Europe’s sudden focus on energy security bodes well for dry, wet and gas shipping markets, leading shipping players told the FT Global Commodities Summit on Wednesday. The war in Ukraine has turned the energy market in Europe “upside down”, Sveinung Stohle, deputy CEO of the Angelicoussis Group, told participants. He said that demand for LNG shipments to Europe had suddenly surged to levels that could not be met. That was likely to push up demand and tonne-miles of coal and oil.

Europe’s energy security had not been considered important in the past 20 years during which a deregulated energy market had placed the focus on spot contracts, he said. “Today, the whole situation has been turned upside down,” said Stohle, whose company runs a mixed fleet of 157 vessels that is Greece’s largest. “There is only one priority today: energy security. It means that over the last four weeks all available FSRUs [floating storage and regasification units] in the market have been mopped up — and people are scrambling to find other ways to import LNG.”

Europe would be unable to import the volumes of LNG it needed “because it isn’t there”, he said. He added that the gas energy requirements “will have to be replaced by coal and oil, and probably reduced demand. What does that mean for shipping? It just means it’s going to be a very tight market and very high rates.”

His own company had even experienced strong interest in newbuildings slated for delivery in 2024 and 2025, he said. The war in Ukraine was leading to changes in trade patterns with the shift to coal helping the bulker market. “Coal whether people like it or not is going to play an important role,” Stohle said.

Ghigo Ravano, co-chief executive of Swiss broker Ifchor, said the immediate outlook for shipping markets remained uncertain. “The fundamentals are good,” he said. “But we are having demand destruction or export destruction, and the potential for more.” Ravano said the grain industry was likely to suffer from a lack of fertilizer. This was expected to hit shipments in the Black Sea and potentially to and from the US, he said. “If that happens, you’re shifting the agri-complex to structural shortages until mid-next year and that will create shortfalls,” he said.

Edward Buttery, chief executive of UK-listed Taylor Maritime Investments, noted that handysize rates had risen since Chinese New Year. These were likely to be boosted by an increase in tonne-mile demand resulting from the disruption to the grain trade out of Russia and Ukraine. These account for around 18% of the seaborne grain trade and would end up being replaced with shipments from places such as the US, Australia, and Canada.

Golden Ocean chief executive Ulrik Andersen said he expected relatively good bulker markets this year. But there remain risks from rising bunker costs, said Alessio La Rosa, global head of freight at Chinese-owned, Geneva-based trading house COFCO International. That would put pressure on fleet productivity, and result in slow steaming despite the firm rates, he said.

Terminals in Europe and North America have been told to brace for another whiplash effect from delayed shipments out of southern China. Logistics giant Kuehne+Nagel’s digital platform, seaexplorer, has developed what it terms as a Global Disruption Indicator, which tallies the cumulative teu waiting time in days based on container vessel capacity in disrupted hot spots. The teu waiting days (TWD) indicator works whereby, for example, one vessel with a 10,000 teu capacity waiting 12 days equals 120,000 teu waiting days.

Looking at just Hong Kong and Shenzhen, where Covid cases have hampered port productivity dramatically this month, the TWD at these two neighboring box ports stands at 1.5m days as of yesterday, versus around 500,000 days two months ago. Otto Schact, executive vice president of sea logistics at Kuehne+Nagel warned via LinkedIn yesterday, that these delayed vessels will cause problems at their destination ports in the coming weeks. “The increased TWD will have an effect on lead times, inventory,” Schact warned.

Looking at the numbers, Lars Jensen, CEO of liner consultancy Vespucci Maritime, stated via LinkedIn that the data shows there is more problems coming in the pipeline. “Shippers are well advised to remain focused on the resilience and flexibility of their supply chains,” Jensen urged.

Bloomberg data today shows that the queue of ships outside Hong Kong and Shenzhen is the highest in five months with 174 ships anchored or loading off south China and queues also growing off Shanghai. Shenzhen has just come out of a seven-day lockdown, while the rampant number of Covid cases to the south in Hong Kong has severely impacted trucker availability.

Israeli maritime artificial intelligence platform Windward charted the decline in box handling during this latest Covid scare to hit Shenzhen. Windward data indicated a decrease of 84% in the volume of container vessel operations in Yantian port, Shenzhen’s largest terminal facility, dropping from 50,163 teu on March 15, to only two port calls and 6,328 teu on March 18, and eventually none on March 20.

Shekou, Shenzhen’s western box facility, went from a daily average of 20 port calls by container vessels, maintained steadily since November 2021, to an average of 12 after the lockdown announcement.

Bjorn Vang Jensen, vice president at liner consultancy Sea-Intelligence, warned last week any closure followed by a reopening at Shenzhen port will create a whiplash effect and lay waste to the progress being made in the US to clear port backlogs.

With commodities prices soaring since Russia invaded Ukraine, you might think the energy trading sector is living large. Not so, at least if you believe the claims of the trade body that represents the sector’s major players. The European Federation of Energy Traders (EFET) has asked central banks for emergency liquidity to handle margin calls sparked by massive commodity price volatility, according to an 8 March letter first reported by the appropriately titled Risk magazine. The situation has been particularly fueled by see-sawing natural gas prices following the invasion, and it exposes cracks in the commodities complex that could present additional risks for shipping companies for which traders are key customers.

In a business driven by arbitrage, price volatility is a trader’s playground. But it also can be a trader’s downfall. “These increases in margin requirements raise fundamental questions about the ability of market participants to manage liquidity risks,” the EFET wrote, according to Risk. “It is not infeasible to foresee a situation in which generally sound and healthy energy companies, with significant and valuable asset portfolios, are unable to access cash to meet these unprecedented margin requirements.”

Price variation margin calls on hedges for European pipeline gas do not have a direct bearing on shipping. And the EFET, whose members include big energy companies, banks, and large commodity trading houses, has made it clear to Risk that the plea for central banks to set up liquidity lifelines was not made for the industry, but rather for some individual companies. But the financial liquidity risk highlighted by the group is a reminder that a volatile commodities environment can bring risks to the trading sector. And traders’ exposure to margin calls is significant. Mounting margin calls on commodities trades have been linked to Trafigura’s recent move to seek financing from private equity financing, according to Bloomberg. The situation comes at a time when traders’ access to cash through traditional sources is being crimped by banks’ hesitancy in the wake of sanctions that have changed daily since Russian troops marched into Ukraine. “Because banks have become very particular and scared of lending, it is creating a big credit crisis in the market,” Energy Aspects director of research Amrita Sen told a UK Treasury Committee inquiry last week, according to Global Trade Review. “There is a lot of liquidity that is just not there.”

Commodities trading is a sector that is deeply intertwined with shipping through layer upon layer of contractual relationships. To be sure, the commodities market shake-up fueled by the international response to the Ukraine conflict has presented many in shipping, at least many non-Russian companies, with some opportunities. After plunging from its October peak, the Baltic Dry Index has been in rebound mode as the Ukraine crisis lifts rates by lengthening tonne-miles, as Genco Shipping & Trading chief executive John Wobensmith explained. The Baltic Exchange’s indexes for both crude and clean product tankers jumped to nearly two-year highs after the invasion started, though they have given back some of those gains. In the gas sector, shipowners such as Dynagas LNG Partners are looking to convert vessels into floating storage and regasification units as Europe’s efforts to pivot away from Russian gas bring opportunities. But look beyond the opportunities to last week’s annual report by Glencore, and you’ll see the commodity market impact of the Ukraine conflict as a key risk, by disrupting trade flows and placing “upwards pressure on commodity prices and input costs. Challenges for market participants may include availability of funding to ensure access to raw materials, ability to finance margin payments and heightened risk of contractual non-performance,” the group said. Ultimately, the commodities market should settle down from its Ukraine-related shocks.

But Europe has some way to go to disentangle itself from its addiction to Russia’s energy sector, and who knows what additional measures are in store for Moscow as Western powers react to the ghastly human toll in Ukraine. There may be some trading house-shaped obstacles on the road to shipping opportunities in the fallout from the current commodities market shifts.

The near month-long Russian invasion of Ukraine has recorded enormous maritime infrastructure damage, which will take years to fix. The battle for the southern port city of Mariupol has intensified in the past 48 hours with street-by-street warfare being reported across the downtown area with many casualties and the city in ruins. The Russians are close to taking control of Mariupol and with-it key sea access as they try to build a land bridge from Russia to the Crimea. They already control the port of Berdyansk, some 30 km to the southwest on the Sea of Azov, where five foreign-flagged bulk carriers laden with grain have been moved out of the port by Russian tugs in recent days, making way for naval ships to enter. At Odessa, locals continue to prepare the city, home to Ukraine’s largest port, for any naval assault.

In the first month of the war, five merchant ships have been reported hit by artillery with one seafarer losing his life. With increasing sanctions in place and many mines planted in the area, sea traffic in the Black Sea has dropped considerably, most notably for containerships. The container shipping aspect of the Ukraine invasion is also having to factor in the sudden drop in boxes moving by rail from Asia to Europe via Russia. Bloomberg is reporting that more than a million containers originally earmarked for transcontinental train transit are now having to find new routes by sea.

“Capacity taken up by growing congestion at European hubs and rail to ocean conversions caused by the war have not stopped the rate slide,” commented Judah Levine, head of research at Freightos, discussing Asia-Europe container freight rates, which are now at their lowest levels since last July. The trade blockade movement against Russia is growing. Lithuania has said it is ready to close its seaport of Klaipėda to Russian ships, but it is still coordinating the move with neighboring countries. Ideally, it should be an EU-wide decision that would eliminate “all possibilities of arbitration” prime minister Ingrida Šimonytė said yesterday. Transport ministers from Lithuania and other neighboring countries are planning to turn to the European Commission over the issue, according to Šimonytė. “If there is no decision, no clearer movement, I think we will continue to coordinate this among us,” she added.

Over the weekend, Mateusz Morawiecki, the prime minister of Poland since 2017, urged tougher sanctions on Moscow and called on the European Union to impose a total ban on trade with Russia. “Poland is proposing to add a trade blockade to this package of sanctions as soon as possible, both for seaports – a ban on entering Russian-flagged ships with Russian goods – but also a ban on land trade,” Morawiecki told a press conference.

After coming under much pressure, France’s TotalEnergies finally relented yesterday, joining the likes of bp, Shell and Equinor in cutting ties with Russia. TotalEnergies said yesterday it had initiated the gradual suspension of its activities in Russia, putting on hold its business developments for batteries and lubricants in Russia and providing no further capital for the development of projects in Russia including the Arctic LNG 2 project.

Shippers are bracing for greater supply chain disorder amid fallout from China’s lockdown measures and US port labour negotiations. Strict coronavirus control rules which have been implemented in many parts of China have impacted the industry at a time when cargo owners and carriers are prepared to kick off the main season for shipping produce between April and July. “This time of the year is crucial for most companies as they begin to ship fresh production in preparation of the early peak season,” Container xChange said in a report. “Lockdowns in China will not just be a production slowdown, but also a slowdown of cargo movement, both being detrimental to the supply chain.”

With factories forced to close and travel restrictions in place, trucking and port services are already being disrupted. Containers shipping carriers have already warned of longer waiting time in ports such as Shenzhen’s Yantian and Shekou. Ocean Network Express chief executive Jeremy Nixon said the strict precautionary measures in some important port Chinese cities, such as Shenzhen, Shanghai, and Ningbo, had led to pullback in bookings and delays in vessels berthing. “We’re still getting our head around that to see how significant… and how long that’s going to be.”

Lloyd’s List Intelligence data shows the congestion level at Shenzhen and Hong Kong ports has increased sharply in recent days. As of March 23, there are 113 boxships at anchor off the two ports, up from 88 tracked two days ago. The vessel queue outside Shanghai-Ningbo and Qingdao has edged down to 120 and 21 vessels, respectively. If the lockdowns and resultant congestion persist in China, the world’s factory, there will be an impact on US shipments. “Looking in the long term, this will add more chaos as rates climb higher, capacity tightens and shipments delay,” said Container xChange chief executive Johannes Schlingmeier.

Additionally, negotiations over contracts between the longshoremen unions and ports on the US west coast, which are set to expire at the end of June, could also prolong the port congestion and complicate China-US traffic. “The feedback from our North American colleagues, the ports industry and many of our customers is that expectations are not so high that [the issue] can be resolved easily,” said Mr Nixon. “We may see some slowdown in productivity or delays associated with the [union] negotiations during June, July, and August.” He added that his customers were already trying to get ahead of the curve by bringing in more cargo to the east Coast, which is now a strong driver for booking demand.

Mr Schlingmeier said shippers should plan their cargo much further in advance this year owing to the potential risks at both sides. “Going by the analogy that the containers from China will make their way to the US ports around the same time in July-August, they will be bound to face worsened congestion at the US west coast ports, as well as at the east coast ports which are already struggling to handle the traffic.”

Shenzhen might have got through the worst of another Covid lockdown, but the ripple effects of China’s battle with omicron are seeing ships back up along the nation’s coastline with carriers forced to change schedules to avoid growing congestion issues.

Shenzhen came out of a seven-day lockdown yesterday, and while its port workers were allowed to work for the duration of the shutdown, limited trucking and warehousing availability has created some supply chain issues. An update from Danish liner Maersk yesterday forecast vessel waiting times will increase in Shenzhen. Elsewhere, Covid flare-ups are causing port pressures at key gateways including Qingdao, Shanghai and Ningbo-Zhoushan.

“Congestion at Chinese ports surged over the past week as the lockdown of several Chinese cities affected productivity at the main ports with dense fog also affecting operations at several ports in Northern China,” a new report from container analysis firm Linerlytica stated, noting how the increase was especially marked in Qingdao.

Last night, China locked down Shenyang, an industrial city of 9m people in northeastern Liaoning province. China’s financial hub Shanghai reported a record surge in daily local Covid-19 infections yesterday. Health authorities reported 4,770 new infections across the country on Tuesday forcing many areas into lockdown as part of Beijing’s ongoing strict zero Covid strategy.

In Hong Kong, a city battered by Covid this year, forwarders estimate a cut of at least 70% trucking capacity, which in turn is having a domino effect on the rest of the supply chain.

Carriers including Maersk, Mediterranean Shipping Co (MSC) and Hapag-Lloyd have been forced to make schedule changes to avoid the worst of the Chinese port congestion in recent days.

The congestion issue brought about by this latest Covid surge in China is not just affecting container operations. Data from Braemar ACM from last Thursday showed that queues of laden capesize bulk carriers had grown by 26% week-on-week to 7.4m dwt, standing 12.3% above the five-year average for the time of year. “The scope for a rebound in congestion, as a result of the lockdowns, is now higher given the constraints ports are under when employee infections rise,” Braemar ACM stated.

For the moment, tankers do not appear to be hit by the Covid surge. Data from AXSMarine does not point to an increase in waiting times at any of China’s major oil import or export terminals.

India’s decision to continue buying Russian commodities could lead to a major change in trade patterns that could boost tonne mile demand, says a top shipping analytics firm. The country has chosen to maintain its commercial ties with Russia, despite intense pressure from the US, Japan, and other western allies. The development has since become more substantial, with the Indian central bank reportedly drawing up plans for a direct Rupee-Rouble trade mechanism that will side-step western sanctions on Russian financial transactions. As a result, it has become increasingly likely that India will now be the key to how new trade flows will develop in the wake of the war and sanctions, according to UK-based Shipfix.

“Following the Chinese import ban on Australian coal, the flow of the commodity has been increasingly directed to India,” said Shipfix senior economist and market research analyst Ulf Bergman. “As a result of this shift in trade flows, India has been sourcing most of its coal from Australia, followed by Indonesia and South Africa.” Bergman added that while India has imported coal from Russia, the quantities have historically failed to make any material impact. However, should India increase purchases of discounted Russian coal substantially, the recently developed trade pattern will change considerably. Furthermore, if Russian supplies to India were to be shipped from ports in the western parts of the country, e.g., Ust-Luga or Murmansk, there would be a considerable increase in tonne-miles.

It is not only coal that India is considering buying at discounted rates from Russia, with Indian officials also said to be looking at increasing imports of fertilizers if discounts are available. “Greater access to fertilizers also has the potential to boost Indian crop production and fuel increasing exports from India should global food prices remain high,” said Bergman. “After five years of good harvests, inventories have been building up, allowing the South Asian nation to take advantage of high wheat prices and boost its exports. Earlier in the month, it was announced that India had agreed to export 500,000 tonnes of wheat and that annual exports of the crop were expected to reach 7 MMT.”

Bergman said bulker freight rates are also likely to benefit from an Indian pivot towards Russian supplied commodities, as it looks set to contribute to an increasingly sub-optimal global flow of cargoes. “The changing flow of dry bulk commodities has also led to some traditional relationships between front and back-haul freight rates breaking down,” he said. “The outbreak of war closed the trade out of the Black Sea, and the Atlantic basin became less attractive for supramax shipowners. Hence, the traditional back-haul route from North China to West Africa has risen substantially above its front-haul peers for the first time,” he said.

In addition, Bergman said if Indian utilities were to increasingly rely on Russian supplies, it would free up capacity at its current suppliers for alternative destinations and make it easier for those countries wishing to avoid importing Russian coal to do so.

Many shipowners are avoiding anything with even the remotest connection to Russia, which has sent the fertilizer market into turmoil — but bulker demand is faring better than expected. Handysizes and supramaxes in the Baltic have, until now, been reliant on fertilizer volumes coming out of St Petersburg and Ust Luga in Russia. The halt in business has, therefore, had a massive impact. “Even if the business is not sanctioned, no one wants to touch anything Russia-related,” one broking source said. But all is not lost, thanks to the high demand for bulkers in other regions of the world. The real impact will be the effect on grain yields later this year, market sources said.

TradeWinds spoke to a chartering source at a shipowner usually active in carrying fertilizer from the Baltic. The company quickly decided to pull out of the business soon after Russia invaded Ukraine. “We had one COA [contract of affreightment] which we decided to buy our way out of, so we did not have to take the risk of (a) sending our own tonnage into Russia (b) indirectly supporting Russia (c) potentially facing huge premiums to persuade third-party owners to take our cargo on [a] time-charter trip — or voyage relet,” the source explained. Buying its way out appeared to be more cost-effective than continuing the contract and facing higher risks to operations and future trades, he said. It was a price worth paying, as rates for handysizes on the east coast South America-to-Baltic Sea route are this year expected to spike even higher than in 2021. The substantial halt in the fertilizer trade has weakened the Baltic/European Continent and Black Sea/Eastern Mediterranean markets. “However, northern Europe is having its head held above water still due to a lot of replacement origin from North Africa and Bulgaria, Romania, Israel and Spain,” the source said.

Booming demand for handysizes in the Pacific — particularly India, Southeast Asia, and Australasia — has lent support to the eastern Mediterranean market. Multiple fixtures have been seen over the past week for trips from the eastern Mediterranean, ballasting through the Suez Canal, loading in Southeast Asia for discharge in Europe, he added. “Far better value than fixing tonnage open in the Pacific,” the source said. This is running down the list of open tonnage in the Atlantic. Owners with vessels available in the European Continent and Baltic region can afford — even with high fuel prices — to ballast to north Brazil, where freight rates are three times that in Europe, the chartering source said. Even ballasting to Southeast Asia is still an option. The prevailing sentiment is positive, which is also powering an uptick in period fixtures done at rates higher than the current spot market, both for handysizes and supramaxes, according to a source at another handysize owner.

“There is a sense that there will be a general strong push in freight rates this year — the increase in tonne-miles will likely help,” the source said. As Russian and Belarusian fertilizer becomes untouchable, new exporters are entering the market. Venezuelan producers are returning to the urea market, and Iran and other Middle East Gulf load ports are becoming more active in supplying Brazil and US markets, sources said. But Russell Thompson, managing director of trade data firm TradeViews, thinks the potash trade will be of particular concern going forward. “The three leading potash exporters are Canada, Russia, and Belarus — Russia’s partner in the war in Ukraine. The US Geological Survey estimates that Russia and Belarus accounted for 37% of global potash mine production in 2021,” he explained. “Sanctions on exports from these two nations will only add to pressure on fertilizer prices and supply. Belaruskali, the state-owned Belarusian [potash miner] has declared a force majeure [on production due to the high price of natural gas].” TradeViews estimates that the decline in trade from Russia and Belarus will equate to the loss in the employment of approximately 50 panamax vessels. The current disruption to the seaborne fertilizer market will have a much greater impact in the future if short supply leads affect grain harvests, according to Thompson. “Some fertilizer manufacturers have ceased production as being uneconomic. Lack of fertilizer supply and unaffordable prices look set to reduce crop yields and lead to grain shortages with poorer nations again hardest hit,” he explained.

Russia is one of the world’s top exporters of fertilizers. Close to 20 MMT was exported from Russian ports in 2021. The world’s top export port for fertilizer last year was the Russian port of Klaipeda, which last year exported 11.1 MMT. Fertilizer cargoes are usually picked up by supra and ultras, but the trade is significant for handysizes too. Some 1.1 MMT of fertilizers have been loaded at Russian ports since the war in Ukraine began. Just under 303,000 tonnes of this is currently bound for Brazil.

Record bulker congestion has driven overall port bottlenecks past the peak of 2021, Clarksons Research has revealed. Disruption to global logistics and supply chains remains widespread, the UK research company added. Managing director Steve Gordon said the Ukraine conflict and new Covid-19 lockdowns in shipping’s biggest market, China, have contributed to further elevated levels of delay. This continues to boost freight rates, particularly for container vessels. The ClarkSea Index of major vessel rates hit $41,377 per day on 18 March, just 3% below the 12-year high last October.

“Our earlier expectation that congestion would take some time to unwind has been amplified by the impacts of the Ukraine conflict and the new Covid-19 disruption in China,” Gordon said. “We also expect the direct and indirect impacts of the Ukraine conflict to create further inefficiencies,” including vessel repositioning, changing trading patterns, stockpiling, sanctions, and chartering policies. Congestion trends at container ship ports remain acute, but it is the bulker sector that has lifted overall congestion beyond 2021’s level. Increasing inefficiencies meant the bulker congestion index, covering capesizes and panamaxes, reached a record 36.3% of the fleet in ports or at anchorages on 21 February. The average figure is 35% so far this year, up from 32.8% in 2021 and a pre-pandemic average between 2016 and 2019 of 29.7%.

“Early 2022 saw a major increase in bulk carrier port congestion in Indonesia as a result of the country’s ban (now removed) on coal exports introduced at the start of January to shore up domestic supply,” Gordon said. As of 14 January, 197 bulkers of 14.4m dwt were at major Indonesian coal load ports, up from 122 at the start of the year.

Port congestion related to car carriers has also reached a record high, with the level of capacity in and around port standing at 28.1% on 16 March, compared with a 2021 average of 25% and a pre-pandemic figure of 22.7%.

The Clarksons containership port congestion index rose to 35.2% on 16 March from 33.7% a month earlier, impacted by operational knock-on effects from the Russia-Ukraine conflict such as delays due to customs inspections, and new lockdowns in China. This compares with a pre-pandemic average from 2016 to 2019 of 31.3%. But the figure remains below the October 2021 peak of 37.5%. Key congestion “hotspots” across the container network this year include the US, China and northern Europe, Clarksons Research said.

On the US east coast, capacity at port totaled 900,000 teu on 16 March, up by 24% from the start of the year. In China, capacity at port totaled 2.2m teu on 16 March, up 18% since the start of the month. In the UK and Europe, the figure was 1.2m teu, up 18% from 24 February.

·         Fresh data from China’s National Bureau of Statistics (NBS)for the first two months of 2022 suggests some activity has rebounded after several easing policies were put in place earlier this year.

·         Industrial output increased by 7.5% YoY, the strongest annual growth figure since June of last year.

·         Fixed asset investment in infrastructure and manufacturing increased by 10.5% and 20.9% YoY, respectively.

·        China’s housing market has remained under pressure in 2022 despite the recent policy measures aiming to encourage more spending. Floor space under construction increased by 1.8% YoY, the lowest growth figure since April 2018 according to the data.

·        Initiated floor space totaled 108.3m cumulative squared meters, declining by 14.9% YoY and 20.3% below pre-pandemic levels.

·       The steel-intensive automobile sector, however, has started off the year in better shape. Production increased by 20.6% YoY to 1.8m units.

      ·        Following a surge in Covid-19 cases, fresh lockdowns present the latest risk to the Chinese economy’s recovery, with the steel manufacturing hub of Tangshan one of the latest cities to introduce restrictions.