Clifford Singer (@cliffordsinger) July 20, 2022 This heatwave is an example of what educators might call a teachable moment.

Brits learned that extreme heat will melt runways, buckle railway lines, knock out power grids, and even upset the cloud facilities of companies like Google and Oracle.

The French have been learning how soaring temperatures mean cuts to nuclear-energy output, because the river water needed for cooling is too warm. (As Fortune’s Tristan Bove notes in this piece on how extreme heat lowers solar-panel efficiency, the same problem can afflict other thermal power stations, including the coal- and gas-fired plants that contribute to all this heating.)

Meanwhile, drought-laden Germany may be about to revisit its 2018 nightmare of the Rhine being too low to transport goods such as food and car parts, which is just what we need during food-price and supply-chain crises. Yes, climate skeptics, it’s weather—but there’s overwhelming scientific consensus that human-driven climate change is making it more extreme, more frequently.

Even if one were to cold-bloodedly leave aside the human impact of this heat in Europe—the hundreds if not thousands of deaths; the losses of homes and livelihoods—that still leaves a significant economic cost, particularly when viewed in conjunction with the energy crisis, inflation and other ingredients of the stew we find ourselves in.

As London Business School economics professor Lucrezia Reichlin told the New York Times: “The combination of these things is all negative—the question is how negative it’s going to be.”

And this is just the start—the effects we’re seeing from a 1.2C global average temperature rise from pre-industrial levels. The odds are 50-50 that we’ll clear 1.5C just several years from now. Just imagine how costly our timidity and equivocation will prove to be then.

Chinese authorities will place export quotas on phosphate fertilizers as they seek to protect domestic supplies and reduce input costs for farmers. Exports are expected to be restricted to just over 3 MMT for the SH of the year. These latest restrictions follow a requirement for inspection certificates introduced in October 2021,. This was in response to a surge in exports, as well as electricity shortages that forced some plants to cut production. The new policy is set to reduce Chinese fertilizer exports even further, which totaled just 1.2 MMT in June, a 50.4% YoY decrease. The main destinations for these shipments were Brazil, Indonesia, and India. Brazil and India saw the largest fall in trade, with June exports to Brazil down 79.5% YoY at 175,000 tonnes and exports to India decreasing by 59.6% YoY to 285,000 tonnes.

The quotas will add to already tight global fertilizer supplies as other export quotas have been placed by major producers Russia and Belarus. This will further limit imports for countries which have placed sanctions on Russian and Belarussian fertilizers, particularly in Europe whose fertilizer producers are struggling with high natural gas prices. The price of Di-ammonium Phosphate fertilizer (FOB US Gulf) averaged $784 per tonne in June, up 29.6% YoY. Urea (FOB Black Sea) prices have risen by 75.5% YoY to $297 per tonne and Potash (FOB Vancouver) by 177.8% to $360 per tonne. Fertilizer prices have fallen since reaching a peak in April, however. This can partly be explained by lower demand from farmers, many of whom are reducing fertilizer use or choosing to plant less fertilizer intensive crops such as soybeans.

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Vietnam exported 3 MMT of woodchips in June, a 55.5% YoY increase and the highest monthly total on record. Demand for Vietnamese woodchips has largely come from China. Vietnam exported 1.7 MMT to China in June, a 33.4% YoY increase. Exports to Japan were also up 60.8% YoY, totaling 700k tonnes. There has been a significant expansion of Chinese pulp processing capacity over the last decade, driven by demand for paper packaging, tissues, and specialty paper.

With the supply of wood fibers tightening, Vietnam’s lower quality, but cheaper wood chips, have steadily become more preferred by Chinese pulp mills over higher yield fibers from Australia, Chile, and Canada. Vietnam’s share of Chinese wood chip imports has increased from 18% in 2018 to 40% in 2022. Australia, on the other hand, has seen its share fall from 24% to 13% over the same period. The trade has mostly benefitted the Supramaxes, with volumes totaling 1.2 MMT in June, an increase of 70.3% YoY. Panamaxes and Handies saw smaller YoY increases of 30.6% to 560k tonnes and 33.4% to 540k tonnes, respectively.

There are differing opinions about the potential impact to dry bulk shipping from any easing by China of its ban on Australian coal. Beijing has been importing less as domestic production rises and stockpiles are high. However, other sourcing from further afield has lifted tonne miles. Some reports suggest relations between the two sides is thawing following the new government in Canberra since May. Foreign affairs minister Penny Wong met her Chinese counterpart Wang Yi during the Group of 20 conference in Bali this month amid a Bloomberg report that China was considering overturning its ban on Australian coal imports.

The meeting was described as a first step towards resetting the antagonistic relationship.

China had imposed the ban on coal and other commodities including barley, beef, and wine towards the end of 2020 in response to Canberra calling for an official investigation into the origins of the coronavirus outbreak. Dozens of bulkers were caught out in the crosshairs of the political spat unable to discharge, staying in anchorage off China for months or redirecting to other customers. The ban was initially seen as largely positive for the dry bulk market as China diversified its sources to further afield such as South Africa, while Australian coal was travelling further to places like Japan and India. Harry Grimes, a research analyst at Arrow Shipbroking, said the latest move was an attempt to secure coal supplies to avoid power shortages ahead of the peak summer demand, but that did not mean strong demand for imports, as domestic supply was up 11% during the first half of the year, stocks were at healthy levels, and hydro production was also stable. A lifting of the ban would not have a major impact on the dry bulk market, though it would increase competition for seaborne supplies, which was already very tight, pushing coal prices higher, he said.

China’s coal imports have been weak so far this year, dropping by 17.5% to 115 MMT in the first half of this year versus the same period in 2021, as domestic supplies were cheaper. “While Chinese coal import demand may bounce higher as economic growth picks up later this year, high domestic output will likely tame a sharp growth in imports,” he added. The lifting of the ban would be negative for tonne-mile demand as Australian coal has been heading to Europe ahead of the region’s ban on Russian supplies from next month. Alternatively, tonne-miles would get a boost if a reversal of the ban takes effect as the biggest share of Australian coal was substituted by Indonesia, according to Klaveness. Since Chinese port stockpiles are at already high levels, any increase is expected in Australian volumes could be seen in the fourth quarter when restocking traditionally ends, it said.

A shipbroker in Singapore said if China starts buying Australian coal, it could help boost cargo demand and time charters for ship operators. At present, panamax rates are still quite depressed. However, one coal trader speaking anonymously said he did not think that demand from China would jump immediately after the lifting of the ban, with small quantities traded first. It would take some time to return to pre-ban trading levels. Banchero Costa’s head of research Ralph Leszczynski questioned the view that lifting the ban will have an adverse impact on the dry bulk market. “It is true that the ban has distorted trade patterns, but the impact on tonne miles has not been as significant as people believe,” he said. Most of the coal used by China to replace imports from Australian has actually been shipped from places in relatively short distance, such as Indonesia and Russia’s Vladivostok port in the Far East or comes via land-side transport in Mongolia. While Australia lost the biggest buyer for its coal, China has had to pay higher prices to other suppliers such as Indonesia, which have gained more monopoly power, or sustained more freight costs for the imports from more distant sources in the US, South Africa and Mozambique, said Mr Leszczynski. Therefore, the new Australian government is providing an opportunity to reset the political ties between Beijing and Canberra, which will benefit both sides. “If Australian coal is again allowed to compete for the Chinese market, it could help cool off coal prices in China and actually help boost overall seaborne imports into the country, which would be positive for shipping,” he said. 

Russian President Vladimir Putin arrived in Iran on Tuesday to discuss an UN-backed plan to unblock Ukrainian grain exports in a potential boost for the bulker market. Senior UN and EU diplomats have expressed confidence that a deal could be done this week with Putin due to discuss the issue in Tehran with Turkish President Recep Tayyip Erdogan, a key mediator in breakthrough talks last week to allow the safe passage of millions of tonnes of grain. “The resumption of seaborne grain flows could lead to stronger growth in dry bulk demand in tonne-days in the third quarter of this year and higher revenues for vessels,” said Maria Bertzeletou, an analyst at Signal Group. Even if an agreement is secured at the Tehran talks this week, government subsidies may be needed to counter rising shipping costs, according to experts.

The European Union is believed to be considering supporting exports because of the likely high cost of ship insurance in mined waters of the Black Sea, said Arnaud Petit, executive director of the International Grains Council (IGC). He said some 3 MMT of grain a month, double the amount currently exported on alternative overland routes, would need to be shipped from Black Sea ports in July and August to clear storage space for new harvests. Ukraine’s maize exports represent 18% of the global total and sunflower oil 50%, according to the IGC. “This figure can only be achieved if the deep seaports open,” he said. “We know that an agreement is not enough.”

London-based underwriters have told TradeWinds that they would be prepared to insure ships to take out Ukrainian grain, if such a deal had the backing of the UN. Any agreement could involve Ukrainian vessels guiding bulkers through mined Black Sea waters. Russia would agree to a truce during the shipments and Turkey would inspect the ships, according to reports last week.

About 50 non-Ukrainian ships over 10,000 dwt are trapped in Ukraine ports, including many Greek bulk carriers, after Russia invaded the country on 24 February. Bertzeletou said the blocked Ukrainian grain exports had led to sharp cuts in global seaborne grain flows from May to June compared with the last two years. Kremlin spokesman Dmitry Peskov said that Moscow was willing to do its best to ensure Ukrainian grains reached the market, Russian news agencies reported on Tuesday. But he said only that talks on the issue were set to continue. Talks last week in Istanbul hosted by Erdogan were declared a “critical step forward” in ensuring the safe export of Ukrainian food through the Black Sea by UN Secretary-General Antonio Guterres. He said he was hopeful of a deal this week but said it would require a “lot of goodwill and commitment by all parties”. Any deal would also allow the export of Russian food and fertilizer. African countries had blamed EU sanctions for blocking Russian exports, pushing up the prices of food and leading to shortages in poorer nations. “We have never imposed sanctions on agricultural production on food, never, ever,” said a senior EU official on Friday. But he accepted there would be “tweaks” to the EU sanctions regime to ease the passage of Russian grain exports.

South Africa, the world’s largest exporter of manganese ore shipped a record 9.3 MMT (+0.5 MMT/+6% y-o-y) in the first five months of 2022. South Africa is estimated to hold more than 70% of the world’s total manganese reserves, from which it typically supplies 50-55% of global exports in any given year.

In 2022 to date South African miners have increased their global contribution, supplying over two-thirds of international trade, a figure that could probably increase but for internal logistical transportation issues with rail transport, like those experienced by coal shippers within South Africa.

Manganese is a key ingredient in the production of stainless steel, so it is no surprise that over 60% of South African product is transported to China. In the first five months, South Africa exported 5.5 MMT to China like in 2021 as Chinese industrial production remains largely subdued with Q2 GDP only expanding by 0.4%.

However, South African manganese ore exports to India which nearly doubled y-o-y to 3.4 MMT in 2021, continues to grow with 1.6 MMT (+0.3 MMT y-o-y) shipped in the first five months. Shipments to regular customers Japan, South Korea, and Singapore at about 0.3 MMT each to date are fairly close to 2021 figures, but the biggest exponential growth is to Norway which at 0.3 MMT is already nearing last year’s annual figure of 0.4 MMT.

7.9 MMT (85%) of this year’s South African manganese trade has been transported on Supra-Ultramax tonnage up from 7.6 MMT in 2021; the balance is carried on Panamax (1 MMT) and Post-Panamax vessels (0.4 MMT), with almost all of these larger shipments discharged in China.

The most recently released data as of July 17th shows the daily coal burn rate at China’s six major coastal power plants has come in at 899,000 tons.  In addition to setting a record, this is also 9% stronger than was seen one week prior and is up year-on-year by 5%.  This most recent surge has come due to weather turning even warmer. 

As we have been discussing in our recent work, China continues to experience warmer than usual temperatures and, in some places, new records.  Several other regions also continue to see temperatures at sixty-year highs.  The surge in coal burn is encouraging and if sustained could finally result in a rebound in Chinese coal import demand.  Up until now coal import demand was not bullish, but such strong coal burn will help deplete coal stockpiles.  Going forward, we will be continuing to monitor all relevant developments very closely and will be continuing to publish updates.

Boxport congestion is setting new record highs, quashing talk of any imminent return to supply chain normalization. The containership port congestion index created by UK broker Clarksons hit a new record on July 14, whereby 37.8% of the boxship fleet capacity was at port. This exceeds the previous peak level recorded in late October 2021 and stands well above the pre-covid average of 31.5% recorded between 2016 and 2019.

“There is still no fix to non-ocean bottlenecks which are big drivers of supply and demand, and not in a good way for shippers,” the latest weekly report from Danish container advisory Sea-Intelligence warned, going on to list the 70,000 truckers who have just gone on strike in California and the tens of thousands of containers clogging the US west coast ports waiting for rail to destinations, because there are not enough engineers. There are nearly 30,000 rail containers delayed on the port of Los Angeles docks alone, with rail-bound cargo sitting for an average of 7.5 days. Over on the east coast, meanwhile, congestion levels, brewing for the last two months, are closing in on record levels.

In Europe, Hamburg and Bremerhaven are “paralyzed” by port worker strikes, Sea-Intelligence stated. MarineTraffic data shows there are nearly 200,000 teu waiting for berths to open in Hamburg. News of industrial action around Europe continues to filter in, the latest being three rail strikes planned across the UK over the coming month. Meanwhile, in Asia monsoon and typhoon season is back and lockdowns in China are ongoing. All up, the approximate total value of trade stuck on the water is estimated at $30bn according to data from MDS Transmodal.

Kuehne + Nagel has developed what it terms as a Global Disruption Indicator, which tallies the cumulative teu waiting time in days based on container vessel capacity in 12 hot spot ports around the world. The teu waiting days (twd) indicator works whereby, for example, one vessel with a 10,000 teu capacity waiting 12 days equals 120,000 twd. Today the indicator sits at 9.8m twd with officials from Kuehne + Nagel explaining supply chains will only get back to normal when that figure gets below 1m twd.