Since taking over from John Platsidakis as chairman of the International Association of Dry Cargo Shipowners (INTERCARGO) in 2018 Dimitris Fafalios has been busy taking on the key daily battles his shipowner membership have faced such as the pandemic, the environment and latterly the war in Ukraine. Fafalios, who heads up his own small eponymous dry bulk concern in Greece, was invited to speak last month at the Slide2Open Shipping Finance conference in Athens where he was grilled about the wave of green regulation heading shipping’s way, not least from Brussels.

Fafalios told delegates that while next year’s Energy Efficiency Existing Ship Index (EEXI) regulation was manageable cost-wise, the Carbon Intensity Indicator (CII), which comes in at the same time, will prove to be far more onerous. For newbuilds, the IMO already has the Energy Efficiency Design Index (EEDI), something that Fafalios said had been “financially quite challenging” in the transition from phase II to phase III. For existing vessels, the application of EEXI from 2023 is not an insubstantial expense but it was what could be considered a manageable one, Fafalios said, typically between $50,000 and $100,000 per ship. Regarding the CII however, Fafalios warned: “I feel the costs will be far higher and, in fact, almost impossible to quantify.”

In the bulk tramp sector, the INTERCARGO chairman explained time charters are dominant and a vessel’s CII rating will be determined primarily by a time charterer and not the shipowner. In order to attain the required CII improvements, the vessel’s time charter description will have to change regularly, and this will happen despite the formulation of the much needed BIMCO CII clause. “The financial impact of these changes will be significant, but will change according to the freight market,” Fafalios said.

When quizzed about European Union intentions to crack down on marine emissions, Fafalios said that the inclusion of shipping in the bloc’s emission trading scheme (ETS) as well as the incoming FuelEU Maritime rule will bring additional bureaucratic burden especially on small- and medium-sized shipowners and operators. “Many smaller owners will have to see significantly higher freight rates to and from EU ports to justify this extra bureaucracy or this extra uncertainty which is going to be brought on by the less than stable prices and the prices of the credits,” Fafalios said, pointing out how the price of European emissions allowances tripled in 2021 alone. “If the freight premium is not there, they may well steer clear of the EU ports altogether,” Fafalios warned.

In concluding, Fafalios stressed that all stakeholders in the maritime venture should bear the costs of the decarbonization transition. “This is not just shipowners and operators, it is charterers, fuel suppliers, cargo shippers and cargo receivers,” Fafalios said. “One step back from these players are other stakeholders like financiers, insurers, shipbuilders, engine, and equipment makers. We must stress that simply by regulating the owner is not going to achieve the desired effect.”

China’s iron ore imports fell to their lowest level in five years in 2021 and look set for a further decline this year, latest data shows. The world’s largest importer of iron ore imported 982.3 MMT last year, down 11.4% year-on-year and the lowest annual volumes since 2016, according to figures from Banchero Costa. “Iron ore imports into China corrected significantly in 2021 from the record levels seen previously,” the broker said. “Iron ore imports in 2020 increased by 6.9% year-on-year to over 1.1bn tons, as China took advantage of favorable low prices when much of the rest of the world was shut down in lockdowns. “However, high iron ore prices in 2021, combined with a slowdown in construction activity following the financial troubles of developer Evergrande, resulted in a significant slowdown in steel production and iron ore demand in China,” the broker added.

Banchero Costa said it is not looking any better this year, the broker said, with imports in the first three months of 2022 down 8.5% year-on-year to 252.7 MMT. This is the worst first quarter since 2017.

China’s reduced imports of iron ore are also having a negative effect on tonne miles for the dry bulk market, according to Banchero Costa. In the first quarter of 2022, imports from Australia were down just 1.3% year-on-year, whilst volumes from Brazil were down a massive 24.3% year-on-year.

In 2021, Australia was the top source of iron ore for China, with a 68% share, but imports declined by 8.6% year-on-year to 668 MMT. Brazil remained in second spot with a 20% share in 2021, but imports to China declined by 14% year-on-year to 199.9 MMT from 232.4 MMT in 2020.

Banchero Costa said China’s zero-Covid policy looks likely to further impact the volume of iron ore imported into the country. “Whilst all the attention is on Shanghai, perhaps even more worrying from a steel industry point of view is the on-off lockdown in Tangshan, Hebei Province,” the broker said. “Tangshan, a steelmaking hub about 100 miles from Beijing, has re-introduced Covid-19 lockdowns in some districts again on the 19th of April, just over a week after lifting city-wide curbs. Tangshan hosts about 13% of China’s steel output, and some production was halted during a 20-day lockdown that ended on 11 April,” Banchero Costa said.

The partial reversal will raise fresh concerns about steel output, and underscores China’s difficulties in stamping out omicron’s spread.

The difficulties of enforcing sanctions against Russia are becoming increasingly evident with a host of foreign shipowners still making a fortune shifting commodities out of the world’s largest nation on day 57 of the invasion of Ukraine. Data from shipping platform Sea/ shows a total of 474 ships across all segments are due to call at Russian ports in the coming three weeks, of which 256 are non-Russian flagged. Many Russian owners have reflagged their vessels in the opening weeks of the war as sanctions rained in, while the Sea/ data makes clear there are many well-known, non-Russian shipping names making a fortune with aframaxes out of the Baltic being fixed at rates more than $300,000 a day.

From last Sunday, the European Union joined other nations including the UK in banning entry into the ports of ships associated with Russia. However, crude and coal volumes continue to flow west from the Baltic and Black Sea.

At a webinar on Tuesday, analysts at freight analytics platform Vortexa presented data showing that at least 47.6m barrels of crude, and 2.7 MMT of coal will have been discharged at EU and American ports for the period from April 1 to April 26. The Russian Tanker Tracking Group, an initiative led by the Ukrainian government, shows that from April 19 to April 26 32 laden crude tankers, 19 product tankers, 26 bulk carriers carrying coal and seven LNG carriers will all discharge Russian commodities at ports across the EU and the UK. The Vortexa presentation also showed how ship-to-ship transfers are on the rise of Russian cargoes moving to different vessels in European waters for onward shipment to Asia with India notably upping its imports of comparatively cheap Russian oil.

The war has changed the nature of Black Sea shipping dramatically as new data from Sea/ shows. Typically, the Black Sea has around 600 ships on an average on any given day. Since the Russian invasion started, that average has dropped to around 500 a day mainly due to the lack of ships in Ukrainian waters.

At the London headquarters of the IMO, secretary-general Kitack Lim addressed delegates attending the Maritime Safety Committee yesterday, during which he spent time discussing the ongoing Ukrainian invasion. “The ongoing armed conflict between the Russian Federation and Ukraine continues to present a serious threat to the safety and security of ships operating in the Black Sea and the Sea of Azov and their crews,” Lim said.

The secretary-general’s special advisor on maritime security, Peter Adams, provided further details to delegates yesterday. At the start of the conflict approximately 2,000 seafarers were stranded aboard 94 vessels in Ukrainian ports. As of yesterday, 84 merchant ships remain, with nearly 500 seafarers onboard.

UK shipowner Taylor Maritime Investments (TMI) believes handysize bulk carrier values will continue to rise as fleet growth turns negative. The London-listed company said in an update on Thursday that demand for minor bulk cargoes at 2.2% is expected to continue to outpace fleet supply growth of 1.7% this year. And the size of the handysize fleet will reduce next year. “Further asset value upside is possible given inflation in newbuild prices, with secondhand ships valued below depreciated replacement cost,” TMI said.

The handysize orderbook continues to be at a historical low of 4.8%, the smallest of all bulker segments. TMI puts this down to newbuilding price inflation, orders in other segments filling yards and ongoing uncertainty around future ship technologies.

“Beyond 2023, effective supply is expected to decrease due to lower operating speeds required to meet IMO emissions reduction targets,” the company added. With 8.3% of the fleet over 25 years old and a further 1.7% turning 25 in 2022, analysts expect older, less efficient tonnage to be removed in 2023. The number of handy sizes could shrink by 2.3%, they believe. “Given the underlying fundamentals of the handysize segment, particularly tight fleet supply, the company believes the 2022 outlook is positive,” TMI said.

The owner also argues a post-lockdown rebound in China’s trading activity would lead to upward pressure on rates in the current “congested and inelastic” market environment. And the war in Ukraine is adding tonne miles as steel, grain and coal volumes from Ukraine and Russia bound for European and Mediterranean markets are being replaced by sources from further afield.

Additional support for handysize freight rates continues from cargoes usually transported by container ships now being carried on dry bulk vessels and port congestion, both of which may recede in the medium-term, TMI said.

The company added that its net asset value at the end of March was $1.74 per share, an increase of 22% since 31 December and 78% since its initial public offering in May 2021. An interim dividend of 1.75 cents will be paid for the first quarter. And TMI said that, following strong trading conditions, the board will consider an extraordinary dividend in early May.

Current average net charter rates for the 31 bulkers have increased to $19,200 per day versus $18,600 at the end of March 2022. Chief executive Ed Buttery said: “We have created a differentiated shipping investment opportunity offering growth and attractive shareholder returns as well as effective recycling of capital.” He added: “This is in the context of our continued anticipation of two to three years of further strength in the market.”

Buttery said two ships have recently been fixed on one and two-year charters, while a significant portion of the fleet has remained on short-term deals where yields are higher.

Three of India’s most industrialized states plan to import 10.5 MMT of coal in coming months as officials scramble to arrest widespread power cuts, a move that could push global coal prices to new highs. The scale of the purchases and the decision to go back on a plan to cut coal imports underscore the severity of the India’s fuel crisis. Utilities’ coal inventories are at the lowest pre-summer levels in at least nine years and electricity demand is seen rising at the fastest pace in at least 38 years. Maharashtra plans to import 8 MMT for “blending purposes,” while Gujarat will place orders for 1 MMT next week, the states’ energy officials told the federal government on April 13, according to the minutes of the meeting reviewed by Reuters. The chairman of the Tamil Nadu government-run utility said the state was targeting importing 20% of its coal requirements, adding that it had already placed orders to import 1.5 MMT, according to the meeting minutes.

The three states are the among the biggest power guzzlers in the country, cumulatively accounting for nearly a third of India’s electricity demand in 2021. Specific details on the states’ import plans have not been previously reported. The cumulative imports planned by just the three states would be higher than annual imports by state government-run utilities for blending in at least 6 years. The move by India, the world’s second largest coal importer, could lead to a further increase in global prices, which are already trading near record highs due to fears of a supply crunch following the European Commission’s decision to ban coal imports from Russia after its invasion of Ukraine. Coal miners in South Africa, Australia and Indonesia are likely to be the main beneficiaries of India’s buying spree, though those producers are already stretched by the recent spike in demand. Russia is also a possible supply source, but costs are already high, and buyers are likely to push for discounts, two traders said.

India’s federal government has also asked the state governments of Karnataka, Uttar Pradesh, Madhya Pradesh, Punjab, and Haryana to import a total of 10 MMT of coal. While Punjab has committed to import 625,000 tonnes, the other states have not detailed any plans, the meeting minutes showed. Maharashtra’s expected 8 MMT of coal imports will be in addition to the 2 MMT it had already ordered, for which delivery is expected on May 8. India had previously asked state government-run utilities to import 4% of their coal requirements for blending, but subsequently suggested last week that imports be boosted to 10% of the quantity needed to address soaring power demand. Federal government-run NTPC Ltd, the country’s top electricity producer, plans to boost coal imports to the highest level in eight years, Reuters reported last month.

Many Indian states including Andhra Pradesh in the south, Maharashtra in the west and Haryana, Punjab and Rajasthan in the north are already facing power cuts. Utilities in Tamil Nadu have less than two days of rolling coal stock left on an average, while power plants in Maharashtra and Gujarat have about five days of inventory on an average. Federal guidelines recommend that states have at least 24 days of stock. Officials have also decided to invoke an emergency clause in the country’s electricity law to allow currently idled power plants designed to run on imported coal to pass on higher costs to distribution companies. The move would facilitate operation of plants run by Adani Power, Essar Power, CLP India and IL&FS Tamil Nadu, which have sharply curbed power production due to high global prices, the minutes of the meeting showed.

In Q1 2022, China imported just 252.7 MMT of iron ore, down -8.5% y-o-y from the 276.1 MMT imported in Q1 2021. This was the worst first quarter since 2017. To make things even worse, Covid related lockdowns are now spreading throughout China, as the country insists on sticking to its “Dynamic Zero-Covid” policy. In 1Q 2022, imports from Australia were down -1.3% y-o-y from 2021, whilst volumes from Brazil were down a massive -24.3% y-o-y from 1Q 2021.

Ukraine’s grain sector has begun the gargantuan task of getting the commodity to market without the use of the country’s major ports. 2022 had been expected to be a record-breaking year for Ukrainian grain and oilseed production. But the Ukrainian Grain Association (UGA) expects annual production to fall by 40% to about 63 MMT this year, following Russia’s invasion. But before this year’s harvest, which traditionally starts from June or July, the challenge is to work out how to export about 26 MMT of grain that Ukraine has in stocks, which are worth up to $7bn at current prices.

Big grain trading houses are trying to arrange delivery by rail to transshipment ports such as Ust-Dunaisk and Izmail on the Danube for seaborne export from ports such as Constanta, Romania. The UGA hopes that exports of grain will reach just over 35 MMT in the 2022-2023 harvest season, down from 52.4 MMT in the previous 12 months. But logistical constraints are proving a big headache, there simply is not enough throughput capacity at transloading terminals and border crossings, plus a shortage of equipment. “If we talk about the ports of Ust-Dunaisk and Izmail, for the moment in our expectation we can load there about 400,000 tonnes of grain, and we just started,” Nikolay Gorbachov, president of the UGA told a webinar last week. “The biggest problem that we face, is a deficit of barges because most of our barges are blocked in Mykolaiv and Kherson and they will have to use European barges.”

Then there is the challenge of rail capacity. Gorbachov said European railway companies have been too scared to send trains to Ukraine during the war, so the government has issued a special decree that will cover any damage to foreign rail cars during the transport of grain from Ukraine. Policymakers are working to cut paperwork and get trade moving with initiatives such as extending the validity of documentation like veterinary certificates for salmonella. This will give more time for grains to reach export ports before their paperwork expires, Gorbachov said. The UGA president thinks that Ukraine’s monthly throughput capacity will triple from current levels to around 2 MMT of grains within the next couple of months, down from 6 MMT before the war. He hopes that Ukraine will be able to export around 8 MMT of grains over the next four months before the new season begins.

Right now, big cargo owners such as ADM and Cargill are trying to arrange rail delivery of grain cargoes to Ukrainian ports on the Danube such as Reni, Izmail and Kiliya, according to Maksym Khaulin, director of dry cargo shipowner Intresco. But these ports are not ready for large transshipment volumes of grain, despite a flurry of interest from companies in renting berths and equipment there, he told the webinar, which was hosted by Ukrainian law firm InterLegal. “What is important now is the storage of cargo and the speed of loading. This is today number one — if you don’t provide 800 or 500 tonnes per hour then you will not be able to move all these huge quantities,” Khaulin said. “So, what the people are trying to do, they’re trying to move their cargoes from Kiliya, Reni and Izmail to Ruse [in Bulgaria], which is the worst option [which is an inland port].” Seaborne exports would have to go from Constanta, which is operating at its limits. “The stocks in Constanta are full. It’s very difficult for local companies there like Cofco, for example, to receive and store the cargo but they’re trying to do it,” he said.

Russia’s battery of Ukraine has not just been with shells, but also with propaganda aimed at disrupting the nation’s valuable commodity trade, but it is no longer a case of whether Ukrainian ports will be de-blockaded but when, Khaulin said. “The biggest fake news story was about the mines which are in the Black Sea, were in the Black Sea. I would like only to say that I investigated this matter myself very deeply,” he said. “Our company and also other shipowners, they were hesitating to call in the Black Sea, even Constanta, Burgas, Varna, just because they were thinking that Black Sea is full of mines.” Turkey has mobilized vessels to clear the area and the Black Sea region is being monitored by air with help from Bulgaria and Romania, Khaulin said.

Rio Tinto and Vale have both reported reduced iron ore production in the first quarter of 2022 due to delays in expansion and weather disruptions, respectively. The Australian miner, the world’s top iron ore producer, mined 71.7 MMT of the key steel making ingredient, down 15% on the previous quarter and 8% lower from the year-before period. “Production in the first quarter was challenging as expected, re-emphasizing a need to lift our operational performance,” said Rio Tinto Chief Executive Jakob Stausholm. “As we ramp up Gudai-Darri, our iron ore business will have greater production capacity and be better placed to produce additional tonnes of Pilbara Blend in the second half.” Depletion of existing mines was not offset by replacement projects because of delays in commissioning, while labor issues caused by pandemic constraints also contributed to the challenges at Pilbara operations, the company said.

Vale blamed weather disruptions as the main reason for delivering output that was 22.5% down on the previous quarter and 8% lower from the first quarter in 2021. The Brazilian company produced 63.9 MMT in the first three months of the year, against the 82.4 MMT seen in the fourth quarter of last year. Vale said production was also lower due to major maintenance services, which should be positive for the rest of the year.

Despite their respective issues, both Rio and Vale maintained their forecasts for iron ore production of 320 to 335 MMT in 2022. “Economic growth and commodity demand started positively this year as the world continues to recover from the pandemic downturn,” Rio Tinto said. “However, market expectations have been revised downwards amidst sustained high inflation, the outbreak of the Russia-Ukraine war, and a resurgence of Covid-19 lockdowns in China.” Rio Tinto said further downside risks include a prolonged war and other geopolitical tensions, extended labour and supply shortages, and monetary policy adjustments to curb inflation.

Separately, Rio Tinto said bauxite production of 13.6 MMT was in line with the first quarter of 2021 with similar wet weather disruptions as the corresponding period. In late March Australia imposed an immediate ban on Australian exports of alumina and aluminum ores including bauxite to Russia, which relied on Australia for 20% of its alumina needs. Rio Tinto owned an 80% stake in Queensland Alumina Ltd (QAL) in a joint venture with Russia’s Rusal International PJSC, the world’s second-largest aluminum producer. As a result of the Australian Government’s sanction measures, Rio Tinto said it had now taken on 100% of the capacity and governance of QAL until further notice.

China’s GDP expanded 4.8% YoY in the first quarter, according to the latest figures released on Monday. Although still in expansionary territory, this remains below growth levels recorded before the pandemic. Fresh data for March, however, showed slowdowns in activity in several sectors of the Chinese economy, amid global geopolitical tensions and a resurgence of Covid-19 lockdowns.

Cumulative investment in real estate from January-March grew by only 0.7% YoY, down from a rise of 3.7% in the January-February period. Initiated floor space totaled 215.6 cumulative square meters in the first three months of 2022, down 20.3% YoY. Floor space under construction grew by only 1% YoY, down from 1.8% in January-February and the lowest growth figure on record.

The financial sector’s reserve requirement ratio was lowered by 25 basis points to an average of 8.1% on Friday as the government look to stimulate activity. This should release an estimated 540 billion yuan ($83.25 billion) in long-term liquidity. Although positive, the effects of these policies take several months to filter through the economy.

China’s steel-intensive automobile industry also declined, with production contracting by 9.0% YoY. The sector has been hit by high prices for key inputs and lockdowns affecting output capacity.

Fixed asset investment, however, increased by 15.6% YoY in manufacturing and 9.6% in infrastructure, although both metrics decelerated from January-February growth of 20.9% and 10.5% respectively.

On Monday, Chinese authorities unveiled 23 measures to aid the economy. These include amendments to lending guidance for banks to encourage support for government infrastructure projects and the property sector, as well as general pledges to provide more credit and financial support to industries hit by the pandemic.

According to the latest data from China’s National Bureau of Statistics, China’s coal output totaled 395.7 MMT in March, up 15% YoY. This represents 12.77 MMT of output a day, the highest average daily output on record. Coal production in Q1 totaled 1.08 BMT, increasing by 10% YoY. China’s state planner is targeting average daily coal output of 12.6 MMT in 2022, expanding total domestic production capacity by 300 MMT. It is also aiming to increase government coal reserves to 5% of local consumption. These targets are part of a wider policy to improve China’s energy security and insulate users from volatile international markets by developing domestic production and storage capacity.

Despite lengthy safety checks at Chinese coal mines in Q4 last year before receiving approval to ramp up production, some accidents affecting production have started to occur. Earlier this week it was reported a fire has caused 3 mines to suspend operations. While this is temporary, it could provide increased short-term interest in the seaborne market.

China imported 19.2 MMT of coal in March, decreasing by 24.6% YoY. This is the lowest volume of March coal imports since 2017.

Beijing has drafted more policies to aid under pressure supply chains as China struggles to handle the omicron variant of Covid-19. Seven new Covid-19 deaths were reported in Shanghai on Tuesday, a city of 26m people which has been under lockdown for more than three weeks. City authorities revealed the first virus deaths yesterday, with Tuesday’s fatalities bringing the total official count to just 10. On Sunday, Shanghai officials revealed that as of April 15, only 62% of residents over 60 had been fully vaccinated, and only 38% had taken a booster jab. Shanghai has carried out more than 200m PCR tests since March 10. The city, China’s largest, has been the one attracting the most headlines for its lockdown, yet it is by no means alone. By April 11, 87 of China’s 100 largest cities had imposed some form of restriction on movement, according to Gavekal Dragonomics, an independent economic research firm that has been tracking lockdowns. The rolling lockdowns are taking a toll on the national economy. China’s economy expanded 4.8% in the first three months of this year compared to the same period last year, below Beijing’s 2022 annual target of 5.5%.

China reported on Monday its biggest decline in consumer spending and worst unemployment rate since the early months of the pandemic in March, as lockdown measures to stop Covid infections disrupted activity. Retail sales, a crucial sign of whether consumers are spending, fell 3.5% in March from a year earlier, the National Bureau of Statistics said on Monday. Factory output grew 5%, a rate that was slower than the pace recorded in the first two months. Imports, which had been racing ahead in the first two months of the year, fell slightly last month. The central bank in Beijing said yesterday it will step up financial support for industries, firms and people affected by Covid-19 outbreaks. Among 23 measures announced by the People’s Bank of China (PBOC) yesterday the bank said financial institutions should actively meet financing needs of transportation and logistics firms and truck drivers, as part of steps to support logistics and supply chains. Moreover, in a likely boost for dry bulk shipowners, the PBOC stated banks should lend more to infrastructure projects, suggesting China is gearing up for some form of stimulus package, something that it has enacted when it has met other economic challenges over the past decade.

Many manufacturers in and around Shanghai are being urged to reopen their plants this week. Beijing said last week it had drawn up a whitelist of 666 firms prioritized to reopen or keep Shanghai operations going. These include car manufacturers as well as semiconductor and medical firms. Exports out of Shanghai have clearly dropped in April, and shipping lines have shifted several calls to Ningbo-Zhoushan to the south. Waiting times at Shanghai have increased, as the data above from South Korea’s SeaVantage shows. Liner congestion is now considerably worse at Ningbo-Zhoushan as data compiled below today by Copenhagen-based eeSea shows. Nevertheless, there is evidence that worst might have passed. The latest weekly report from Linerlytica, published yesterday, stated that the number of ships waiting to enter Shanghai and Ningbo has reduced over the course of last week as carriers are omitting Shanghai calls due to the drop in export cargo volumes. The issue now will be the whiplash effect ports overseas will experience as and when Shanghai does reopen, something picked up by Lars Jensen, the CEO of liner consultancy Vespucci Maritime, in conversation with Splash today. “With every day the lockdown issues in Shanghai continue this will amplify the ripple effects in the container supply chains in the coming months,” Jensen said. He said the effect is beneficial in the sense that less cargo is shipped to Europe and North America, in turn alleviating the port congestion – and for shippers providing a downwards push on spot rates. “Once Shanghai reopens, we will have the exact opposite effect, and the magnitude of that effect will depend on the duration of the lockdown,” Jensen warned.

The problem with Shanghai, according to Xeneta’s chief analyst Peter Sand, is its unparalleled liner shipping connectivity – as the ripples are felt very much intra-Asia, but also ex-Asia. “As the coming days will hopefully bring around a gradual easing, reefers with incoming food will get priority – but it will still take four to eight weeks, maybe even more, for anything like a business-as-usual environment to be re-established,” Sand told Splash today. “It does seem that the China lockdowns have impacted the US logjam positively in the short term. But there will be a lot of disruptions when the lockdowns are lifted, and vessels will storm the east as well as the west coast ports. There will be an added element of panic shipping. This will further increase supply chain pressures and logjams in the US,” commented Christian Roeloffs, the CEO of box marketplace Container xChange.