Shipping’s trading liquidity has soared this year, pointing the way to a potential new strategy for investors. Investment bank Clarksons Platou Securities cited Refinitiv data for the 42 shipowners it covers as showing a “significant” improvement in trading through 2022. In the five days ending 10 June, the average daily share turnover was $1.1bn, the third week in a row with such high liquidity. Israeli container line Zim saw stock worth $500m change hands in New York, analysts Frode Morkedal and Even Kolsgaard said. Boxship owners, in general, have averaged $437m in daily turnover this year, up 152% from the average for 2021. Dry bulk equity trading has been $151m per day, a 104% increase from last year. And the figure for vessel leasing companies is $120m, up 60%, while crude tanker companies have averaged $67m so far in 2022, a jump of 52% as freight rates improve. In the LNG carrier sector, stock worth $38m has been traded each day, double that in 2021. Product tanker companies’ liquidity is 64% higher year on year at $36m. LPG owners have seen an average of $13m trade, up just 8% from 2021. The car carrier sector has been a success story so far this year, with rates at record levels. Trades worth $4.6m have been carried out each day on average. This is a smaller figure because there are fewer such listed companies, but the rise is a whopping 188% year on year.

The analysts said that, with increased liquidity, a long/short trading strategy based on the stock price to net asset value (NAV) ratio could become much more viable. “There is a wide variety of pricing that could be expected to converge over time. Going long [on] low-priced stocks versus NAV and shorting higher-priced stocks … was a successful strategy in the past when liquidity was as good as today,” they added.

Stock markets fell 5% last week, according to the S&P 500 index, with year-to-date losses of 18% close to constituting a bear market. Shipping equities were unable to escape this, dropping 6% on the week, but remain up 31% so far in 2022. Container lines fell 12%, while dry bulk equities lost 11% on average. Demand destruction is a big concern for investors, according to Clarksons Platou. “Capacity utilization in the economy is extremely tight, as evidenced by rampant inflation, and the culprit is a lack of cargo supply to meet strong demand,” Morkedal and Kolsgaard added. “Either more volumes enter the market or price increases cause demand to fall to match supply.”

But low newbuilding orderbooks are lessening recession risks for shipping, Clarksons Platou believes. And China remains a source of optimism for the industry, as infrastructure-related growth could accelerate in the coming year.

President Joe Biden spewed anger at container lines on Friday as he urged the US Congress to pass legislation to reel in shipping costs. Speaking at the Port of Los Angeles with Evergreen Line containers visible in the background, the president said inflation is his top economic priority and criticized the record profits that liner operators are pocketing. “Every once in a while, something you learn makes you viscerally angry, like if you had the person in front of you, you want to pop them. I really mean it,” he said.

He then complained that nine major shipping lines in three consortia move goods from Asia to the US. “These companies have raised their prices by as much as 1,000%,” he said, noting that the liner operators are foreign-owned and posted a sevenfold increase in profits last year. TradeWinds has requested comment from the World Shipping Council, a Washington DC-based organization that acts as the voice of the liner industry.

Biden’s remarks came on the same day that US officials announced that the Consumer Price Index rose by 8.6% in May compared with a year earlier. It was the highest increase since December 1981. He said in a statement that his administration will do everything it can to reduce prices. “Congress must act urgently as well. I call on Congress to pass a bill to cut shipping costs this month, and get it to my desk, so we can lower the price of goods,” he said. His comments are part of a push to pass the Ocean Shipping Reform Act, which would boost the power of the Federal Maritime Commission and tackle detention and demurrage costs. Lawmakers in the House of Representatives are gearing up to schedule a vote on a version of the bill already passed by the Senate. In Los Angeles, the president said one of the keyways to fight inflation is to reduce the cost of transporting goods. Biden also used his remarks to claim success in fighting congestion that jammed US ports. “Delivery times are actually quicker than they were before the pandemic, and today there are about 40% fewer containers clogging the docks for long periods of time than last November,” he said.

Chinese banks issued 1.89 billion yuan in new loans in May, which marks a month-on-month increase of 1.24 trillion yuan (193%) and a year-on-year increase of 390 billion yuan (26%).  As we had discussed, lending had 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%, which marks the first time that growth has increased since June 2021.  In April, outstanding loan growth fell to 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.  Sixty-four nations have so far raised interest rates this year, while two (China and Russia) have cut rates.  We remain concerned for much of the global economy, and we continue to believe that something will ultimately break this year.  So far nothing has broken yet in the global economy or financial system.

Shipping equities slumped with the broader market on Monday as Wall Street trembled under the threat of more rate hikes by the Federal Reserve to ease the pain of inflation. The slump came as the S&P 500 fell into bear market territory, or a 20% drop from its peak. Norwegian Cruise Line Holdings, which trades on the Nasdaq stock exchange under the ticker symbol NCLH, tumbled the most out of nearly 30 falling maritime stocks, plummeting 12.2% to close at $11.55. Shares of GasLog Partners, which can also be found on Nasdaq under GLOP, saw the second biggest slide of the day after declining 11.9% to $5.99. Carnival Corp’s stock came in third on the tumble list, careening 10.3% on Monday. Other New York-listed shipowners that lost big on Monday include US-based Eagle Bulk Shipping. Its shares, which trade on Nasdaq as EGLE, slid 8.6% to $58.02. Shares of Athens-based Safe Bulkers, which trade on the New York Stock Exchange as SB, fell by just as much to end the day at $4.04.

The plunges came as CME’s FedWatch tool showed a 30% chance of a 0.75% rate hike at this month’s Fed meeting, a hike that would signify the biggest jump since 1994, Reuters reported. The Federal Reserve — America’s central bank — is expected to decide on interest rates on Wednesday.

The equities pain was felt across various sectors as the Dow Jones Industrial Average lost 875 points to land at 30,517 as businesses braced for higher interest rates. More than 20 New York-listed stocks lost at least 13% on Monday. Nutex Health, a US-based emergency care provider, was the biggest loser as its stock, which trades on Nasdaq as NUTX, dropped 18.1% to close at $5.78. Massive retailers also had a down day on Wall Street, but their losses were not nearly as drastic. Walmart, which trades on the New York Stock Exchange as WMT, slipped 1.9% to $119.41.

Departures from Ukraine’s Danube ports have quadrupled as Ukraine tries to find viable routes to export grain in the face Russia’s naval blockade. Reni, Izmail and Kiliia together recorded 370 outbound sailings of commercial vessels since March, according to vessel tracking data from Lloyd’s List Intelligence. That compares with 90 in the year-earlier period. The ports, which border Romania, are the only operating ports under Ukrainian control.

Departures from the Danube ports has steadily increased throughout the conflict as the government seeks alternative routes to keep grain flowing abroad. Ukraine has established two routes through neighboring Poland and Romania to export grain, Kyiv’s deputy foreign minister Dmytro Senik told Reuters. Grain is being re-routed to Romania after being transported by rail to ports on the river Danube. It is then loaded and sent towards Constanta, which is described as a “complex and costly” process. “Those routes are not perfect because it creates certain bottlenecks, but we are doing our best to develop those routes in the meantime,” Mr Senik told Reuters.

New areas for handling cargo at the ports of Izmail and Reni are in development as well as a new berth for wet bulk cargoes, says Eurogal Surveys claims handler Anna Biliuga. The share of grain handled at Reni and Izmail has increased from 12% to 81% since the beginning of the year. The main issue facing the ports right now is a lack of fleet for loading, explains Biliuga. The Danube ports are keeping trade flowing, but it is not at the scale the world needs to avoid a food crisis. Russia’s blockade of ports in the Black Sea and Azov Sea has stopped 25 MMT of corn, sunflower oil, wheat, and other agricultural products from being exported, Ukraine President Volodymyr Zelenskiy said in a virtual address to the annual Shangri La Dialogue defense summit held in Singapore at the weekend. He said Ukraine supports a safe maritime corridor whereby ships from allies transport its grains.

US Navy documents have linked a Pacific Basin-controlled bulker to an incident in which drones are suspected of collecting data on American warships. According to documents obtained by military news publication The War Zone through the Freedom of Information Act, the 33,520-dwt bulker Bass Strait (built 2006) was transiting waters off California near several US Navy ships in the early morning hours on 15 July 2019. The documents, published on Monday, show the Hong Kong-flagged bulker sailed alongside the USS Paul Hamilton, while two other US ships noted upwards of 20 drones operating near the vessels. “[The USS Paul Hamilton] observed MV Bass Strait likely using [unmanned aerial vehicles] to conduct surveillance on US Naval Forces while transiting to scheduled port of call, Long Beach,” the Navy said in one of the documents.

The drones were described as “quadcopter style” and were able to reach an altitude of approximately 6,400 metres (21,000 feet). They were also said to have continued operating after the Bass Strait left the area. One of the other two ships, the USS Bunker Hill, reportedly tried to reach the Bass Strait and received no response. That ship noted 11 drones, while the USS Ralph Johnson counted another 10. That ship said the drones were operating in a safe manner. Pictures included in the cache of documents show dark spots around the Bass Strait assumed to be drones. The documents appear to suggest the incident lasted four and a half hours.

Pacific Basin, which has served as both the technical and commercial manager of the Bass Strait since 2013, did not immediately respond to a request for comment after business hours at the company’s Hong Kong headquarters. The ship is owned by single-vessel company Bass Straight Ltd, which is listed at Pacific Basin’s address. The July 2019 incident is among a series of drone swarm incidents described in documents obtained by The War Zone. But it is the only one linked to a commercial ship.

The most recently released data as of June 12th shows the daily coal burn rate at China’s six major coastal power plants has come in at 759,000 tons.  This is 2% stronger than was seen in early June, marks the highest daily burn seen since February, and is up year-on-year by 2%. 

As we have been highlighting in our research, China’s ongoing strengthening in coal burn remains very much in line with various coronavirus restrictions recently being eased across the country.  The burn rate is most important to us for further gauging China’s current industrial production and its near-term industrial production prospects (rather than simply gauging what to expect for coal imports).  Overall, it remains encouraging that coal burn in China has recently returned to experiencing year-on-year growth.  As we also discussed, steel output has recently started to experience year-on-year growth as well. 

There are 30 MMT of grain stored in Ukrainian held territory out of a capacity of 55 MMT and 13-15 MMT stuck in Russian held territory.

Estimates place Ukraine’s grain export figure at 20 MMT for next marketing year with a significant portion of it being sunflower seeds rather than corn and wheat. The previous season saw Ukraine export 45 MMT of grain and 4 MMT of oil seeds.

Market participants also see around half of the corn crop being left unharvested next month on the back of the continued blockade and difficulty to access fields.

The past week, Turkey pushed negotiations between the warring countries to find a solution to the food supply crunch, but without a concerted compromise talks have stalled. Sellers have also stated that international companies are unlikely to deal with cargoes regardless of the talks mediated by Turkey as insurers won’t cover the risk.

The freight market is being continually buffeted by challenges and the latest in the spotlight is the sudden spike in the price of low sulphur fuel oil with the added uncertainty of availability and supply. The previous high for bunkers was back in July 2008 when Heavy Fuel Oil (HFO) hit $761 whilst today Low Sulphur Fuel Oil (LSFO) stands at $1,127 a massive $365 or +48% higher

than the 2008 peak. What is especially striking is the disconnect with long term crude charts as bunkers are now trading at a premium not the historical discount to crude.

With Russian oil being increasingly shunned by Western governments an unintended consequence has been to limit availability of the grade of oil suitable for the refining of Low Sulphur Fuel and Gas Oil; with the demand for ‘products’ generally gaining some momentum competition for these products and the tankers that carry them is likely to mean continued high premiums for both crude and LSFO in major bunkering hubs such as Rotterdam and Singapore. Lack of bunker supply is also adding to the current record congestion levels with queues for bunkers reported in certain ports .. recently for instance there were 7-10 day wait for tonnage to take on bunkers in Cape town.

The high cost of fuel will clearly start eating into Owners and Operators margins as a bigger percentage of earnings will be spent on bunkers. For example, we calculate Panamax tonnage performing Santos/China basis Singapore delivery at $70 freight to be spending around 48% of earnings to pay for LSFO and MGO compared to about 35% on average in 2021.

Spot rates fell steadily across dry bulk shipping over the course of the week because of a perfect storm of spiking bunker prices, falling demand and partying by shipowners. The Baltic Exchange’s Capesize 5TC, which averages spot rates for five key routes, slid 19% since 1 June to $19,665 per day on Friday, while the Panamax 5TC dropped 17.5% to $23,662 per day. The exchange did not track spot rates on 2 and 3 June because the UK was celebrating Queen Elizabeth’s 70th jubilee.

“With the large Posidonia event currently being held in Greece, this week’s attention is surely distracted, while next week it should be back to all hands on deck,” analysts wrote in their weekly wrap up on the dry bulk market. At the same time, China’s latest Covid-19 lockdown temporarily slammed the country’s iron ore demand, and India held off on coal imports as it braces for monsoons.

Australian mining giant on Friday hired an unnamed capesize to carry 170,000 tonnes of iron ore at $12.45 per tonne from Dampier, Australia, to Qingdao, China, after the ship gets loaded from 25 to 27 June. That’s better than the previous last-done fixtures of two unnamed capesizes hired on 31 May to carry ore from Western Australia to Qingdao. Contango Shipping fixed one at $12.75 per tonne and Pacbulk Shipping hired the other at $12.90 per tonne.

Bids for voyage charters also stayed low as charterers tried to entice panicked owners into confirming as owners focused on the Posidonia parties, shipbroker Barry Rogliano Salles (BRS Group) said. “A grey cloud lingered once again over the North, as paper and physical both saw further losses,” the shipbroker said in a report on Friday. “With most expecting a weaker market in the coming days and into next week, owners took it upon themselves to close shop and wait for this cloud to blow over. “All in all, the forecast looks bleak for owners, with an injection of fresh stems seemingly the only way to correct sentiment.”

Spot rates for the smaller bulkers also declined in the same period as dry bulk shipping dealt with more expensive bunkers that kept some charterers on the sidelines. For example, the global 20-ports average price for very-low-sulphur fuel oil jumped 7.4% to nearly $1,120 per tonne, according to Ship & Bunker. That helped push the slump in panamax rates, while the Supramax 10TC rate basket also dropped 6.6% to $27,440 per day on Friday. “With many people away from their desks due to Posidonia, the market in many areas saw a change in direction as rates from key areas such as the US Gulf and East Coast South America fell away,” Baltic Exchange analysts wrote in their commentary on the panamax sector. “From Asia limited fresh enquiry also appeared from the south but further north limited support remained for backhaul runs.”