Thailand’s Precious Shipping splashed out $51m on a pair of modern handysize bulk carriers acquired from Njord Shipping of Norway. The Khalid Hashim-led bulker operator revealed the purchase of the 35,900-dwt geared bulk carriers Nordic Busan (built 2018) and Nordic Seoul (built 2017) in a statement to the Bangkok bourse on Tuesday. The Nordic Busan was acquired for $26m while the slightly older sister ship went for $25m.

Precious said the acquisitions are being funded through internal cash reserves and/or debt financing from credit facilities available to the company. Precious has been relatively quiet on the sale-and-purchase front for several years, despite being one of the world’s largest handy players.

The company’s last purchase of a secondhand vessel was made almost a decade ago. Since then, it has focused primarily on ordering a raft of newbuildings, the bulk of which were delivered between 2014 and 2018. The addition of the Nordic duo will give Precious a fleet of 38 handysize to ultramax bulk carriers.

The company said it bought the two ships as part of its strategy to “capture the current robust market conditions” and to have a more fuel-efficient fleet.

Njord Shipping, which is majority-owned by the Glastad family through Mosvolds Rederi, could not be immediately reached for comment.

The sale of the two ships leaves it with nine handysize bulkers in a fleet of 17 vessels that also includes six multipurpose heavy lift ships, a small product tanker and a supramax bulker.

All bets are off – liner shipping will now make improved profits over 2021’s record earnings, even in the unlikely event that there is seismic crash in spot earnings in the remaining seven months of the year. May saw the highest monthly increase in long-term contracted ocean freight rates since Oslo-based Xeneta started tracking these shipments, as the cost of locking in container shipments soared by 30.1%. The unprecedented hike, revealed in the latest Xeneta Shipping Index (XSI) public indices for the contract market, means that long-term rates are now 150.6% up year-on-year. In 2022 alone, costs have climbed by 55%. “This is a staggering development,” commented Xeneta CEO Patrik Berglund. “Just last month we were looking at an 11% rise and questioning how such continued gains were possible. Now we see a monthly increase of almost a third blowing the previous XSI records out the water. The breath-taking gains reflect the sharp increase of the average of all valid long-term contracts, as older contracts, with lower rates, expire and are replaced by newer agreements with much higher rates. It’s certainly a challenging time to be a shipper.”

While the split between long-term contracted and spot cargoes has traditionally been 50:50, during the first couple of years of the pandemic, the volume of spot cargoes edged ahead, this is expected to reverse in 2022, with Xeneta’s chief analyst Peter Sand telling Splash he is forecasting a 55:45 split in contracted cargo’s favor. In May, the most dramatic development was seen in US import costs, which jumped by 65.1% to stand 205.4% up year-on-year, as new long-term contracts, which usually run from the start of May to April, came into force. The XSI US export benchmark showed a less pronounced, but still strong, upwards move of 9.9%.

European long-term rates rose by 11.3% on the import index, and are 122% up year-on-year, while exports recorded their largest ever monthly jump of 27.6%, an impressive 138.3% increase on May 2021. Far East import and export indices both raced upwards, with the former rising by 17.4% and the latter soaring 35.4%, the largest monthly rise tracked by Xeneta for this measure. Seen from a year-on-year perspective, the respective benchmarks stand 57.1% and 174.8% up. “It goes without saying that the main carriers are achieving astronomical results at the moment,” Berglund noted.

By the end of 2022, the container shipping industry will have earned an unprecedented half a trillion dollars of operating profit from two years of supply chain pain and record freight rates, according to estimates from research firm Drewry. Having made a record $190bn last year according to Drewry estimates, the liner shipping industry is on track to post new profit heights in 2022. Looking at the latest figures, John McCown from Blue Alpha Capital described liner shipping’s Q1 results earlier this month as “mind-bending”. The 11 global carriers that publish their results posted a “staggering” $59.3bn net profit in the first quarter, the sixth consecutive quarter of the highest net income ever for the industry. The container shipping industry profits in the first quarter of 2022 beat out those of FANG, an acronym for Facebook, Amazon, Netflix, and Google, by 103%, expanding the gap from last year’s fourth quarter when liner industry profits beat FANGs by 14%, according to analysis by Blue Alpha Capital. McCown has maintained his initial profit forecast of $220.5bn for the container shipping industry in 2022.

Shippers, on the other hand, are being “bled dry”, according to Xeneta’s Berglund, while the lockdowns in China, allied to blanked sailings from the carriers to protect softening spot rates, have, and may continue to, impact upon the supply chain. “Not as much cargo as anticipated has been moved over the last couple of months and, with the peak season approaching, that could cause added disruption. That leaves shippers in a position where they’re paying through the nose for services that, to be diplomatic, may not always meet expectations,” Berglund said.

Research by Braemar ACM Shipbroking has thrown up another factor that has added to the oversupply of capesize bulkers and driven down spot rates — ships exiting repair yards in China. Twenty-three capesizes have re-entered the trading fleet since mid-April after departing Chinese shipyards, where they were undergoing scheduled maintenance and surveys.

Baltic Exchange panelists assessed the capesize 5TC rate — the weighted average of spot rates across five key routes — almost 8% lower on Monday at $21,516 per day. The assessment has declined by 44% over the past six trading days after peaking at $38,169 per day on 23 May, the highest level since mid-December. The rout has been driven by a growing tonnage list, which has overwhelmed the slow supply of cargo. Worries over China’s economic situation have also weighed on market sentiment.

Mark Nugent, senior dry-bulk research analyst at Braemar, told TradeWinds that the number of capesize vessels in yards has come down “sharply” since lockdowns in China began to lift. “While capesize earnings were elevated in the second half of the year, some owners opted to extend their vessels’ special survey deadline, which added to surveys yards would have previously expected to do in [the first half 2022],” he said. “The build-up in tonnage was then exacerbated by lockdowns in China, which caused longer visit times at some yards as capacity was reduced. While most of the shipyard visits can be attributed to special surveys, the small portion of vessels which had prolonged stays may have opted to fit scrubbers given the widened Hi-5 [fuel price] spread.”

A total of 40 capesize vessels are currently in shipyards globally, according to AXSMarine tracking data cited by Braemar. This is the lowest level since February and down from a high of 63 capesizes in mid-April. The data shows there are no capesizes waiting to enter a shipyard. Braemar said this indicates that yard operations have improved since the lockdowns in China have begun to lift.

Easing congestion at ports in China has also released capesizes back into the market. Bulker tracking platform Oceanbolt on Monday identified 88 capesizes as being congested in China with an average waiting time of 2.65 days. Four weeks ago, the platform identified 100 congested vessels, waiting for 3.97 days on average.

As shipowners’ focus turns to disruption caused by the Ukraine war, Intercargo has warned the effects of the Covid-19 pandemic have not gone away just yet. The bulker association’s chairman Dimitrios Fafalios said in a statement on Monday that the shipping industry is facing its own version of “long Covid”, the symptoms that persist after the infection has left the body. Fafalios, also president of Fafalios Shipping, said he was speaking out after receiving warnings from his members. “Seafarers worldwide continue to face major issues with crew change, port entry and changing vaccination requirements,” he added.

New waves of infection continue to affect ports, and once again owners are observing local authorities creating their own interpretation of the rules, the chairman continued. “This is happening today at ports around the world, and governments and administrations seem not to have learned the lessons of the past two years, as they move to a post-Covid agenda,” Fafalios said. Intercargo is concerned that the crisis in Ukraine has distracted from the very real shockwaves that are still affecting the maritime sector as a result of the pandemic.

In several ports globally, seafarers are finding access to shore leave restricted, and in some cases are finding it difficult to access non-emergency medical assistance, the association said. Intercargo is urging consideration by national governments at the highest level so that the issue remains at the top of their agenda. Fafalios said: “The situation is ongoing and requires pan-industry commitment.” He added: “Our efforts to highlight the plight of the seafarer must not stop, and the industry must never consider what is happening to seafarers today in any way normal.”

TradeWinds has reported how operators are also dealing with the effects on crewing of the Russian invasion. Dutch crewing agency Boers Crew Services (BCS) said Russians make up 10% of the global seafaring workforce and Ukrainians about 4%. But the visa situation has now changed for Russian crew members. No visas are currently being issued should their current documents expire within a Schengen country in Europe. If a Russian crew member wants to return home, visas can be issued only via the UK or Turkey outside the Schengen region. “Many Russian seafarers are trying to extend their contracts to avoid travelling back home. The problem is, once they do return home, they will be unable to leave again because of the complications they will face applying for a new visa, which in turn means they will lose their job,” BCS said.

London-listed Taylor Maritime Investments (TMI) has switched its focus to longer-term bulker charters in stronger markets. The handysize specialist said five vessels have been fixed on deals lasting between 11 and 13 months. These will provide average annualized unlevered cash yields more than 30%, based on fair market values. The fleet had an average yield of above 24% as of 31 March.

Day rates were not revealed. Average net charter rates for the 31 TMI bulkers — all but one of which are handysizes — had increased to $19,200 per day by the middle of April, versus $18,600 at the end of March 2022. Six TMI vessels were fixed on new deals during January. One found work for a year, and the others were booked for less than six months each.

Chief executive Edward Buttery said on Monday that during the Chinese New Year period, a time of typical seasonal weakness, TMI deliberately fixed a portion of the fleet on short-term charters in anticipation of a strengthening market in the lead-up to the summer. “This approach has now allowed us the flexibility to capture longer-term charters for five vessels at attractive yields for an average duration of approximately one year each to high-quality charterers and is part of our strategy to secure more cover on an increasing proportion of our fleet this summer and beyond,” he added.

Buttery explained this is consistent with the overall strategy of having the most commercially advantageous mix of charter durations to balance revenue optimization and earnings visibility. TMI has said it expects two to three further years of further strength in its market.

Earlier in May, the owner returned more cash to shareholders in the form of a one-off dividend in healthy markets. The special pay-out was at 3.22 US cents per share, the London-listed company said. This equated to $10.6m, based on 330m outstanding shares. The move took total dividends declared since the initial public offering last May to 8.47 cents, representing a dividend yield on the initial issue price of 10%.

 As trade flows continue to change as the Ukraine-Russia war unfolds, we look at how the US has increased shipments to Europe across several dry bulk commodities and what it means for dry bulk markets.

So far since the Russian invasion of Ukraine and significant dry bulk trade routes have changed, transatlantic flows from the US to Europe have been particularly strong. The US government has pledged to support European countries which are now facing deficits across several commodities because of sanctions and the closure of Ukrainian ports. The US and EU Trade and Technology Council (TTC) convened earlier this month to resolve trade disagreements and remove bilateral trade barriers. While this initiative was initially geared towards items such as semiconductors, the cooperation bodes well for trade amongst other goods, including raw materials. In April 4.9 MMT of US-exported dry bulk commodities were discharged in Europe, more than doubling YoY and the highest level since February 2019. The surge in shipments has mostly come in favor of the Capesizes from coal stems replacing those typically done on a Panamax. Further, the smaller vessels have benefitted from an abnormal spike in grain shipments. Bulker demand from US-European voyages has hit 2-year highs in April in tandem with overall trade. This has been exacerbated by slower propulsion and lengthy queues in the ARAG region.In April, dry bulk demand from US-Europe trade, measured in dwt days, more than tripled YoY and reached the highest level since December 2018.

Coal drives the surge

Coal shipments from the US to Europe have hit over 2-year highs. In May, steam coal exports have so far amounted to 1.4 MMT, already more than doubling YoY. The US has emerged as the primary outlet for replaced Russian coal for European buyers. With US coal producers effectively operating at full capacity, the extra volumes that have shipped to Europe have been removed from Far Eastern coal trades, namely to China and Japan.  To Japan, only 299k tonnes of coal was shipped from US ports in April compared to 1.1 MMT in April 2021. To China, shipments declined 61.6% YoY in April to just 339k tonnes. With China now boosting domestic production, any additional demand for coal from the seaborne market has been filled by Indonesia primarily. Overall, the change to the coal trade from the US to Europe has brought more employment to transatlantic trades in replacement of those to the Far East. The absence of Russian coal heading west, or east in some cases, has created increased demand from limited suppliers. With Europe favoring US-produced coal, competition for coal in the Pacific is set to increase further as US volumes become less available unless buyers are willing to pay firm prices and a larger outlay on freight.

Unseasonal grain shipment spike

While coal has largely driven the surge in trade between the US and Europe, there has also been an unseasonal spike in grain shipments on this route. So far in May 718k tonnes of grain has been shipped to Europe, compared to just 64k tonnes in May last year. This is already the highest volume in May across each of the last 5 years. In April, we saw a similar increase at 717k tonnes loaded. While these are relatively minor volumes in comparison to coal, the US exporting an unseasonal amount of grain to Europe bodes well for the prospects of this trade during the US grain exporting season. Per the USDA’s latest WASDE, the US is forecast to export 165 MMT of grain in the 2021-22 marketing year. 

With China a key buyer of US-sown corn, European buyers will face firm competition from the world’s largest seaborne grain buyer, which continues to assure food security for its population. In anticipation of a complete loss of Ukrainian grain exports, countries in Europe, and indeed elsewhere, are now aiming to stockpile available supplies. This has driven the unseasonal surge in US-Europe grain shipments.

Backhaul trades perform well

Further to the US to Europe trade, cargoes heading back to the US have also been strong. While shipments had ramped up during the post-pandemic surge in trade, activity started to soften towards the end of 2021. However, since the invasion in March, these levels have returned. In April 1.4 MMT of dry bulk cargoes loaded in Europe were destined for the US. While no cargo has stood out, this rebound is predominantly made up of aggregates, steels, and cement. In 2021, US farmers had also been buying healthy volumes of European fertilizers, although this trade has since stalled due to fertilizer shortages in Europe driven by trade sanctions and exports bans in Russia and Belarus. On the cement side, several southern states have reported shortages of the construction material, owed largely to reduced inventories form strong demand in the winter months and labour shortages at production plants.

Overall, as the geopolitical situation continues, we see demand from these transatlantic trades to be sustained at these levels, if not continuing higher. When the full European sanctions on Russian coal take effect in August, we expect the US to contribute a significant share of the replacement volumes Europe will need, as they have done already since the invasion. Total dry bulk liftings between the US and the bloc reached 6.1 MMT in March, the highest level since January 2019, with April coming in marginally lower than these levels. However, the net result is an unfamiliar number of vessels opening in the ARAG range when considering the additional arrivals from elsewhere. The one factor providing support against this for now is the lengthy queues at ports in this region. Many vessels opening ARAG have reportedly re-fixed for cargoes back across the Atlantic. The boost in trade into Europe has increased supply of tonnage in the Atlantic basin significantly. According to AIS tracking, the number of bulk carriers in the Atlantic is at its highest point in over three years, bringing the balance between the Pacific-Atlantic relatively tight compared to previous years. While demand from Atlantic trades is strong this should bode well for the dry bulk markets going forward.

Corn planting area is now 78% of last year’s levels despite initial official estimated that 30% of the area would be lost. Market participants estimate the corn crop to range from 22-28 MMT, with most analytical forecast placing the figure in the middle of the range. 2021’s corn production saw 42 MMT of corn harvested, but 2020 only reached 28 MMT due to droughts and hot temperatures, with the figure seemingly in reach once again even as the war continues.

As for wheat, most of the output stems from the winter crop, which was planted before the invasion, but portions of the productive area are within Donetsk, Luhansk and Kherson which are contested regions. The market forecast for wheat crop stands in the 17-21 MMT range, factoring out contested regions. If these were included the harvest, it should have been between 24-26 MMT.

Production of grain remains sizable despite on-going conflict, but sellers are still set to face challenges with harvesting, storing, transporting, and exporting.

Russia has signaled it is willing to allow bulkers to resume grain shipments from Ukraine. The government will provide a humanitarian corridor for vessels carrying food in return for the lifting of some sanctions, the Interfax news agency cited Russian deputy foreign minister Andrei Rudenko as saying. Ukraine’s Black Sea ports have been blocked since the invasion began in February.

More than 20 MMT of grain are stuck in silos in the country, raising concerns about famine in countries dependent on the supplies, The Guardian reported. “We have repeatedly stated on this point that a solution to the food problem requires a comprehensive approach, including the lifting of sanctions that have been imposed on Russian exports and financial transactions,” Rudenko was quoted as saying. “And it also requires the de-mining by the Ukrainian side of all ports where ships are anchored. Russia is ready to provide the necessary humanitarian passage, which it does every day,” he added.

Russia and Ukraine account for almost a third of global wheat supplies. The Russian government is in touch with the United Nations (UN) on the issue, Rudenko said. But he warned against any possible escort by Western ships of vessels carrying grain, saying that it would “seriously exacerbate the situation in the Black Sea”. Rudenko also denied reports in the Western media that Russian forces are stealing grain from Ukrainian ports. “We completely reject this. We don’t steal anything from anyone,” he told reporters. CNN previously published satellite photos allegedly confirming that Russia is exporting grain from Ukraine through Crimea, the Ukrainian peninsula that Moscow illegally annexed in 2014.

Earlier in May, it was reported that the UN was trying to negotiate a reopening of Ukraine’s ports to avert a potential global food crisis. Secretary general Antonio Guterres was attempting to broker a deal with Russia to restart grain exports. The possibility was raised of easing sanctions restricting Russian and Belarusian exports of potash fertilizer. Huge premiums would presumably be on offer for bulker owners willing to make the run into Ukraine. But companies will be wary of the risks and aware of how quickly the situation could change. Several vessels and crews were stranded in Ukrainian ports when war broke out in February.

Ukraine exported 41.5 MMT of corn and wheat in the 2020/2021 season, more than 95% of it shipped through the Black Sea. The UN is concerned that rising prices and potential food shortages could have a devastating effect on poorer countries. Wheat prices have been at record levels since the war began.

Worrying first-quarter earnings at South Korean shipyards indicate they are struggling to cope with the recent doubling of steel and other major shipbuilding costs. The three leading yards reported big losses for the first three months. Daewoo Shipbuilding & Marine Engineering registered a net loss of KRW 498.1bn ($393m), Hyundai Heavy Industries KRW 396bn and Samsung Heavy Industries KRW 103.9bn. SHI and HHI have said they do not expect a turnaround in fortunes in 2022.

DSME said that despite the losses, the dramatic rise in shipbuilding prices this year will be positive for its future earnings. The yard pointed out that in its main business in the LNG carrier market, which it expects to account for 33% of its order intake this year, prices have increased to $224m from less than $200m last year. Similarly, the cost of 23,000-teu container ships, which will account for 25% of its sales this year, has broken the $200m barrier compared with a price of less than $150m last year. But the problem for the yards is making cost margins on orders priced and received over the previous two years, given the recent rises in steel, material, and labor costs. Further price increases of about 8% this year could mean yards will be paying up to $1,200 per tonne for steel plate compared with $500 per tonne in 2020. One yard source estimated that shipyards could run up losses amounting to as much as 20% of the contract price on an aframax tanker ordered in 2020 and delivered this year. Contractually, it is also difficult for the yards to renegotiate the price of orders won in previous years to reflect the current high-cost base.

The expectation among analysts is that the South Korean shipbuilders will continue to rack up losses over the next three quarters until the higher vessel price levels start to affect earnings more positively. DSME said that by focusing its production largely on gas carriers, tankers, and container ships, it could cut costs. “Simplifying the product line and the repetition of construction methods will maximize profitability,” it added. The yards are also seeing healthy contracting levels for dual-fuel and other eco-friendly ships at higher prices, although some analysts question how long this will continue, given the global economic uncertainty caused by the Ukraine conflict. DSME has already secured $4.61bn of new orders this year, more than half its annual target; HHI has $5.2bn of orders, or about 46.5% of its annual goal; while SHI has won $2.2bn in the first quarter.

Dry bulk shipping’s capesize and panamax spot markets have weakened since Monday, perhaps heading into correction after rallying over the past several weeks, market watchers said. The Baltic Exchange’s capesize 5TC, which averages spot rates across five key routes, has fallen 13.4% over the past two days to $33,069 per day on Wednesday. The spot rate for the C10 transpacific round voyage between China and Australia slid 13.4% to $33,069 per day between Monday and Wednesday, while that for the fronthaul C9 from Europe to China dropped 11.6% to $55,122 per day. “Transatlantic or fronthaul business did not offer much support from the Atlantic,” Baltic Exchange analysts wrote on Wednesday in their daily take on dry bulk shipping. “Activity from Brazil was limited whilst the market was seeking more clarity. The Australia-to-Qingdao trade was rumored to slip further to below $14 post index publishing.

The two-day drop in capesize rates is most likely driven by market cyclicality, since the large bulkers have more than tripled since April, said John Kartsonas, founder of dry bulk ETF-trading platform Breakwave Advisors. “Now is time for some consolidation and correction,” he told TradeWinds. “We are still in a tight supply environment due to trading dislocations, so I do not foresee a collapse. Caution, though, is warranted because when all expect something, in this instance a mild correction, something else usually happens.”

The spot rate for the C5 route between Western Australia and Qingdao, China, route came in at $14.25 per tonne, according to the exchange’s latest figures on Wednesday. That represents an 8.6% decline from Monday’s freight rate of $15.341 per tonne. Australian miner Rio Tinto fixed two unnamed capesizes on Tuesday to ship 170,000 tonnes each of iron ore from Dampier, Australia to Qingdao at rates of $14.65 and $14.70 per tonne. Loading is set to take place from 9 to 12 June. Rio Tinto also hired an unnamed capesize on Monday to ship the same quantum of ore on the route at $15.25 per tonne. The ship is set to be loaded from 8 to 10 June.

Panamax spot rates have also fallen over the past two days as its 5TC dropped 4.7% to $28,965 per day on Wednesday. “The panamax market continued to soften further with all routes seeing significant corrections,” Baltic Exchange analysts said. The exchange’s analysts noted that this dry bulk sector “lacked any fresh momentum”, perhaps in part due to an “easier” forward curve showing upward momentum on paper. Forward-freight agreement (FFA) rates for contacts in June through to August, and for the year’s remaining three quarters, all improved on Wednesday. July produced the highest FFA rate for this period by picking up $268 per day on Wednesday to reach $30,079 per day. “Basic market fundamentals appeared to be taking a hold on the market right now with both basins requiring fresh volume in order to turn the tide,” analysts wrote.

The panamax rates are probably getting pulled down by the falling capesize rates, Kartsonas added. “We will see if this will trickle down to even the smaller sizes,” he said.