The capesize bulker market staged a three-day rally that has lifted average spot rates to the highest point of 2022. The Baltic Exchange’s capesize 5TC spot-rate average, covering five key routes, jumped 34.8% from Tuesday to $24,002 per day on Friday, after starting slowly on the first day back from Monday’s public holiday. It ended the week at the highest level for the index since 16 December. “The capesize market has made the most of the short working week as rates have lifted strongly,” Baltic Exchange analysts wrote in their weekly roundup on Friday. “The positive market sentiment was largely Pacific-led, yet that didn’t stop the Atlantic basin and ballaster trades from getting in on the act, as all regions posted big gains.”

Transpacific round voyages on the benchmark C10 route between China and Western Australia jumped 22.3% over the same period to $27,754 per day. Meanwhile, the transatlantic C8 route rocketed 33.6% to $17,200 per day and the C16 backhaul from Asia to Europe spiked 81.6% to $18,475 per day on Friday. “Coal flows continue to be strong, boosting this feeder route into Europe largely due to the current geopolitical situation,” the Baltic Exchange analysts said. “The capesize market flow remains anything but normal currently as premium and discount routes appear to be swinging and unstable.”

On Friday, Baltic Exchange fixture data showed two capesizes scoring deals to move 170,000 tonnes of iron ore on the benchmark trades to China in both the Pacific and the Atlantic basins. In a deal fixed a day earlier, BHP locked in an unnamed capesize to carry iron ore from Port Hedland in Western Australia to the Chinese port of Qingdao at $13 per tonne. Loading dates are 18 to 20 May. Baltic Exchange fixture data shows a similar journey fetched just $12.10 per tonne on Tuesday and three capesizes were booked for $12 at the end of the prior week.

In the Atlantic, Rio de Janeiro-based miner Vale fixed NGM Energy’s 176,000-dwt Scarlett (built 2012) for $29.90 per tonne to move the commodity from Tuburao, Brazil, to Qingdao, with loading scheduled between 5 and 8 May. That’s more than the $29 per tonne that Oldendorff Carriers paid to hire China Development’s 208,500-dwt newcastlemax CL Rhine River (built 2019) on Wednesday to move 185,000 tonnes of iron ore on the same route. The ship is set for less-prompt loading dates between 1 to 10 June. Both fixtures show a significant rise in Brazil-to-China journeys, with the previous last-done fixture on 28 April coming in at just $24.80 per tonne.

“After a slow start, a resurgence in activity out of Brazil helped to drive the capesize market forwards in the Atlantic this week, while there were also reports of firmer fixtures on front-haul routes out of Canada,” shipbroking giant Clarksons said on Friday in its Shipping Intelligence Weekly report.

The capesize surge helped push the Baltic Dry Index to 2,718 on Friday, a rise from just 2,404 a week earlier.

Eagle Bulk Shipping has varied from its usual strategy of hedging through freight derivatives by booking a rare physical time charter. New York-listed Eagle has fixed out the 63,301-dwt Madison Eagle (built 2013) for a minimum 12 months at $32,000 per day, yielding $9m in Ebitda into the second quarter of 2023, chief executive Gary Vogel told analysts on the owner’s quarterly earnings call on Friday.

While Vogel mentioned the charter in his presentation, the issue was revived by analyst Magnus Fyhr of HC Wainwright during a discussion of a potential reduction in grain production later this year owing to Russia’s war on Ukraine. In comments like those of counterpart John Wobensmith of Genco Shipping & Trading on Thursday, Vogel said there is a likelihood of lower overall supply but an open question whether longer tonne-miles created by dislocations might offset the dip. Fyhr questioned whether Eagle might seek more period coverage into the year’s second half, but Vogel didn’t encourage the notion.

Noting Eagle’s general preference to use derivatives, Vogel said Eagle had 11 ships hedged on that basis plus another physical fixture of five months dating from April. Vogel also noted the current strength of the spot market. Eagle has just fixed a supramax at more than $40,000 per day exclusive of benefits from its exhaust-gas scrubber on a back-haul cargo from Japan to Europe, and he said front-haul voyages from Brazil to Asia are “in the mid-$40s”. “We like the spot market,” he said. “But we do have forward cover and will continue to do so.”

The first quarter ended with the Baltic Supramax Index, which Eagle regularly betters, around $31,000 per day, and the forward curve for the remainder of 2022 is in that region as well, he said. Eagle said it had been able to book 83% of days in the current quarter at a time charter equivalent rate of $29,300 a day – an improvement over the $27,407 average it generated in the first three months. Eagle, based in Stamford, Connecticut, is one of the world’s largest owners of mid-sized tonnage with 53 supramaxes and ultramaxes.

Capesize rates have topped $30,000 per day, nearly doubling in May with many looking at the coming summer months in the northern hemisphere as a period where the sector could kick on to record some hefty profits as miners ramp output and countries rush to cover coal shortages.

Brokers report plenty of new cargoes hitting the Pacific today, with India aggressive for coal deliveries. The Baltic Dry Index (BDI) is currently hitting its highest levels of the year to date, closing in on the 3,000-point mark, with capes finally catching up with their smaller dry bulk cousins in terms of spot earnings. Moreover, a glance at June forward freight agreements, now trading at $39,000 a day, suggests capes have plenty of upside in the coming weeks. “The Capesize market has finally showed signs of strength, with spot rates doubling over the past few weeks, catching up to what in hindsight was an accurate futures market versus one that at that time seemed way too optimistic,” stated a new report from New York-based Breakwave Advisors.

“Big pulls are now coming from both the West and the East, with Owners sending their ships away in all directions, confounding traditional fronthaul and backhaul patterns. Europe continues to drive coal imports from as far away as Australia, but India is taking up the competition, all the while as the market is seeing more requirements from China of iron ore coming out of Brazil. This is as exciting as it gets,” a recent report from Norwegian brokers Lorentzen & Co stated.

A sign of a heating up sector can be evidenced in the resale markets with Braemar ACM noting that the prompt resale price for a large capesize vessel in China increased by 10% month-on-month in April to $66m. Values have risen 20% year-on-year and the spread between the newbuild and prompt resale prices has reduced to $1m, a tightening in no small part down to the very limited cape newbuild berth availability at the moment on the back of record orders for LNG and container carriers over the past 18 months.

Also looking at the current firmness of the dry bulk markets while entering the traditionally stronger summer months in the northern hemisphere, Mark Williams, founder of British consultancy Shipping Strategy, noted the similarities between inflation and the BDI.

“I keep repeating to myself, ‘Correlation does not equal causation’ but then I keep looking at this chart of IMF inflation data and the Baltic Dry Index, then I think about seasonality in bulker markets, which typically means they rise from May to October,” Williams wrote in a social media post.

As Russia’s war on Ukraine drags into another month with no end in sight, a cloud is hanging over peak grain season for bulker owners. Genco Shipping & Trading chief executive John Wobensmith acknowledged on an earnings call on Thursday that it’s difficult to piece together exactly how the scenario might play out. “I still have the opinion that not a lot of grain will flow out of Ukraine,” Wobensmith told B Riley Securities analyst Liam Burke. “I think there’s a possibility that the US may make up some of that. Brazil as it comes into its growing season later in the year will make up some of that.”

But Ukraine is a significant producer, typically generating a fifth of the world’s high-grade wheat and 7% of all wheat. The UN’s World Food Program buys about half its wheat from Ukraine. The country also has about 30 MMT of wheat in storage. But nearly all Ukrainian grain exports move by ship, and Russia’s navy has effectively blockaded cargoes from Black Sea ports. “I think there will be a tonne-mile expansion,” Wobensmith said, as alternative sources come into the picture. “It’s difficult to determine whether it will be a net gain or a net loss. I do look at it as a risk. I’m not sure whether it’s an upside risk or a downside risk right now. But we’re not going to have massive volatility” given an abundance of other cargoes, he said.

Genco is looking at hedging some of the risk through charter coverage “at very good rates,” Wobensmith said. The discussion came after Genco reported net income of $41.7m, or $0.97 per share, for the first quarter, its strongest start to a year since 2010. The owner had voyage revenue of $136.2m, up 189% from the first quarter of 2021. Genco’s first dividend under its new high-payout strategy came to $0.79 per share. The policy remained a major talking point in Wobensmith’s exchange with analysts.

Continued debt repayment has left Genco with a 12% loan-to-value ratio. “Our medium-term goal is to get down to net-debt zero,” Wobensmith said. “We’re not there yet. We might get down to net-debt zero by the end of 2023, depending on what values do.” Genco owns 17 capesize, 15 ultramax and 12 supramax vessels with an average age of 10.2 years.

New York-listed Eagle Bulk Shipping has gone from strength to strength with another fat shareholder payout during what is seasonally the weakest quarter for the dry bulk market. The Gary Vogel led owner reported adjusted net income of $64.5m, or $4.97 per adjusted basic share, a figure that topped consensus analyst estimates of $4.36 per share. Eagle paid a quarterly shareholder dividend of $2, nearly matching the $2.05 it paid for a strong fourth quarter under its new dividend policy. “Notwithstanding a volatile rate environment, Eagle posted strong results in the first quarter, in what is typically the weakest period of the year,” Vogel said in Eagle’s earnings release on Thursday.

“Demand growth for minor bulks remains healthy and continues to outpace demand for the broader dry bulk market, resulting in supramax/ultramax vessels outperforming the larger dry bulk segments. Voyage distances have also increased, driven primarily by dislocations caused by the war in Ukraine, which has in turn helped to strengthen spot rates.”

Eagle said it had been able to book 83% of days in the current quarter at a time charter equivalent rate of $29,300 a day – an improvement over the $27,407 average it generated in the first three months. Eagle, based in Stamford, Connecticut, is one of the world’s largest owners of mid-sized tonnage with 53 supramaxes and ultramaxes. Like other dry bulk owners, it took advantage of a strong 2021 market to institute a shareholder dividend. Eagle’s targets 30% of net income. Eagle said in the report that it was able to outperform the Baltic Supramax Index by $3,800 per day over the quarter.

Eagle’s time charter equivalent revenue of $121.6m more than doubled the $60.3m it achieved for the corresponding period of 2021, when it had an average TCE rate of $15.124. Without adjustments that account for treatment of derivative hedges, Eagle reported basic net income of $53.1m or $4.09 per share. Eagle had net income of $9.8m, or $0.84 per share, for the first three months of 2021.

The owner reported higher voyage expenses of $43.6m compared to $26.6m in the comparable quarter in 2021. The increase was primarily due to higher bunker costs as fuel prices increased in the quarter, as well as an increase in voyage charter business and an increase in broker commissions.

Costamare Shipping Co reported its most profitable first quarter since listing in New York over a decade ago. Revenue more than doubled to $268m and net income reached $123m, compared with $68.1m in the year-earlier period, the containership and dry bulk carrier owner said in a statement. Adjusted net income was $104.5m, excluding a $17.8m gain from selling a 25-year-old 2,458 teu boxship as well as earnings allocated to holders of preferred stock.

The Greece-based company has also agreed to sell the 2009-built supramax Thunder (IMO: 9558892) in a deal estimated to yield a $3.6m capital gain on completion in the second quarter. The 57,334-dwt vessel will be the first of Costamare’s dry bulk fleet to be resold. The longtime containership specialist diversified into the dry bulk sector last year, eventually amassing a fleet of 46 bulkers ranging from handysizes up to kamsarmaxes. The owner has been capitalizing on a strong market in both its sectors of operation.

Contracted revenue for Costamare’s fleet of 76 containerships in the water stands at $3.3bn, with an average remaining time charter duration of 4.1 years. The fleet is fully chartered for 2022 and is about 95% covered for 2023. “Fundamentals and strong charter rates for the container market remain unchanged,” said chief financial officer Gregory Zikos, adding full commercial employment of the global boxship fleet left no vessels available on short notice. “Congestion shows no signs of easing, while recent events are in fact contributing to further increases.”

Several Costamare’s containerships have been re-chartered at much higher rates than those currently being earned. Examples include the 6,644 teu pair Maersk Kolkata (IMO: 9244922) and Maersk Kingston (IMO: 9244934), currently earning a base rate of $16,000 per day with a profit/loss sharing provision that could elevate the charter rate to a maximum $25,000. The pair will begin a new charter later this year to Zim at $53,000 per day for three years. Zim has also agreed five-year charters from early 2023 for the 4,258 teu pair Vulpecula (IMO: 9430789) and Vela (IMO: 9406180) at an average daily rate of $43,250. The vessels are currently earning $22,700 daily.

The dry bulk market also remained “strong” with smaller bulkers earning a premium to larger vessels, “also benefiting from container spillover,” according to Mr Zikos. “Supply and demand dynamics remain healthy, underpinned by a historically low orderbook.”

Costamare has liquidity of about $640m on its balance sheet, including about $152.5m in available undrawn funds from two bank hunting licenses available to support further potential dry bulk acquisitions. The company currently has an orderbook of four 15,000 teu and two 12,690 teu containership newbuildings due in 2024, all of which have long-term employment awaiting them upon delivery. It declared a quarterly dividend of $0.115 per share as well as a special dividend of $0.50 per share on its common stock, to be paid concurrently.

New York-listed Genco Shipping & Trading has ended the suspense over the size of its first “full” dividend payout under a new capital allocation model. The distribution of $0.79 per share is 18% larger than the $0.67 paid for the fourth quarter of 2021, Genco’s largest payment last year. It represents a 14% yield based on the recent share price. It follows a seasonally weaker first quarter that nonetheless was Genco’s strongest start to a year since 2010.

“During the first quarter we generated strong TCE [time-charter equivalents] in a seasonally softer market, as we benefited from our past success fixing forward cargos at attractive rates,” said chief executive John Wobensmith. “We also made further progress implementing our value strategy, resulting in the first full payout based on our quarterly debt repayment run rate.”

Genco’s quarter was good for net income of $41.7m, or $0.97 per share, a figure that just beat analyst estimates by a penny. Voyage revenue of $136.2m, up 189% from the first quarter of 2021, also beat analyst estimates by $42.3m. Genco said its fleet of bulkers ranging from capesizes to supramaxes brought in a time charter equivalent average of $24,093, a 98% improvement over the year-ago period.

The New York-based shipowner is guiding to a stronger $27,596 per with 68% of days booked in the current quarter, although the figure covers both spot and period fixtures. These figures are well above what Genco says is a sector-low financial breakeven rate of $8,900 across its fleet, driven lower by a concerted effort to slash debt.

The company said it had $270.9m in liquidity on 31 March, including $49.1m in cash and $221.8m available under a revolving loan. “Genco remains well-positioned to capitalize on favorable dry bulk fundamentals, which remain intact and are driven by the attractive supply and demand balance and, specifically, the historically low newbuilding orderbook,” Wobensmith said. “We continue to monitor near-term changes in dry bulk trade flows as result of Russia’s war in Ukraine as we meet customer needs and support our crew during these challenging times.”

The first quarter is usually the weakest period for dry bulk owners. To underscore the difference from the back half of 2021, Genco has told investors that its new model would have yielded a dividend of $1.85 per share for the fourth quarter, which was Genco’s strongest since 2008. For the first quarter of 2021, Genco recorded net income of $2m, or $0.05 per share.

Maersk reported its best quarter in Q1 2022 with a $6.8bn profit despite taking a $718m hit from pulling out of Russia. Operating results hit record levels across Maersk’s Ocean, logistics and services, and terminals segments.

Maersk said its ocean segment’s result was fueled by strong contract rates boosting freight rates; logistics and services was supported by increased volumes and better margins. Terminals’ result was driven by higher volume and storage income in North America. This all added up to a $6.8bn profit in Q1, compared to $2.7bn in the same period in 2021, for the Danish shipping company. First quarter revenues were up 55% on-year to $19.3bn. The lion’s share of a $6.9bn increase in revenue, some $6.1bn, came from the ocean segment of Maersk’s business.

The ocean segment reported a 6.7% decline in loaded volumes, driven by lower backhaul volumes in Europe and North America, said Maersk. Loaded volumes fell across East-West, North-South and intra-regional trades, but were offset by an average 71% increase in freight rates to $4,553 per feu. At the same time costs were higher with an average increase in bunker prices of 54% between Q1 2021 and Q1 2022 brought prices to $611 per tonne.

“Freight and charter rates remained elevated in the container industry, reflecting congestions, although a gradual decline was recorded for spot/short-term contracts during Q1 relative to Q4 2021, in line with the deterioration of supply-demand,” Maersk said in its Market Insights. “The continued congestions and dislocation of supply and demand fundamentals in the logistics industries increases the uncertainty surrounding the rates outlook. On the demand side, a reduced impact from the COVID-19 pandemic should support the Global economy, but the composition of spending is likely to rebalance towards services, and sharply rising prices for some goods may lead consumers to adjust their spending plans.”

Maersk continued its acquisition binge in the quarter, completed its purchase of Pilot Freight Services. Outstanding acquisitions include LF Logistics, expected to close in Q3, Senator International expected in Q2 2022, and a JV with Grindrod Intermodal Group expected to close in Q3 2022.

Maersk decided in the wake of Russia’s invasion of Ukraine to completely withdraw from Russia. Its last cargo operation in a Russian port was completed on May 2. The biggest impact on EBIT was $485m on terminals, followed by $162m on ocean, $53m on logistics and services and $18m on towage & maritime services. Maersk’s withdrawal from Russia includes divestment of shares in Global Ports Investments, the exit of two Russian warehouses, and an end to Svitzer towage services in Sakhalin.

Maersk restated its updated guidance issued on April 26 of a $30bn underlying EBITDA for 2022.

The European Union’s FuelEU Maritime proposals may help usher in low-carbon fuels over the next three decades, but they could also put the brakes on newbuilding orders for bulk carriers and tankers in the near term.

The proposed regulations, which the European Parliament Committee on the Environment drafted on 28 April, are designed to help phase out traditional maritime fuel oil and fossil fuels by 2050. To do this, it is looking to introduce measures to restrict the use of LNG-powered ships in EU waters after 2035. And make ship operators use at least 6% e-fuel — alternative carbon-neutral fuels — in their fuel mix by 2030, increasing every five years up to 70% by 2050.

The uncertainty around the regulations may limit bulker and tanker newbuilding orders until owners have a clearer picture of affordable alternative fuels and propulsion technologies, Jefferies analyst Christopher Robertson said. “While the environmental goals of the FuelEU Maritime proposal are laudable on environmental terms, it is unclear what fuel technologies and necessary fueling infrastructure, will be available, energy-dense, and economically viable in the future,” he wrote in a note.

He noted that LNG newbuilding orders have risen in the past few years in response to the International Maritime Organization’s upcoming 2030 regulations, and some are being designed to also burn ammonia. But only 2.3% of the global fleet and 24.7% of ordered ships can run on LNG, and nearly all the LNG-capable ones can also use low-sulphur marine fuel oil, he said.

This scenario could result in higher spot rates for dry bulk vessels and crude tankers for this year’s second half and next year, Robertson added. The Baltic Dry Index attained 2,404 points on Friday after gaining 369 points since 12 April. The Baltic Dirty Tanker Index reached 1,213 points, losing 491 points over the same period. “As such, we believe the supply picture remains extremely constructive for both the crude tanker and dry bulk segments and predict fleet growth of just 1.3% for crude tankers, and just 1.7% for dry bulk in 2023,” he said.

As Beijing talks up stimulus packages, official data published over the weekend shows just how sharply the rolling municipal lockdowns are tanking the Chinese economy, making the stated goal of 5.5% GDP growth in 2022 a huge challenge. China’s manufacturing activity slumped to its lowest level since February 2020, official data showed on Saturday.

Official economic data released on Saturday showed manufacturing and services activity at their lowest levels since the pandemic exploded from Wuhan in early 2020. China’s purchasing managers’ non-manufacturing index, composed of the services and construction sectors, fell to 41.9 in April, deteriorating from 48.4 the month before and well below the 50-point threshold that indicates expansion rather than contraction. The manufacturing PMI, a crucial gauge of factory activity in the world’s most important growth engine, eased to 47.4, from 49.5 in March, National Bureau of Statistics data showed.

China’s April steel PMI was down to 40.5, from 44.3 in March.

Chinese media group Caixin also released its own manufacturing purchasing managers’ index on Saturday, showing a second straight month of deterioration, with the figure dropping from 48.1 to 46.0. The Caixin survey, which covers small and medium-sized enterprises, is seen by some as a more accurate reflection of China’s economic situation than the official government figures, which more closely track the condition of large state-run groups. “Covid control measures have done a number on logistics,” said Caixin Insight Group senior economist Wang Zhe in a statement. Caixin also noted that firms expressed concerns over how long Covid restrictions would remain in place with the situation in Shanghai, under lockdown for more than a month, especially bleak.

China’s commercial capital was dealt a blow on Monday as authorities reported 58 new Covid-19 cases outside areas under lockdown, while Beijing pressed on with testing millions of people on a May Day holiday few were celebrating.

Joerg Wuttke, president of the EU Chamber of Commerce in China, told German business title The Market last week that freight traffic volumes in the Shanghai metropolitan area plunged by 81% year-on-year in the first three weeks of April. Neighboring Jiangsu province recorded a drop of 30%. Nationwide, freight volumes in April are down 15% year-on-year, according to the European Chamber.

“Supply chains within China are so tightly knit that lockdown measures in one place have ripple effects on other regions,” Wuttke said.

About 345m people are living under full or partial lockdowns across 46 Chinese cities, according to estimates made last week from Japanese bank Nomura.