Most of the existing fleet of bulk carriers, tankers and containerships should focus attention on seeking “tangible technical and operational measures” to reduce greenhouse gas emissions. An analysis on the Energy Transition in Shipping concludes that the best way to reduce energy and fuel consumption is by reducing speed, investing in technical modifications, and imposing operational measures including the use of drop-in biofuel/eFuel, when it becomes available. The study focuses on the three largest sectors of the industry accountable for 80% of total GHG emissions, where most ships (85%) have not been fitted with electronically controlled main engines suitable to being converted to the use of alternative fuels. This fleet should search for other emission reduction means and measures, “of which few exist, and whose utilization is uncertain based on their limited availability, small capacity, and low technological maturity”.

The authors stress that shipowners should not be expected to shoulder the burden of this investment alone. They say the consequences of the additional cost of decarbonizing shipping are considerable. “The new transformation structure of costs should enable fair pricing among the value chain stakeholders and cover owners’ front-loaded charges,” according to the analysis carried out by the Maritime Oslofjord Alliance and funded by Oslo Maritime Foundation and Oslo Shipowners’ Association. However, until the criteria for carbon pricing are more certain, investment funds and banks’ interest and eagerness to enable such value chain transformation of costs will be limited. Further, given the constraints on shipbuilding capacity to renew the target fleet, “it will take a long time to deliver vessels that will outcompete and overtake the great number of existing and conventionally fueled vessels currently in operation”.

The analysis aims to offer support to decision makers when considering emission abatement of existing ships within the next three to five years. It observes that emission abatement technology is currently in its early stages, and it is hoped that for many existing ships such technology will become available and economically feasible. “If so,” the analysis adds, “the existing vessels will be able to contribute more to the future reduction of GHG emissions than is currently possible.”

At the end of the day, reducing ship speed is the most powerful way to cut emissions, the study says, although this solution would mean an increase in the number of vessels needed to meet anticipated demand. The analysis shows that for a generic ship, a 10% reduction in speed would reduce power, fuel, and CO2 emissions by 27%. For a 14,000 teu containership, cutting speed from 15 knots to 12 knots would reduce fuel consumption and emissions by about 50%.

There is a cautionary note: there is a lower limit to how much speed can be reduced before the engine, hull, bow, and propeller are no longer operating at their optimum, and technical measures must be applied. However, the cost of technical measures is reasonable compared to retrofitting for alternative fuels and the effect of reduced emissions comes immediately.

Belships has continued its strategy of fixing its bulkers on time charters by fixing four vessels on period contracts of around two years. The contracts have been fixed at an average gross rate of about $22,000 per day per vessel. Two of the new period contracts will commence this quarter and the others will begin in the following three months. The specific vessels were not disclosed.

Chief executive Lars Christian Skarsgard told TradeWinds: “We have been expanding the fleet and have a view that it’s prudent to have a solid ratio of contract coverage to keep a balance. It’s difficult to predict markets short-term. Lots of uncertainties in terms of macroeconomics and grain exports, which should set off around these times, are obviously questionable. China’s new rounds of lockdowns are also negative for the market. At the same time, the orderbook is historically low, fleet inefficiencies continue due to high bunker prices and port congestion, which supports a strong market. All in all, we have chosen contract coverage to secure strong cash flows. This sets us up for continued dividend payments for the foreseeable future. I think that’s a decent plan.”

The deals mean the Norwegian owner has 70% contract coverage for the next four quarters from the third quarter, covered at an average gross rate of $23,600 per day per vessel. The average daily cash breakeven for a Belships vessel this year is $10,000. For 2023, contract coverage stands at 45% at a gross rate of about $23,000 per day per vessel. The Baltic Exchange’s forward curve indicates 2023 contracts at just over $17,160 per day, according to Tuesday’s settlement prices. Paper for the third quarter of this year closed at $28,642 per day on Tuesday.

Data released today shows China’s industrial production in May increased on a year-on-year basis by 0.7%.  This is a significant improvement from the 2.9% year-on-year contraction seen in April.  

Also of note is that crude steel output totaled 96.6 MMT.  This marks the highest steel output seen in a year but is down year-on-year by 3.5%.  As we have continued to stress, China’s steel output remains much improved from just a few months ago, and in mid-May it started to rise on a year-on-year basis again.

Data released today shows China’s coal production totaled 367.8 MMT in May.  This is up month-on-month by 5 MMT (1%) and is up year-on-year by 41.5 MMT (13%).  Coal-derived electricity generation totaled only 404.5 billion kilowatt hours.  This is up month-on-month by 3.7 billion kilowatt hours (1%) but is down year-on-year by 46.2 billion kilowatt hours (-10%). 

Growth in domestic coal production again exceeding growth in coal-derived electricity generation is not supportive for coal import prospects (coal-derived electricity generation has now contracted on a year-on-year basis for three straight months).  Coal-derived electricity generation is likely to eventually start growing again when coronavirus restrictions fully come to an end, but we expect coal production growth will continue to be stronger. 

Seven days of strike action by South Korean truckers is causing severe disruptions to the country’s supply chains. The Cargo Truckers Solidarity union is calling for minimum pay guarantees amid rising fuel prices. On Sunday, steelmaker POSCO announced that operations at its plants would be part-suspended due to a lack of storage space for finished products. South Korea produced 22.4 MMT of steel in the first four months of 2022. With steel production healthy so far this year, mills’ appetites for the metal’s key inputs have also fared well. The country imported 7.3 MMT of iron ore and 4.3 MMT of coking coal in May, up 12.6% and 29.9% YoY, respectively. Around half of this came from Australia, with most remaining volumes imported from Russia and Indonesia. The country exported 1.9 MMT of steel in May, increasing by 11.8% YoY. However, South Korea’s auto industry is facing a shortage in car components, with Hyundai Motors reportedly cutting production.

Overall, the logistical issues caused by the truck driver strike is likely to drive declines in steel production in the country in June. However, the build-up in inventories, coupled with weakening demand from the steel-hungry auto-sector may drive greater steel exports given an end to the strike, largely benefitting the Supramax segment.

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Japanese steel exports totaled 3.3 MMT in May, up 32.5% YoY. Japan’s exports have benefited from a weakened yen. The currency fell to ¥135.19 against the US dollar on Monday, a 24-year low. Unlike its counterparts in Europe and the US, the Bank of Japan has so far resisted tightening monetary policy in response to inflation. This could change in policy meetings later this week, with the central bank issuing a statement last Friday expressing concern about the currency’s rapid weakening. The weak yen has also contributed to high input costs for Japanese steelmakers which has been passed onto consumers, including shipbuilders.

Reflecting this, Braemar assessed prices for newbuild bulkers at Japanese yards increased by an average of 15.95% YoY in May. These high prices are likely reducing domestic steel demand, further driving the increase in exports. Japanese domestic vehicle sales, for example,  were down 16.7% YoY in May.

Disruptions to coal trade flows mean that capesize spot rates will not see sudden spikes later this year but steady rises, according to John Michael Radziwill. Meanwhile, the CEO of bulker manager C Transport Maritime (CTM) said it is “pretty difficult” to take a bearish outlook for dry bulk over the next 18 months. GoodBulk, the public arm of CTM, has 100% exposure to the spot market. That is how confident GoodBulk, which has a fleet of capesizes and one panamax, is about the dry cargo market this year. “We don’t think you’ll see short super-spikes in capesize rates when the Brazilian iron ore exports come. We think you’ll see more steady rises — which is why we want to keep more ships spot by the way,” Radziwill told TradeWinds.

A lot of coal has been coming on capesizes to the European continent on long-haul journeys from the Pacific. This is offsetting the undersupply of ships in the Atlantic that would usually be expected at this time of year, which often leads to a “pinch” in vessel supply and a pop in spot rates as Vale’s iron ore exports ramp up, he said. “Rates spiked up to $86,000 a day, for example, last beginning of October 2021. They stayed there for a week and then they went back down to $40,000, $50,000 [per day],” Radziwill explained. “You had what I call a super-spike, which lasted for a very short period because there was a dearth of ships in the Atlantic. And then everything kind of calmed down.” Radziwill foresees “a nice rise” in rates this year, but no super-spikes to levels like $85,000 per day. “If you had $86,000 a day for two days, you’re going to have between $50,000 and $60,000 a day for two months, that’s the difference,” he said. “It’s interesting because you don’t have that [supply] pinch — and what those pinches do is they kind of get everyone off-kilter and that’s why they usually just break. So, this is actually a more efficient market.”

Capesize supply-demand fundamentals mean that CTM has a “pretty positive” outlook for the segment for the next 18 months or so, Radziwill said. Infrastructure reforms are coming to fruition worldwide, he said, especially in China, which is issuing more infrastructure bonds right now to stimulate the economy post-Covid. “That’s what they did before, that looks like what they’re going to do now — so that should be very supportive for the hard commodities that go into capes, the coal, iron ore and bauxite,” he said. For soft commodities, the immediate concern is food security and the loss of grain volumes from Ukraine and Russia. “We were bit worried about the shift in trade flows when the war started,” he said. “We have been pleasantly surprised in the sense that the shift in dry bulk trade, especially the soft commodity trade, has happened efficiently and it looks like it’s going to generate more tonne-mile demand. Again, kind of a supply story coming out of the market with a longer voyage.”

CTM and GoodBulk vessels will not call in Russia, Radziwill confirmed. “I don’t think it’s right — morally and ethically — to support a regime that has threatened nuclear war and the extinction of the human race, so we’re going to try and not do that,” he said. “Having said that, we act for a lot of different people and our job is to give a service to our customers, i.e., the shipowners, and we’re empowered by them and the classification to always act in their best long-term financial interest. We think that if even there’s a lot of trades with Russia that are legal and non-sanctioned right now, the second and third-order consequences of having done that will commercially handicap you down the road.” These commercial handicaps could comprise being blacklisted by enforcement agencies like the US Treasury’s Office of Foreign Assets Control, he said. And sanctions are not going to go away. “I think that it might not be illegal, but it could be wrong — and if it’s wrong, down the line you are going to pay for that more than, I’m sure, you gained from whatever trade you’ve done with Russia.”

An ESL Shipping handysize bulker has delivered the first seaborne grain cargo shipped from Ukraine since the country was brutally invaded by Russia on 24 February. The Finnish owner’s 20,500-dwt bulk carrier Alppila (built 2011) loaded 18,000 tonnes of Ukrainian corn in a Baltic port and delivered it to the Spanish port of A Coruna on Monday. Cargo consignee Agafac, a regional animal feed producer, told CNN the voyage was the beginning of a “new maritime route” that aims to avoid Russia’s blockade of Ukraine’s ports on the Black Sea. Vessel tracking data showed that the Alppila had called at the Polish port of Swinoujscie in late May before calling at two German ports while enroute to A Coruna.

ESL Shipping’s managing director Mikki Koskinen told TradeWinds: “We were positively surprised when we learned our cargo from Poland to Spain was said to be the first using this new export route for Ukrainian grain. Great we can assist Ukraine in this important campaign.” He added that the company had a suitable position available, and after discharging, the ship will lift one of the company’s usual northbound raw material cargoes back to Scandinavia. “We hope to see more similar cargoes going forward. Time will tell,” Koskinen said. Spain’s Agafac said: “This is only a small amount of corn, but it restores the ability to import from Ukraine.” Agafac typically imports 40% of its grain from Ukraine between January and June each year, which is part of the total 1 MMT it imports for livestock feed annually.

Russia’s blockade of Ukraine’s ports has prevented one of the world’s largest grain producers from exporting its crops. This had led to widespread shortages, record high prices, and has prompted fears that famine conditions may occur in developing countries if the situation continues. Numerous attempts to negotiate an end to the blockade with Russian president Vladimir Putin to ward off a global food crisis have so far fallen on deaf ears. Russia is insisting that sanctions be lifted before it considers easing its blockade.

The successful conclusion of the Alppila’s voyage has proven the viability of the back door method of transporting Ukraine’s grain by truck to Baltic ports for transshipment. Moving the grain by train is more difficult as Ukraine’s broad gauge railway network is not compatible with Europe’s standard gauge railway network. However, commodities traders claim that this method is unlikely to provide Ukraine with anything close to its previous export capacity.

On Sunday, Ukraine’s deputy foreign minister and chief digital transformation officer Dmytro Senik told Reuters that Ukraine had identified alternate routes to export its grain. The country was attempting to establish new routes with Romania, Poland, and the Baltic states to facilitate the export of 22m tons of grain stuck in Ukrainian ports, Senik said. Ukraine’s cabinet of ministers said negotiations were also underway with the Baltic countries to create a third corridor for food exports. The foreign ministry noted that the routes are not ideal, but Ukraine is doing everything possible to develop them. Grain is transported to Poland mostly by trucks. And the export of grain through Romania means transportation by rail to ports on the Danube River and loading of goods onto barges for shipment to the port of Constanta. All of this is a complex and costly process.

In May Russia was widely reported as having begun exporting Ukrainian grains from the captured port of Berdyansk. Shipped on Russian-controlled vessels, the grain was said to be destined for Syria. In response, the Ukrainian government accused Russia of stealing its grain.

The dry bulk sector showed a glimmer of hope on Tuesday after falling steadily for two weeks to a two-month low. The Baltic Dry Index (BDI), which serves as a barometer of the bulker market, picked up 24 points to reach 2,284 points. Though modest, Tuesday’s gain marked the first time that the BDI improved after dropping slowly from 2,633 points on 1 June.

A limited number of capesize fixtures helped the Capesize 5TC spot-rate average across five key routes gain $511 per day to just over $19,000 per day. “Overall, it was a quieter day compared with yesterday,” Baltic Exchange analysts wrote on Tuesday in their daily take on the dry bulk market. “However, the 5TC climbed back to the positive territory with supports mainly from the Atlantic.” They noted that the freight rate for the C3 route Tubarao, Brazil, to Qingdao, China, stayed above picked up $0.11 per tonne on Tuesday to achieve $31.18 per tonne. “There was rumor of higher levels fixing for the transatlantic voyage/round trips, but the details could not be verified yet,” the analysts said. There was also some fixture activity in the Pacific Basin that boosted the C5 route from West Australia to Qingdao freight rate by $0.18 per tonne to $12.418 per tonne. Australian iron-ore giant Rio Tinto fixed an unnamed capesize on Tuesday to move 190,000 tons of iron ore from Dampier, Australia, to Qingdao at $12.40 per tonne after loading the ship from 28 to 30 June. The miner hired a to-be-named capesize on Tuesday to ship 190,000 tons of the commodity on the same route at $12.20 per tonne after loading that vessel from 27 to 29 June.

The Panamax 5TC route basket saw its first gain in three weeks, rising $254 per day to reach $23,657 per day on Tuesday. This slight improvement came after the 5TC slid steadily by 23% from $30,392 per day on 23 May. “A day of positive sentiment with talk abound of a floor being found in both basins,” the analysts said. “Sources spoke of a good level of fresh fronthaul enquiry from the Atlantic in turn improving the bids, and along with this came talk that the trans-Atlantic rates being talked up, this has yet to transpire into physical fixtures, but sentiment remains firm for now.” Several panamaxes had been hired across both basins on Tuesday but “details remained scarce for now”, they said.

The US House of Representatives yesterday voted overwhelmingly in favor of the Ocean Shipping Reform Act (OSRA), which will see the powers of regulator, the Federal Maritime Commission (FMC), greatly boosted once President Joe Biden signs the law off shortly. OSRA was created on the back of exporters lobbying politicians to intervene during the supply chain crunch seen in the US during the pandemic. The law will allow the FMC to launch probes of container lines’ business practices and to apply enforcement measures, require ocean common carriers to report to the FMC total import/export tonnage each calendar quarter and would bar ocean carriers from unreasonably declining opportunities for US exports. “This bill will make progress reducing costs for families and ensuring fair treatment for American businesses—including farmers and ranchers. I look forward to signing it into law,” Biden commented yesterday.

FMC chairman Daniel Maffei said: “The strong bipartisan and bicameral support in Congress to act and address the multitude of challenges US shippers—especially exporters—have faced over the past two years is impressive.” Maffei said OSRA will provide the FMC with enhanced authority to ensure industry players have the right incentives and that all stakeholders in the ocean freight transportation system can have a voice. For those hoping for imminent changes they might be disappointed. The timelines stated in the bill, as highlighted by Lars Jensen from consultancy Vespucci Maritime, show any real change will only take place next year. Even though OSRA is now getting passed there is still work to be done to define the fine print, and this might well take the next six to 12 months, Jensen pointed out.

Liner lobbying group, the World Shipping Council (WSC), has repeatedly hit out at OSRA. “The bill is a political statement of frustration with supply chain challenges – frustrations that ocean carriers share. The problem is that the bill is not designed to fix the end-to-end supply chain congestion that the world is experiencing, and it will not and cannot fix that congestion,” commented John Butler, president, and CEO of the WSC, last December.

President Joe Biden’s decision to publicly call out foreign liners last week as one of the main sources of the severe inflation in the US has earned a swift rebuke from analysts and the industry. Biden was at the Port of Los Angeles last week where he took aim at the global liners who have enjoyed record-breaking profits during the pandemic, in remarks that have since been decried for inaccuracy and jingoism. Biden told a news conference at the port on Friday that the nine global liners, who operate three consortia, had raised their prices by as much as 1,000% during the pandemic. “That’s why I called on Congress to crack down on — and they’re foreign owned — foreign-owned shipping companies that raise their prices while raking in, just last year, $190bn in profit — a seven-fold increase in one year,” Biden said in remarks that hinted at an oligopoly situation in container shipping.

Biden’s remarks came just days after another plank of government, the Federal Maritime Commission (FMC), the US state regulator, had ruled that there has been no box carrier price collusion, following an extensive two-year review. Analysts at box consultancy Sea Intelligence wrote in their latest weekly report: “Carriers make the perfect target when there is a need to blame someone for the current problems – especially when they are ‘foreign’. But the true solution lies in policies improving inland issues.” Commenting via LinkedIn, Lars Jensen, CEO of liner consultancy Vespucci Maritime, stated: “It is worrying when people in positions of power display a disconnect between hard data and their own rhetoric – simply because if you end up making policy based on erroneous data you are highly likely to make a bad situation even worse.” Jensen pointed out that in addition to the nine carriers Biden mentioned there were another 13 carriers who have provided transpacific services this year. These 13 carriers have made up approximately 30% of the calls from Asia to the US west coast in the year to date.

Leaving a comment on this site, liner veteran Arjun Vikram-Singh, who now heads up container consultancy QuantumBSO, told Biden: “This crisis is of your making, sir – your ports, infrastructure, policy, and demand. Grandstanding and vilifying the carriers who literally feed America is not going to make it better. Governance will.” America’s ailing infrastructure and limited working hours compared to peers in Asia has long been cited by carriers and analysts alike in creating the container logjam seen through the pandemic where too many boxes have spent too long on US shores. Also giving his thoughts on the matter was Barry Parker, a veteran New York-based maritime writer and president of bdp1 Consulting, who left a comment on the Splash site urging the global carriers to up their “noise-making” to get their message more effectively across to the White House as the cargo side seemed to be winning the lobbying battle.