London-listed Taylor Maritime Investments (TMI) has unveiled a whopping annual profit as bulker markets prospered. The handysize specialist said net earnings were $253m in the year to 31 March, without giving a comparison. The sum was made up of $79m in operating profit and $174m in fair value gain. Revenue was $133.49m and portfolio profit was $259m. The company carried out an initial public offering (IPO) in May last year.

Since then, its average time charter rate has risen 24% to $18,600 per day. The 31 ships are worth $546m and TMI’s net asset value is $575m, up 81.3% since the IPO. This increase has been driven by operating profit, increased vessel values and a gain on the 26.6% stake it owns in Nasdaq-listed bulker owner Grindrod Shipping. The company is expecting a continued strong market for 2022.

TMI cited Clarksons Research’s forecast of 2.1% tonne-mile growth for minor bulk this year and 2.7% for 2023. Fleet supply growth will be 1.9% in 2022 but will fall 2.2% next year. The short-term impact of the war in Ukraine has seen a shift in trading patterns for the shipping of necessity goods, both to source alternative suppliers and with Russian exports heading to different destinations, TMI said. “So far, the net change to demand seems to be negligible for our segment, once the decrease in volumes is offset by increased tonne-miles,” the company added.

TMI is optimistic about the handysize segment given tightening supply over the next two years, and possibly longer. Chairman Nicholas Lykiardopulo said: “We remain confident that market fundamentals will lead well into 2024 and we will continue to monitor the orderbook for indicators on market direction beyond that period.” Chief executive Edward Buttery added that his focus will remain on a “carefully balanced chartering strategy, strong liquidity and financial prudence to deliver consistent earnings and compelling dividends.”

Ukraine is stepping up grain exports via the Danube River and Romania’s Sulina Canal. A total of 16 cargo ships have passed through the Danube’s Bystre river mouth region in the last four days, the government said. The country is trying to move a mountain of stranded produce that can no longer be exported by sea due to Russian port blockades. Ukraine has already revealed that some grain is being transported overland for shipment on vessels from Baltic ports.

Deputy infrastructure minister Yuriy Vaskov has now said that Ukraine will now attempt to maintain the pace of Danube exports. He said another 16 vessels were waiting to be loaded at the river mouth, while 90 more ships were awaiting their turn outside the Sulina Canal. Only four vessels can transit each day along the Sulina route, he said, while a rate of eight per day is needed. But Ukraine is negotiating with Romania and European Commission representatives about increasing the rate, the minister said. If this could be achieved, the government believes ship congestion there would end within a week and that monthly exports of grain would increase by 500,000 tonnes.

Before Russia’s invasion, seaports accounted for about 80% of Ukraine’s export of agricultural products. TradeWinds reported on Thursday that a deal could be signed as early as next week that would open a corridor to allow Ukraine’s grain exports to flow more freely from the Black Sea again. The agreement could spare the bulker market a blow later this year when the country’s exports seasonally play a key role in global dry bulk volumes.

Turkish defence minister Hulusi Akar said a deal will be signed next week that will see his country ensure the safety of Black Sea export routes and set up a coordination centre with Ukraine, Russia, and the United Nations, according to Reuters and Al Jazeera.

UN secretary general Antonio Guterres said the talks to resume grain exports have made progress, but he was less certain that a deal is imminent. “Next week, hopefully, we’ll be able to have a final agreement. But, as I said, we still need a lot of goodwill and commitments by all parties,” he said, according to an Al Jazeera report.

A deal could be signed as early as next week that would open a corridor to allow Ukraine’s grain exports to flow more freely from the Black Sea, nearly five months after Russia invaded the country. The agreement could spare the bulker market a blow later this year when the country’s exports seasonally play a key role in global dry bulk volumes. Turkish defence minister Hulusi Akar said a deal will be signed next week that will see his country ensure the safety of Black Sea export routes and set up a coordination centre with Ukraine, Russia, and the United Nations, according to Reuters and Al Jazeera.

But UN secretary general Antonio Guterres said the talks to resume grain exports have made progress, but he was less certain that a deal is imminent. “Next week, hopefully, we’ll be able to have a final agreement. But, as I said, we still need a lot of goodwill and commitments by all parties,” he said, according to an Al Jazeera report.

Officials from Russia and Ukraine are involved in the four-way talks with Turkey and the UN. A senior UN official told Reuters that most sticking points in the negotiations have been overcome. The deal will potentially involve Ukrainian naval vessels guiding bulkers through Black Sea waters where sea mines have been installed. Russia would agree to a truce during the shipments, and Turkey would carry out inspections of the vessels, the newswire reported.

Russia’s invasion of Ukraine has slammed exports from a major supplier of the global market, shaking up bulker trades. While many impacts of the disruption have been positive for bulker rates, Ukraine’s peak grain season is later in the year. Ukraine expects to harvest more than 50 MMT of grain this year, down from a record 86 MMT in 2021, according to Reuters. Wheat exports, only a part of the picture, have shown a significant decline.

Between February and May, Ukraine exported 1.4 MMT of wheat, a plunge of 1.6 MMT compared to the same period of 2021, according to International Grain Council data cited by shipbroker Simpson Spence Young. “Ukraine typically exports the largest amount of wheat in the third quarter, and this year the freight market is lacking the boost to vessel employment that Ukrainian grain usually provides,” the broker said in a Monday report.

China imported 89 MMT of iron ore in June.  This marks a month-on-month decline of 3.5 MMT (-4%) and is down year-on-year by just 400,000 tons.  As we have continued to stress in our work, there remains a good chance that imports will climb higher in the second half of this year as iron ore port stockpiles have recently declined and as Brazilian and Australian iron ore production remain poised to undergo seasonal strength.

China imported 19 MMT of coal in June.  This marks a month-on-month decline of 1.5 MMT (-7%) and is down year-on-year by 9.4 MMT (-33%).  We continue to stress there remains a very good chance that coal imports will contract on a year-on-year basis this year.  China’s domestic coal production has continued to fare much better than thermal coal-derived electricity generation (even before coronavirus issues started to impact thermal coal-derived electricity generation this year).  

China imported 8.3 MMT of soybeans in June.  This marks a month-on-month decline of 1.4 MMT (-14%) and is down year-on-year by 2.4 MMT (-22%).  Going forward, the outlook for China’s soybean imports is less clear than the outlook for coal and iron ore imports.

The USDA has cut its estimates for Chinese soybean imports for MY 21/22 by 2 MMT to 90 MMT. Chinese soybean imports so far in MY 21/22 (October-September) have totaled 65.4 MMT, down 8.8% YoY. Of this, 36.9 MMT came from Brazil, an 11.2% YoY increase, and 26.1 MMT from the US, a decrease of 28.9% YoY. Weak, lockdown-induced restaurant demand for hogs has reduced livestock margins and resulted in farmers searching for cheaper feed substitutes to soybeans. Additionally, Chinese authorities have been releasing soybean stockpiles to try and lower prices.

Consumption is expected to recover in MY 22/23, with the USDA forecasting a 3.2% increase in soybean crush to 95 MMT while also forecasting a 4.2% YoY increase in imports to 98 MMT. This is likely factoring in the removal of China’s zero-Covid policy and restaurants staying open going forward, though it appears this policy remains firmly in place.

In future, higher domestic production could soften any sharp recovery in imports given the lifting of all lockdowns. The USDA forecast Chinese production will increase by 12.2% in the 2022/23 marketing year to 18.4 MMT, with planted areas up 11% YoY. Chinese authorities have been encouraging farming through subsidies and by promoting intercropping of soybean and corn. In major producing provinces in the Northeast, soybean sowing for 2022/23 was completed on schedule in May and June and met or exceeded targets in most areas., according to industry and official sources reported by the USDA.

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Indian thermal coal imports increased by 45.1% YoY in June, totaling 20 MMT. Liftings from Indonesia increased by 165.4% YoY to 14.7 MMT, while from Australia volumes totaled 2.2 MMT, falling by 20% YoY. Indonesia’s proximity, cheaper prices, and increased availability due to lower Chinese demand, have all contributed to the surge in trade on this route.

This rise in coal demand was driven by a 26.58% YoY increase in coal power generation in June and stockpiling by power stations amid a global energy shortage. India experienced widespread power outages in April and May when the easing of Covid-19 lockdowns and a severe heatwave led to a surge in power demand. Power usage has now subsided as the monsoon rains bring respite from the heat. But with a resurgence in demand anticipated once the rains ease off in August, power stations are pushing to replenish inventories. The Indian government has been trying to support these efforts, pushing power stations to increase imports, and allowing mines to expand production by up to 50% without requiring new permits.

The heavy rains can cause severe safety issues at mines, allowing for the seaborne market to play a larger role in the country’s stockpiling. According to data from the Central Electricity Authority, coal stocks at 172 reporting plants totaled just 27.5 MMT on 10 July, 49% of target inventory levels. Meanwhile, 42.4% of plants continue to operate at critical stock levels, defined as being 25% below their targets, suggesting these imports levels may be sustained in the months to come.

Chinese banks issued 2.81 trillion yuan in new loans in June, which marks a month-on-month increase of 920 trillion yuan (49%) and a year-on-year increase of 690 billion yuan (33%).  As we have been stressing in our recent work, lending has been likely to increase as the central government continues to work to stimulate the economy. 

Also of note is outstanding loan growth came in at 11.2%, which marks the second straight month where growth has increased.  Prior to these last two months, outstanding loan growth had not increased since June 2021 — and as recently as in April, outstanding loan growth came in at 10.9%, which marked the lowest level seen in over ten years.  Overall, it remains very significant to us that the Chinese government is continuing to work to stimulate their economy while other governments are beginning to tighten.  As we have highlighted before, over sixty nations have so far raised interest rates this year, while two (China and Russia) have cut rates.

The most recently released data as of July 10th shows the daily coal burn rate at China’s six major coastal power plants has come in at 828,000 tons.  This is 2% stronger than was seen one week prior, marks the highest daily burn seen since January, and is up year-on-year by 3%.  This 3% year-on-year growth is lower than the 7% year-on-year growth seen a week ago.  Overall, the ongoing strengthening in coal burn remains very much in line with various coronavirus restrictions recently being eased across China and weather turning even warmer.  As we discussed last week, some regions continue to see temperatures at sixty-year highs. 

US ports continue to set records in throughput ahead of the peak season, with demand expected to stay strong even as the economy shows signs of cooling. Ports saw a surge in activity this spring as a slowdown in cargo from Chinese factories closed by draconian lockdowns gave them a chance to clear built-up congestion, according to the National Retail Federation’s Global Port Tracker report. Shipments brought forward to avoid any issues related to the US west coast labour contract negotiations may have also contributed to volumes, it said.

“Cargo volume is expected to remain high as we head into the peak shipping season, and it is essential that all ports continue to operate with minimal disruption,” said NRF vice-president Jonathan Gold. “Supply chain challenges will continue throughout the remainder of the year, and it is particularly important that labour and management at west coast ports remain at the bargaining table and reach an agreement.”

US ports handled 2.4m teu in May, the latest month for which final numbers are available. That was up 6% from April and up 2.7% year on year, according to the report. It also set a record for the number of containers imported in a single month since NRF began tracking imports in 2002, topping the 2.3m teu in March. The NRF projects figures of 2.3m teu for June, up 4.8% from the same month last year. That would bring the first half of the year to 13.5m teu, a 5.4% increase on 2021. July figures are also forecast to be up by more than 5% on the past year.

The outlook for the remainder of the year shows a slight slowdown after the extremely high levels of imports recorded in 2021. The forecast shows August imports being flat year on year and warns of declines from September onwards. “The year-over-year declines during the second half of the year contrast with unusually high numbers during the same period in 2021, but volumes remain high, and the full year is still expected to see a net increase over 2021,” the NRF said. An analysis of US customs data by Sea-Intelligence indicates there may be the beginnings of a slowdown in consumer demand, particularly for consumer durables such as furnishings and household equipment. “The US consumer spending data unfortunately does not provide us with any definitive answer as to the strength of the looming peak season, but it does provide us with a very clear message that the unprecedented strength of the durables goods consumption is slowing down in recent months,” said chief executive Alan Murphy. “We’re not seeing anything that looks like a boom or a crash in the market, but rather a market that looks headed for a gradual return to the pre-pandemic levels.”

Figures from Container Trades Statistics showed that container volumes continued to fall back in May, down 2.8% year on year, the fourth consecutive month of declines. According to the UN Conference on Trade and Development, the value of global trade rose to $7.7trn in the first quarter of 2022, but Unctad warned that this was driven by rising prices rather than by increased volumes, which rose at a much lower rate. It said that while growth was expected to remain positive, it had slowed in the second quarter, and that the impact of rising interest rates and the winding down of economic stimulus packages would likely have a negative impact on growth in the second half of the year. The headwinds in the demand picture are also visible in relation to vessel utilization figures, according to Sea-Intelligence. On the transpacific, capacity utilization peaked in February 2022 and has since shown a sharp decline. “The overall conclusion is that the development in vessel utilization is on a negative trend,” Mr Murphy said. “This lends further explanatory power as to why we have seen spot rates decline in recent months. Unless demand picks up unexpectedly, or more capacity is taken out of the market, it appears likely that lower vessel utilization will continue to lend negative pressure to the spot rates.”

The incredibly skewed global orderbook continues to throw up all manner of records, with long-term ramifications for the main shipping segments.

Ordering in the bulker and tanker sectors, which together account for 75% of world fleet dwt capacity, has been limited in the 2020s, so much so that the containership orderbook is now larger than both the tanker and bulker orderbooks in dwt for the first time, according to data from Clarkson Research Services.

Close to 900 containerships of 7m teu have now been ordered since Q4 2020, a record high, whilst LNG carrier contracting so far this year has already risen to a new annual record with Clarksons tallying 94 ships of 16m cu m.

In contrast, the last 12 months have represented the quietest period for tanker newbuild contracting on record, according to Clarksons. At 35m dwt, the tanker orderbook is now the smallest it has been for 25 years, and equal to a record low 5% of fleet capacity.

The bulker orderbook now stands at close to an 18-year low of 69m dwt, equivalent to just 7% of the fleet.

There’s growing evidence that the days are coming to an end of the booming consumer demand, which saw container shipping hit record high levels of profitability over the last couple of years. Drewry’s latest global port throughput index for April shows an increase of 1.7% month-on-month to reach 141.1 points, 1.5% below the 143.1 points recorded in April 2021. “This is further evidence that the post-Covid demand boom appears to have run its course,” Drewry stated in a new report with many nations around the world battling high inflation and some of the world’s largest shippers indicating lately inventory overstocking. Likewise, the Drewry container equity index snapped its three-year long winning streak in the first half of this year. On a year-to-date basis, ending June 28, the index posted a decline of 23.1% versus the same period in 2021. The index is a market capitalization weighted index of 12 listed liner companies. Drewry is still predicting carriers will make improved profits over the records set in 2021, and that supply chain constraints will persist through the first half of next year.

Improved financial results are beginning to flow in with Hong Kong’s OOCL, a Cosco subsidiary, the latest to report its interims. OOCL reported total revenues of $5.3bn for Q2 last week, up 52% year-on-year despite a 5.6% drop in throughput. When comparing OOCL’s Q2 2022 performance to Q1 2022, Lars Jensen from liner consultancy Vespucci Maritime suggested “the wave might have crested”. In a LinkedIn post, Jensen noted that OOCL’s rates did not improve quarter-on-quarter, while volumes slid 5.6% year-on-year. Splash reported late last month on how spot rates on the transpacific have fallen below long-term contracted rates leading many shippers to start to look at the fine print of their contracts. New analysis from Copenhagen-based Sea-Intelligence shows the unprecedented strength of durables goods consumption in the US is slowing down in recent months, headed for a gradual return to pre-pandemic levels. “While we should stress that we believe it is too early to confidently declare that there will be no 2022 peak season, the continued signs of market weakness … are hard to miss: Spot rates tumbling faster than seasonality, congested capacity being re-activated, contracts being reopened, rate declines not driven by capacity injection, and … continued sluggish demand, utilization dropping below the ‘magic’ rate-rocketing level, and a return to normal in US consumer demand for durable goods,” Sea-Intelligence stated in its latest weekly report. Analysts at the Danish consultancy suggested that the “wild” carrier party might be over, or at least winding down. “The signs are all suggesting a return to a more balanced market,” Sea-Intelligence reckoned, going on to predict the potential return of blank sailings if volumes dry up.

Looking at the average vessel utilization on the head haul of each of the major east-west trades shows nominal utilization dropping below the levels which previously sustained the higher rates during the pandemic. Citing Container Trade Statistics (CTS) for May, Sea-Intelligence noted global demand declined by 2.8% year-on-year, the fourth consecutive month of year-on-year demand decline. On the transpacific utilization rates have dropped below the 90% level for the first time since mid-2020, according to Sea-Intelligence who said that this implies that capacity is finally beginning to open. On Asia-Europe, meanwhile, utilization rates are back below 80%. Demand data shows clear signs of a weakening market with the annualized growth rate compared to 2019 rapidly approaching zero and firmly on a declining trend. The latest market intelligence from online container booking platform Freightos points out that while spot rates may appear to be in a free-fall, they remain close to five times higher than they were at this time in 2019. Nevertheless, China – US west coast shipments now cost about half what they did in April according to Freightos and are more than 30% lower than this time last July when prices were beginning their 80% peak season spike over the course of the month.

Taking issue with container shipping’s beholden-ness to a wide variety of spot rate data providers has been John McCown, the well-known US liner veteran and founder of Blue Alpha Capital. “While they may have relevance directionally on a relatively small group of loads, the disparity among the various spot indices suggest that they aren’t even a refined measure of that group,” McCown wrote in a widely read article carried by Medium. More importantly, the industry’s focus on spot rates fails to reflect the level and trend of the larger group of contract rates that drive both the overall inflation impact and the profitability of the container shipping sector, McCown argued, going on to quip: “Spot rates may well be the three-card Monte of container shipping.” When new contract terms are being discussed, McCown said tradelane spot rates that present a favorable comparison for the carrier are highlighted. “Shippers will often agree to rates that appear to give them preferential treatment when in fact those rates are higher than most of the carrier’s other contracts. One side has the all the facts while the other side is operating with impaired vision. The shippers and others who give spot rates more credence than they deserve do so at their own risk,” McCown wrote. Early indications based on two months of CTS volume and pricing data are that Q2 industry net income will be like Q1, McCown pointed out, explaining: “Put simply, higher net income at the same time that spot rates are down 23.7% underscores that spot rates aren’t a particularly relevant factor.”