Bulker segments other than capesizes strengthened amid a further disruption in trade and an increase in congestion. The redrawing of trade routes comes amid news that Australia has banned the export of alumina and aluminum ores including bauxite to Russia as a response to Russia’s invasion of Ukraine. Australian Prime Minister Scott Morrison said Russia was dependent on his country for close to 20% of its alumina needs. Australia has been increasing exports to Russia, with about 50 shipments, mostly on handysize and supramax bulk carriers last year, up from 42 in 2020 and 35 in 2019, according to Lloyd’s List Intelligence data. In the first two months of this year, eight bulkers left Australian ports bound for Russia.

Although shipments to Russia have been increasing, overall exports of bauxite, alumina and aluminum from Australia have been on the decline, dropping to 35.8 MMT, 18.6 MMT, and 1.4 MMT respectively, in 2020-21 from the previous year, according to the latest resources and energy quarterly report to the end of December last year. Alternative buyers for Australia’s bulk commodities will need to be sought.

Spot rates have continued to strengthen following the conflict as tonne-miles are expected to rise for the most part, with the smallest-sized bulk carriers leading the pack, based on gains in the Atlantic market. Handysizes rose 8.6% on March 22 to close at $30,878 per day on the Baltic Exchange compared with a week earlier. That is an increase of 24% since the start of the Russian invasion of Ukraine on February 24. Supramaxes rose 2.8% to $32,817 per day, and 23.5%, over the same time periods.

Panamaxes climbed 5.6% to $27,999 per day from last week and saw a 15.7% gain from the start of the invasion. Meanwhile, capesizes have declined further, falling 23% to $18,041 per day from a week ago. That is nevertheless still higher than at the February 24 invasion date.

Increasing congestion is also adding to the general rates strength, according to Signal Ocean, a Greece-based analytics platform, although the level is below record highs seen in the final quarter of last year. In recent days, congestion has been seen in the handysize and panamax segments, while in the previous week, the supramax segment was most caught up in logjams. Demand evolution is also growing mostly in the sub-capesize segments, it said in a recent research note, outpacing that of the capesize segment in the aftermath of war tensions. “Looking at the current trend, it seems likely that the demand for the panamax vessel size will exceed the growth of the handysize as European coal buyers are seeking to replenish their shortages.”

A two-tier market was also emerging and likely to continue for some time — those that avoid Russia and “Russia-friendly callers”, according to Banchero Costa, the latter of which would command premiums.

Combined earnings before taxes and interest of $110bn was amassed last year by 15 of the world’s largest carriers, data show. It is the highest combined figure for over a decade and has been achieved despite the ongoing global disruption in the industry. Sea-Intelligence said in its latest research that the industry had tripled operating profit in fiscal 2021 compared with the past decade, reflecting an unprecedented level of profitability. This achievement excludes inputs from privately held MSC and from Pacific International Lines, which sporadically publishes its financial results.

While there are so far no firm financial indications for 2022, the first quarter of this year appears unlikely to be any different compared to last year’s robust performance, the analyst said. It said last year’s operating profits excluded those made by OOCL and HMM which have yet to publish their annual financial statements, as well as that of MSC. The spike in operating profit was achieved despite carriers’ modest year-on-year volume growth, but after shipping lines received a hefty boost from the unprecedented level of freight rate increases.

“In the past decade, never have shipping lines seen this level of profitability, and never has the industry seen this level of global disruption that we are currently seeing,” Sea-Intelligence said. The first three months this year are as robust as in 2021, with “levels of capacity continuing to be poured into major trades, and the still elevated freight rate levels.” It said that while there might be a case to argue that earnings before interest, taxes, depreciation, and amortization were a better yardstick of operational performance in an asset-heavy industry, comparability of industry players posed a great challenge. This is especially so since only a few carriers, notably CMA CGM, OOCL and Hapag Lloyd, report Ebitda.

Sea-Intelligence cited other challenges and difficulties in comparing the individual performance of different shipping lines. One of the major challenges is the series of consolidations and restructurings that certain industry players have gone through. Another is the fact that not all shipping lines report the same level of detail, even on standard measures, such as volumes and liftings. For instance, Evergreen, Wan Hai, and Yang Ming do not provide volume figures for research companies to analyze. Meanwhile, other shipping lines, notably Maersk, CMA CGM, ZIM and HMM, do provide global volumes, but only for certain years.

Sea-Intelligence said Cosco overtook Maersk in fiscal 2021 and became the largest carrier in revenue terms with revenue of $52.52bn last year. Cosco achieved this feat after acquiring OOCL in 2018. After Cosco were Maersk, which posted revenues of $48.23bn, and CMA CGM, with revenues of $45.29bn. While MSC is the largest shipping line in operated capacity terms, it does not publish its financials. Ocean Network Express posted 2021 revenues of $26.39bn, while Hapag-Lloyd generated revenues of $25.34bn last year. Evergreen reported 2021 revenues of $17.67bn.

The effect of the Ukraine crisis on African food imports and prices is a big worry, the United Nations trade body warns, as previous high cycles for agrifood commodities have caused unrest such as the Arab Spring. “It is unclear to what extent the war will reduce commodity supplies from the Russian Federation and Ukraine, but initial assessments point to a substantive reduction,” said a report by the UN Conference on Trade & Development (UNCTAD). It said Russia and Ukraine together represent 53% of the global trade in sunflower oil and seeds and 27% in wheat. Wheat, corn, barley, colza, sunflower oil, and seeds from the two countries represent 25.9% of imports for Turkey, 23% for China and 13% for India. Africa imported 32% of its wheat worth $3.7bn from Russia from 2018 to 2020 and 12% from Ukraine, costing $1.4bn.

Up to 25 African nations, including many of the least-developed countries, import more than one-third of their wheat from the two countries, and 15 of them more than half. Somalia imported 100% of its wheat imports from Russia and Ukraine, while Benin bought the same total from Russia alone. “Agrifood commodity cycles have coincided with major political events, such as the 2007-2008 food riots and the Arab Spring,” UNCTAD said. “There might be a potential for food insecurity crises in some regions, especially if increased costs of fertilizers and other energy-intensive inputs negatively impact the next agricultural season.” A further rise in fertilizer costs is a significant risk for Africa, as the cost of a major component, urea, had already risen 30% by the end of 2021, it added.

Despite efforts from the West not to disrupt commodity supplies, freight forwarders currently recommend not booking overland shipments between Asia and Europe, the organization said, and shipping would struggle to provide the extra capacity. In 2021, 1.5m ocean containers were shipped by rail from China to Europe. Adding these volumes to Asia-Europe shipping routes would add a 5% to 8% volume increase to the already congested trade, UNCTAD said.

Although container freight rates have not risen since the beginning of the war, it said higher levels than today’s peaks can be expected, with significant impacts on the economy. UNCTAD estimated that container freight rate rises during the pandemic increased global consumer prices by 1.5%, with outsized effects on vulnerable economies.

While most shipowners have decided to give Russia a wide berth in the wake of sanctions and the dangerous conditions involved following the invasion of Ukraine, there are some owners making massive gains from trips out of the world’s largest country. Unconfirmed reports suggest an aframax tanker has recently been fixed from the Baltic to the Mediterranean at about $220,000 a day. Data from Israeli maritime artificial intelligence platform Windward indicates that most crude oil tankers calling port in Russia since February 28 had registered owners, or registered beneficial owners, that are Greece-affiliated. In addition, the most common registered flag of tankers visiting Russian ports last week was Liberia, with 11 unique tankers.

According to shipping platform Sea/ there are a total of 213 vessels destined to arrive at Russian ports in the next two to three weeks made up of 84 bulkers, 127 tankers and 2 LNG vessels. Grain exports from Russia have not stopped as data from Sea/ makes clear with both Egypt and Turkey continuing to import vast quantities since the start of the invasion. Coal exports as well continue to flow out of Russia with China, Japan, South Korea, and Taiwan all showing strong Russian import volumes.

In terms of crude exports, analysts at broker Poten & Partners note exports to Asia have picked up in the period since the invasion. The export volumes loaded in Russia destined for Asia averaged 1.4m barrels per day in the 10 days prior to February 24. Since then, volumes have increased to an average of 1.75m barrels per day with India and South Korea noticeable to the fore. Despite these pockets of exports, Russia is struggling maritime trade-wise. On Friday, Splash reported seaborne trade with Russia had dropped by 58% since the invasion of Ukraine began, according to data from financial data provider Refinitiv, a figure that could increase if the Polish prime minister gets his way. Over the weekend, Mateusz Morawiecki, the prime minister of Poland since 2017, urged tougher sanctions on Moscow for its invasion of Ukraine 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. In a big shift for the gas trades, Germany, which hitherto has relied on Russian gas pipelines for much of its energy security, is now in negotiations with Qatar over long-term gas supplies. The German government has also prioritized the swift construction of a pair of LNG terminals. German economy minister Robert Habeck was in Doha yesterday to thrash out details of a gas supply deal with Qatar.

In other shipping news related to the invasion, Russia on Saturday claimed that mines that Ukrainians had deployed in the Black Sea could drift as far as the Straits of Bosphorus and the Mediterranean Sea. “After the start of the Russian special military operation, Ukrainian naval forces had deployed barriers of mines around the ports of Odessa, Ochakov, Chernomorsk and Yuzhny,” the FSB security service said in a statement, adding that the mines were “dilapidated” and made in the first half of the 20th century. Storms have cut cables to some of those mines that are now floating freely in the western Black Sea, pushed along by wind and the currents, it said. The accusations have been denied by Ukrainian authorities.

Australia has overnight imposed an immediate ban on Australian exports of alumina and aluminum ores including bauxite to Russia. Russia currently relies on Australia for nearly 20% of its alumina needs, according to a statement from the office of the prime minister of Australia, Scott Morrison. The move is designed to limit Russia’s capacity to produce aluminum, a critical export for the country, the government said. “Aluminum is a global input across the auto, aerospace, packaging, machinery and construction sectors, and a critical input into armaments industries,” said Morrison.

Australia’s foreign minister Marise Payne has imposed the export ban under the countries’ autonomous sanctions against Russia. The government said it would “work closely” with exporters and peak bodies that will be affected by the ban to find new, and expand existing, markets. “This significant step demonstrates the Morrison Government’s absolute commitment to holding the Putin regime to account for the egregious way in which it is flouting international law and the law of armed conflict by invading its neighbor without justification, and targeting innocent civilians,” Australia said.

Anglo-Australian mining giant Rio Tinto owns 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. Australia recently imposed sanctions on two Russian businessmen with links to its mining industry, one of them being billionaire Oleg Deripaska who holds stakes in QAL.

Separately, Australia said it will support Ukraine’s energy security by donating at least 70,000 tons of thermal coal following a request for assistance from Ukraine, supported by Poland, and discussions with other European partners. “The assistance will help keep the country’s coal-fired power generators operating and supplying electricity to country’s power grid, supporting the Ukrainian people by keeping lights on, homes heated, and factories running at this very difficult time,” the Australian government said.

Whitehaven Coal has quickly arranged a shipment, and the Government is now working with Whitehaven and the Ukrainian and Polish Governments to deliver the supplies at the earliest available opportunity. The cost of the coal and its delivery to the destination port will be met by the Australian Government. “In a very tight supply market, we have been able to commit this important shipment while ensuring contracted customer demand is met,” Whitehaven said in a statement. “We will work closely with the Australian Government and one of its key supply chain partners, Trafigura, to ensure the prompt delivery of the cargo.”

The Shanghai Containerized Freight Index (SCFI) continued its long decline today, registering an 85-point drop to close the week on 4,540 points, still roughly quadruple its historical average but it has been falling week in, week out now since November. Other box indices operated by the likes of Drewry and Xeneta have also been coming off in March, although historically container fortunes tend to slide in the weeks following Chinese New Year. There is growing concern among analysts that the retail boom across much of the western world is coming to an end, with soaring inflation and the war in Ukraine forcing consumers to put their wallets back in their pocket. “Recent retail sales figures indicate that North America consumer demand for Far East imports may have plateaued,” commented Niels Rasmussen, chief shipping analyst at BIMCO in a container update yesterday.

Adjusted for consumer price inflation (CPI) and seasonality, US retail and food services sales declined 0.5% month-on-month in February while the last three months’ sales are down 0.4% compared to the previous three-month period. Peter Sand, chief analyst at Xeneta, told Splash yesterday: “Xeneta data clearly shows falling spot freight rates on all main trades in March. And while markets have been volatile since reaching the ceiling in September, October, the pace of the decline on China to North Europe, for instance, seems steep. Falling rates are much welcomed by the global shippers, but if the origin of it is fading consumer demand, it might be bittersweet. The next weeks will give more certainty into the reasons.”

Simon Heaney, senior manager of container research for Drewry, cautioned that it was premature to say that the declining box indices this month mark the end of the container bubble. “This is purely speculation on my part,” Heaney said in conversation with Splash, “but my take is that carriers still have the power to charge whatever they want due to the bottlenecks, but for now are happy to let freight rates drift if it helps get some of the regulatory heat off their backs. It’s good PR to be seen to be taking on more of the cost burden.” Regulators around the world have been looking into liner pricing issues a great deal of late, amid record earnings for the container shipping sector at a time when schedule reliability has hit all-time lows.

More evidence is trickling in from US-listed dry bulk executives as to how trade disruptions from Russia’s invasion of Ukraine are contributing to a near-term lift in rates. However, the longer-term fallout from potential demand disruption in a global recession and closer-term damage from China’s recent upsurge in Covid-19 cases are also factors being monitored by management of New York-listed Genco Shipping & Trading and Pangaea Logistics Solutions.

Genco chief executive John Wobensmith told hosts with cable network CNBC Asia that the bulker owner is witnessing the twin benefits of longer trade routes and slow steaming because of higher bunker prices. “The freight rates have moved up, there’s no doubt about it,” Wobensmith said, adding that numbers were up about 30% so far in March. “There are really two things that have happened here. You have the tonne miles that have grown, but we also have slowed vessels down because of the high price of bunker fuel. And when you slow the fleet down overall, rates do tend to go up.” Europe is sourcing more coal from South Africa and Indonesia while a shutdown of grain from the Black Sea region is causing cargoes to be sourced from places like the US and Colombia, Wobensmith said. “[It’s affecting} the large ships, the capesize vessels, all the way down to the minor bulk vessels, which would typically carry cargoes out of the Black Sea area,” he said. “We have seen almost a scramble to bring more coal and petcoke into Europe because of the shortages, and we’re also seeing grain shipped out of the US from stored inventories going all around the world right now.”

Pressed on the effects of renewed lockdowns in China after the Covid surge, Wobensmith conceded it’s a development that bears watching. But he said the duration should be limited. “I might equate it slightly to what we saw in 2020, where there were lockdowns and we saw a slower period for a short period of time. It was no more than a month or two and then you saw fairly large stimulus and pick-up in China, particularly in the steel industry,” Wobensmith said.

At Newport, Rhode Island-based bulker operator Pangaea Logistics Solutions, managers said dislocations appear to be accelerating what was already a strengthening market ahead of Russia’s invasion. “The overall market is in a state of disruption and reset, and it is happening quickly,” chief executive Mark Filanowski told analysts on an earnings call. “Shipping markets evolve with disruption, and they change with demand.” He said that over the next few months, the market should gain in strength thanks to the disruptions. Filanowski added: “When all this disruption gets sorted out. … I don’t know what’s going to happen to overall worldwide demand … if it will put us into a worldwide recession or not. We’re certainly hoping not, and so we think that overall, it will be good for shipping.” Pangaea is largely insulated from rising bunker prices by heavy hedging and escalation clauses in its contracts of affreightment, said newly appointed chief operating officer Mads Boye Petersen.

The Bureau of Meteorology (BOM) of Australia forecasts La Nina weather pattern to extend through April, increasing the potential for disruptions to coal, iron ore and LNG sectors as the phenomenon brings wetter weather to north and east Australia.

The BOM previously anticipated the effects of La Nina to end by late February but wetter than average weather could lead to localized flooding in the coal fields in the Hunter and Gunnedah Basin, as well as near the ports of Gladstone, Hay Point and Dalrymple Bay.

Australian rail firm Aurizon cut its coal haulage guidance to 202 MMT from 212 MMT for the 2021/22 year in response to the heavy rains and storms. In previous years, Abbot Point, Dalrymple Bay and Hay point, Queensland’s coal ports, have had to close due to cyclones caused by La Nina.

Similarly, cyclone activity in northern WA could disrupt the nation’s exports of iron ore, LNG, and petroleum. In 2019, Cyclone Veronica hit the WA coast and caused iron ore shipments to slow down for months , forcing major producers to cut their production guidance.

Russia is the world’s single largest exporter of wheat, accounting for about 20% of global wheat trade in the 2020/21 season. Ukraine is also one of the top exporters of wheat, accounting for about 9% of global wheat trade.

In 2021, the Russian Federation exported 31 MMT of seaborne wheat. That was 20% less than in 2020, which was a particularly strong year, but still 5% more than in 2019.

Russian wheat trade is generally very short haul, very fragmented, and with small cargo sizes. In 2021, at least 2,500 separate wheat cargoes (some of them were part cargoes) were shipped from Russia, with the average cargo (or part-cargo) size being 12,000 tonnes. In general, about one third of wheat exported from Russia is loaded on Panamaxes, often with multiple discharge ports. The remaining two thirds of exports are on Handy or Supras, or on general cargo vessels.

Russian exports are shipped almost entirely (98% of the total) from the Black Sea. 7.9 MMT of wheat was shipped in 2021 from Russia to Turkey, the top destination, accounting for 23%. In second place is Egypt, with 6.0 MMT accounting for 18%. In third place is Iran, with 4.2 MMT accounting for 12%. In fourth place is Saudi Arabia, with 0.9 MMT accounting for 2.5%. 

Russian grain shipments from the Black Sea are continuing but are affected by exceptionally high insurance premiums for vessels. In addition, the sanctions that have been applied make commercial transactions challenging. As a result, grain prices have soared for all major exporters. International wheat price indices are currently up by about 70% compared to a year ago.

Brazil, one of the world’s biggest wheat importers, could significantly reduce its dependance to foreign crops as record export demand provides farmers with the funds to expand their planting areas.

Brazil exported 2.5 MMT of wheat between December and March, a record level sparked by the Russian invasion of Ukraine and driven by a good harvest in 2021.

Market participants see the current 2.8 Mn hectares of sown area double in the coming years and eventually meet domestic consumption needs of approximately 12.7 MMT a year. Brazil imports 50% of its wheat needs, mostly stemming from Argentina.

Farmers have shown notable interest in switching to wheat as export opportunities strengthen the attractiveness of the crop. Brazil’s Rio Grande do Sul could see a 30% expansion of planted area this year, considering 0.6 MMT of wheat have already been sold in advance from this region.