A massive stock market correction, inflationary worries, the Federal Reserve bank raising interest rates, Russia’s invasion of Ukraine and rising oil prices — all scary headlines have done little to dampen the fortunes of US-listed shipping stocks. The sector’s shares are outperforming against virtually all metrics measuring the broader market over the last five months, according to data sourced by Streetwise from investment bank Jefferies. Take the larger market as measured by the S&P 500 index. It reached a peak of 4,796 on 3 January and has plummeted 13% since, a decline that started well before Russian President Vladimir Putin firmed up his war plans. The drop was largely driven by rising inflation and fears that the US Federal Reserve bank would embark on a series of interest-rate hikes to rein in the economy.

But where other names faltered, shipping equities moved up. The average gain of the 29 New York-listed names under Jefferies’ coverage has been 19.49%, with dry bulk owners increasing the most at 30.6%. Every single operating sector over that time has appreciated, with tankers coming second at 22%. The Russell 2000, the small-cap index perhaps most comparable for shipping purposes, has declined 13.5% over the same period. The stocks making up the Russell index reached their recent peak on 8 November and has fallen 19.6% since that date, with the S&P 500 down 11.3% from the same date. But again, shipping names are up 17.7% over the period, with dry bulk listings rising 44.6% and container ships jumping 20%. All other shipping sectors have appreciated as well.

Finally, a much more recent measure comes since 24 February, the day Russian troops entered Ukraine. Since then, the S&P 500 once again has sold off, by 1.5%, with the Russell edging up 1%. Shipping stocks are up 10.74% since the war started, with the LPG sector this time edging dry bulk in gains, 15.2% to 13.4%. Again, all sectors are up, with tankers climbing 11.4%, LNG carriers rising 9% and container ship shares growing 3.7%.

Taking the last development first, Jefferies lead shipping analyst Randy Giveans said investors are recognizing that shipping can benefit not just for the moment but longer term from European nations turning around Russia as an energy supplier. “That may be permanent. Western Europe is now going to accelerate their independence in commodity sourcing. They’re willing to pay more for a more stable source. The question is whether it’s perpetual,” Giveans said. “Even if Russia were to say tomorrow, ‘Hey, sorry about that,’ Europe is still going to dislocate from them and that’s big for shipping.”

But the US stock market was losing steam well before Russia’s invasion. Stocks began to sell off in early January – even before that for many small caps – based on persistent inflation in the US and a recognition that the Fed would be forced to respond by raising interest rates. Streetwise looked at the issue and its implication for shipping stocks in the 13 January edition, when one of Giveans’ colleagues, Jonathan Chappell of Evercore ISI, expressed worry that a small-cap selloff by investors might indiscriminately tank shipping stocks as collateral damage. But Jefferies’ latest numbers show that hasn’t happened, at least not yet. “There’s been a big dislocation from anything growth-oriented, such as tech stocks trading at heavy multiples. In an inflationary climate, you want hard assets, and shipping is all about that,” Giveans said.

While that could bode well for public shipowners through 2022, it’s much tougher to predict outcomes around Ukraine. Giveans sees a treaty or truce in which energy prices steady and Europe continues to turn away from Russia as the optimal outcome for shipping. “The negative would be if the war were really to escalate, Europe were to go into recession and commodity prices were to go completely berserk. Strong commodity prices are good for shipping. Ridiculously high commodity prices are not,” Giveans said.

The global seaborne commodities trading map continues to be redrawn at a blistering pace in the wake of the Russian invasion of Ukraine two weeks ago. Yesterday, the United States announced a ban on Russian oil and other energy imports. “We’re banning all imports of Russian oil and gas and energy,” President Joe Biden said in remarks from the White House. “That means Russian oil will no longer be acceptable at US ports and the American people will deal another powerful blow to Putin’s war machine.” This will apply only for energy imports into the US. The UK intends to implement such a ban “by the end of the year”. Other European allies are not expected to join the US in the ban, at least for the time being. German chancellor Olaf Scholz said that although Berlin supported tough measures against Moscow, Russian energy supplies remained “essential” for daily life in Europe.

In 2021, Russia exported 8.2 MMT of crude oil to the US, which represented 3.9% of Russia’s seaborne crude exports, and less than 3% of Russia’s total crude exports including pipelines. By comparison, in the same year, Russia exported 114.2 MMT of crude oil to the European Union accounting for 53.9% of Russia’s seaborne crude exports, plus an additional 40 MMT by pipeline. Last year, Russia exported 4.3 MMT of clean oil products to the US, which represented 6% of Russia’s seaborne clean products exports. In the same year, Russia exported 41.9 MMT of clean oil products to the EU, accounting for 57.9% of Russia’s seaborne clean products exports. Russia did not export any natural gas to the US at all last year while shipping 12.1 MMT of LNG to the EU, plus three times as much by pipeline. “Whilst a ban on Russian energy exports to the USA is significant, it’s a drop in the ocean compared to the trade between Russia and the European Union, which remains the much bigger prize,” commented Ralph Leszczynski from Bancosta Research. The European Commission yesterday outlined plans to rid the continent’s dependency on Russian natural gas by two-thirds by the end of the year, in a plan called REPowerEU.

Meanwhile, the war and subsequent sanctions are seeing ships and cargoes pile up at ports across Europe. Leading liners – with the notable exception of COSCO – have stopped calling at Russia and its ally Belarus. Israeli maritime data firm Windward has since detected a spike in congestion at ports across much of Europe, as many boxships reroute. Ports in Cyprus, Bulgaria, Latvia, and Finland are experiencing a sudden spike in congestion of between 40 to 80%, according to Windward. Alphaliner noted in its most recent weekly report that the withdrawal of shipping services calling at Russia and Ukraine is resulting in a significant re-routing of cargoes, exacerbating the backlog of containerized freight in ports and terminals, many of which are already suffering from severe congestion problems. “More congestion means more shipping capacity held up, and further pressure on the supply of tonnage, which can only contribute to keeping charter rates at sky-high levels,” Alphaliner predicted. Christian Roeloffs, co-founder and CEO of Container xChange, commented: “Due to ongoing disruption to shipping in the Black Sea we expect container build-ups at ports to exacerbate at storage areas across the region.”

In dry bulk one of the big changes in regional trading patterns detected by shipping platform Sea/ has been a very big buildup of bulk carriers anchored off Constanza, a Romanian port in the Black Sea. Earlier this week, London’s marine insurance market widened the area of waters around the Black Sea and Sea of Azov that it deems high risk. The Joint War Committee (JWC) said that the high-risk area had been widened to waters close to Romania and Georgia after initially adding Russian and Ukrainian waters in the Black Sea and Sea of Azov last month. Members of InterManager, the global ship management association, gave details of the abandonment of four stranded ships over the weekend and how the crew were evacuated. There remain many ships’ crews still stuck in Ukrainian waters with embassies working to get them out of the war zone. InterManager advised that crew can be evacuated via Moldova, Romania, or Poland. The government of Poland has allowed Ukrainians to open bank accounts, which InterManager has suggested could be a way forward for solving the payment situation of Ukrainian seafarers. Finally, in today’s Ukrainian conflict shipping news roundup, the state-run Bangladesh Shipping Corporation (BSC) has made an insurance claim worth $22.8m dollars for the Banglar Samriddhi, a bulk carrier abandoned in Ukraine after a rocket attack. The attack killing the ship’s third engineer, Hadisur Rahman. The remaining 28 crew were evacuated to Romania.

The conflict in Ukraine and the ensuing sanctions on Russia are likely to have an ongoing impact on global container supply chains despite the relatively limited volumes shipped to and from Russia. Russia’s main exports are energy and strategic minerals, and Ukraine’s are largely foodstuffs, and there will be important implications for commodities, according to Flexport supply chain economist Chris Rogers. “That is important because that will feed into all manufacturing supply chains,” he said in a webinar. “Anything that is using metals, plastics or energy is going to be affected by the economic impacts of the conflict.” The main transmission mechanism of the economic impact was already being seen in higher commodity prices, which have accelerated significantly. “Demand was already elevated during the pandemic and there is no outlook for this to fall,” Mr Rogers said. “There are also concerns about potential shortages, even though so far the supply of these commodities is to actual be reduced.”

The biggest impact would be seen on supply chains in high-technology and other from other forms of sanctions. “The sanctions initially are focused on finance, which is making it more difficult to do business in Russia,” he said. “But we have also seen companies begin to change their approach to business in Russia, closing factories and retail outlets.” The squeeze in Russia would be on high-technology goods, which would have a long-term impact on Russia’s manufacturing economy. But sanctions were likely to evolve further, he added. “We have seen rapid adaptations already and as each step of the conflict has escalated, we have seen rhetoric from the US and EU on tightening sanctions even further.”

That rhetoric was raised even higher yesterday, when the US, European Union and UK announced measures to reduce their dependence on Russian energy. “These could then have knock on effects on European supply chains as any shortage of natural gas imports from Russia would have a significant impact,” said Mr Rogers. “It will be difficult to displace Russian gas in Europe. If there are interruptions to the gas supply, there will be consequences for the European economy and on European supply chains.” Beyond sanctions, however, there were also operational risks to supply chains from the conflict. “The Russia-flagged container fleet is not big in a global context and only two small feeder vessels have been sanctioned. The bigger issue is the unilateral decisions by port workers to not handle Russia cargo either in or out. That could evolve.” This in turn could lead to further build-ups of Russia-bound cargoes at transshipment hubs. “That cargo has to go somewhere, and that is contributing to potential congestion,” he said.

But according to World Bank figures, total bilateral container trade with Russia amounted to just under 5m teu in 2020. “It is not nothing, but it is not an industry changing number. The big container lines are not taking Russia bookings and the question now is whether that capacity is redeployed to other trades. But it is too early to say what the outcome will be.”

Container xChange chief executive Christian Roeloffs warned that there could be more pressure on Asia-Europe trade lanes due to a modal shift from air and rail, which were now closed via Russia. “We expect this awful war to add to the stretched nature of global container supply chains, bringing yet more inflation, disruption and delays,” he said. “Overall, the situation for container availability is likely to worsen, but this will vary by port and region. Central and northern Europe is already congested, and any further trigger to the cargo flow will only worsen the state of container pile-ups.”

A scramble for commodities could lead to a continued surge in the markets the next months. Some unusual trades like Corn being shipped from Brazil at this time of year, increased Wheat exports from India, Russian Wheat going to China and increased Steel Product exports from China have been reported the last week. Most likely there are such unusual trades seen for all commodities directly affected by the invasion…

We have pointed to increasing macro risks developing from the second half of this year and onwards for some time. The current situation further worsens the outlook in this regard, with weakening outlook for grains being thrown in as well….

One such risk is the lead rising or falling energy prices has on economic growth. We are not sure whether dry bulk demand growth will weaken enough this year for earnings to be materially weaker than last year. If it happens, we think we will see it in Q4, maybe already in Q3. However, in 2023 there is too much negative on the demand side to expect earnings at similarly high levels to 2021 and the most part of 2022…

Diana Shipping has ensured that an incoming capesize bulker newbuilding that it acquired in a December 2021 resale will remain busy for quite some time. The Semiramis Paliou-led owner of 35 dry bulk vessels on Wednesday fixed the 181,500-dwt Florida (built 2022) for five years to trader Bunge at $25,900 per day. The fixture has been signed for at least 58 months and may be extended to 62 months. New York-listed Diana expects to make at least $45m in revenue off the deal. It is expected to start on 29 March, the same day that Japan’s Namura Shipbuilding plans to deliver the vessel to the Greek shipowner.

“This is a very rare event indeed but indicative of the confidence many charterers are gaining that this freight market will remain elevated,” Clarksons Securities analyst Omar Nokta told TradeWinds. “Most of the term charter deals over the past year have been for durations of 12 months or less. I can’t recall a 5-year deal for a cape in quite some time, especially one at these levels.”

The Baltic Exchanger’s average spot rate for the ships, also known as the capesize 5TC, stands at $18,928 per day after jumping by 20% on Wednesday. The daily rate of $25,900 per day is a “nice premium” to the average forward freight agreement rate of $22,000 per day over the next five years, Jefferies analyst Randy Giveans said. “That said, this capesize is a brand-new 2022 delivery, so it should earn a premium to a 5- to 10-year-old capesize,” he told TradeWinds. “Diana Shipping is clearly a market-leader in time charters, and charters like this are part of their fleet strategy.”

The Florida is the first capesize that Athens-based Diana has acquired in six years. The company has not disclosed the seller that placed the order for the newbuilding with Namura. Diana’s ships, which range in size from panamaxes to newcastlemaxes, are fixed for between a few months to almost two years, according to its website. Most of the charters are from 12 to 18 months in duration.

The dry bulk market picked up on Tuesday as the Americas stepped up to provide coal and grain exports that are not coming from Russia and Ukraine during the ongoing conflict. The panamax 5TC, a spot-rate average across five key routes, improved 4.8% to $27,367 per day, according to Baltic Exchange data. Navios Maritime Holdings’ 82,224-dwt kamsarmax Navios Southern Star (built 2013) was said to be fixed for a transatlantic trip from the US Gulf to Europe at $21,500 per day, the exchange said. That came as average rates for the roundtrip voyage on the same transatlantic trade picked up 5.5% on Tuesday to $22,880 per day.

The supramax 7TC also had a better day, rising 3.5% to $30,062 per day. “Rates in the Atlantic have remained firm despite the loss of coal from Ukraine and Russia, and brokers attribute the strong Atlantic rates to high cargo levels of coal from the US and grains from South America,” Clarksons Platou Securities wrote in a note.

Disruption of commodities from Russia and Ukraine has certainly benefitted tonne-mile demand as western European imports are being sourced from greater distances, Jefferies’s analyst Randy Giveans told TradeWinds. “Much of this trade in on mid-sized and small-sized vessels, further supporting rates for everything from kamsarmaxes to handysizes.” Ukraine exported 28.2 MMT of grain in 2021, according to Clarksons. Russia shipped off 145 MMT of coal in the same year. Capesize rates have also risen on the back of positive sentiment for the smaller asset classes and higher coal and iron ore trades, he said. But Fearnleys Securities noted that rising bunker prices can also boost both owners’ time-charter equivalent rates and day-rates. “For owners, fuel is largely averaged out over the financial quarters and largely seen as a pass-through cost over time,” the investment bank wrote. “However, fast changes to bunker prices (reflected in the freight rates) could benefit owners in the short run as bunkering is usually done every 2 to 3 trips for larger sizes.”

The higher focus on commodities amid the war also stands to benefit the dry bulk sector by improving sentiment as carriers look to secure capacity on longer voyages, Fearnleys added. “We are heading into another year with high volatility, the effect on grains and minor bulk and longer distances likely materializing later in the year when Black Sea crops are getting into season should war and sanctions continue.”

Danish bulker operator Ultrabulk says the war in Ukraine is pushing up demand for ships as commodity users stock up on materials. The company reported record earnings for 2021 on Tuesday and forecast that market fundamentals for dry bulk remain strong due to a low orderbook and positive economic conditions. Ultrabulk chief operating officer Hans-Christian Olesen told TradeWinds that consumption of raw materials and grain are not likely to fall in the immediate future amidst a rush toward “commodity grabbing. We are seeing our customers out there securing that their factories and smelters can get the minerals that they need to keep their production up because their customers want the products,” he said.

With food, commodity and fuel prices rising, many buyers are rushing to purchase materials and transport them to production facilities, Olesen said. Far Eastern markets are particularly high, but the Atlantic is getting a direct impact from the Russia and Belarus sanctions, he added. “So, we are seeing a very split Atlantic and Pacific,” Olesen said. But he said fewer than expected ships are moving in ballast to reposition themselves for well-paid voyages due to marine fuels hitting prices of $1,000 per tonne. “It’s a big decision to ballast 20 or 30 days in this current [fuel price] environment,” he said. However, purchasing managers are under pressure to make decisions about stockpiling raw materials to prevent production closures. “Sometimes stockpiles increase when the world is not at ease because everyone wants to protect their supply.”

Ultrabulk forecast a net result in the range of $40m to $80m for 2022. It recorded a gain of $75m for last year, compared to a loss of $16m in 2020. Olesen added: “Like the rest of the world we are watching anxiously where is this war going to take us. Could it escalate out of control? We hope not, especially for the people involved. But for the dry bulk trade we are quite positive if the war does not send us into negative growth rates which then drags the whole economy down.”

Six bulkers are heading to the Russian Black Sea port of Novorossiysk, where they are due to arrive in the coming days, according to Lloyd’s List Intelligence data, despite it being in the Joint War Committee listed area. The bulkers, with a combined capacity of 253,795 dwt, range from handysize to panamax, and hold flags from Barbados, Panama, Liberia, Marshall Islands and Malta, the data shows. The vessel owners are linked to Turkey, Greece, and India.

While there is no ban on loading cargoes from the Russian port, which exports grain, coal, fertilizer and timber, the situation in Ukraine means that various advisories have warned of risks, with likely higher insurance premiums for calling there. West P&I said that while European Union sanctions have targeted Novorossiysk Commercial Sea Port, there is no prohibition on using its terminals, paying port fees or other charges if no sanctioned banks are involved in the transaction. There were 11 bulk carriers at the port as of March 7, data shows. The vessels are mostly in the handysize category, with a couple in the supramax/ultramax range. They are largely owned by Turkish companies, and a couple of Russian entities, among others. One market source said that adventurous owners would be making these trades, which were likely to be lucrative. Several owners in western Europe have said that they will steer clear of the region and would not take any new Russian business considering the unprovoked attack on Ukraine by Russia. Meanwhile, no bulkers have been entering Ukrainian ports given safety risks following the invasion by Russia which forced port operations to halt.

Only two bulkers — the vessel Riva Wind (IMO: 9301196) and New Siham (IMO: 9197882) — called at Odessa since the incursion. The vessel Sivota (IMO: 9363039) called at the Yuzhny grains terminal on February 24 but left the following day. As of March 8, there are 34 bulkers above 10,000 dwt in the JWC Black Sea and Sea of Azov war risk area, down from 56 on February 25, according to Lloyd’s List Intelligence. The restrictions in supply of grains from the Black Sea region, which accounts for about a third of global trade volumes, has sent wheat and corn futures prices spiraling, and alternative suppliers may be tricky to find. According to Danish grains consultancy BullPositions, in the coming weeks and months, corn from the US Gulf could be the best bet as there are ample stocks with the potential for an exports boost. Elsewhere, France and Germany could add 500,000 to 1.0 MMT of wheat and barley per month before the new crop arrival, it said.

During the National People’s Congress on Saturday, the Chinese government announced a 5.5% growth target for 2022, the lowest target since 1991, and significantly below the 8.1% growth achieved in 2021. This is in comparison to the IMF’s Chinese growth forecast of 4.8% in 2022, released in January. Citing increased domestic and international risks, the release stated that economic stability must be a “top priority” for China this year. Among other economic targets announced, the budget deficit target was lowered from 3.2% to 2.8% of GDP while inflation targets remained flat at around 3%. A major risk to the inflation target, as with many countries globally, remains soaring commodity prices, which may hamper the spending power of the Chinese consumer. Since 25 February, Brent crude oil has increased by 33.2% while Newcastle coal prices have gained 68.8% at the time of writing. Overall, Chinese dry bulk imports have slowed so far in 2022, declining by 5.2% YoY across the January-February period, respectively. This comes as pressure on inventories for iron ore and coal have eased in 2022.

Along with the economic targets mentioned above, the National People’s Congress in China reiterated aims to ensure food security by increasing production and reducing reliance on international markets. This comes following policy released late last month announced a range of measures to improve self-sufficiency in the agriculture sector. These included retaining grain output above 650 MMT per annum and maintaining total farmland areas beyond 120 million hectares by preventing any repurposing of these areas. Further, the government is putting increased regulation on the country’s hog industry to restrict any additional swine flu outbreaks. Following record grain imports in 2021 as demand remained firm following the pandemic, agribulk shipments into China have slowed so far in 2022. Chinese grain imports totaled 10.6 MMT in February, declining by 2.7% YoY and the lowest monthly total since April 2020. Of the total grain shipments across January—February, which totaled 24.9 MMT, 56% and 17% have been soybeans and corn respectively as shipments out of the US have started to ramp up.

A merchant seaman, Mr. Hadisur Rahman, third engineer onboard the bulk carrier Banglar Samriddhi, has already been killed in this conflict. Others have been injured. I want us all to remember that, because, from here on, I am going to deal with the topic at hand in my usual way. Yes, I am very serious indeed. On April 2, 1982, the queen of England found that she had enemies. They had declared themselves such by landing on the beach at Port Stanley in the Falkland Islands without showing their passports, and then shooting up the Royal Marines barracks at Moody Brook, which was empty, because the marines were defending the governor’s house. Nobody died – at that point. Lots of people died soon afterwards.

One effect of the queen having official enemies, in this case the government and the people of Argentina, was to trigger the operation of the queen’s enemies’ risks provisions in the Marine and Aviation Insurance (War Risks) Act of 1952, and, very fortunately, there was still one man in the City of London who remembered how those provisions worked. He knew this because he had worked under his father in the same job at the end of World War Two, and I know the story that I here relate because I was at that time a junior colleague of his. These are some of the hosts of little things that go with war, so far as shipping is concerned, which many of us have forgotten

On October 19, 1989, the citizens of Argentina ceased to be enemies of the queen in law, having ceased to be such in practice on June 14, 1982, and that was that, so far as marine insurance and charter parties were concerned. I mention this because it is the most obscure aspect of a sudden outbreak of war, and its effects on merchant shipping, that I can think of. There will be many more, and we are, each of us, about to find some. These are some of the hosts of little things that go with war, so far as shipping is concerned, which many of us have forgotten. There are going to be lots of these, and readers may like to add their own. Some people are having to remember what happens in terms of demurrage under sundry charter parties when a ship is unable to discharge her cargo at the agreed place because the port work force refuses to work the ship, because of the place where she loaded all or some of her cargo. I think I did once know, but I have forgotten. Do you remember?

Do we remember much about the Black Sea; specifically, the Straits, and the Montreux Convention of 1938? The bit that we probably remember is that pilotage is not compulsory but is certainly advisable, but how many of us remember that merchant ships have the right of free passage in peace time, and in war time, unless Turkey is a belligerent, or – the bit that gets forgotten – clause 6 – if Turkey considers itself to be threatened – and let’s keep in mind that Turkey announced, on February 27, that a state of war now exists. This may be a good moment to remember that Turkey joined NATO because Russia wanted to revise the Montreux Convention, soon after World War Two, and that the Cuba missile crisis began when Russia took a dim view of the US stationing nuclear missiles in Turkey and put some in Cuba. We may also remember that, years after that crisis was defused, it was found that Russian missile battery commanders in Cuba had been authorized to launch nuclear missiles without reference to superior authority in the event of an American landing in Cuba, and that the American military had indeed planned such a landing? We were that close.

A rather different question arises where – as is not unusual – a ship has a crew which includes either or indeed both Russians and Ukrainians, the latter being a not very happy circumstance, which owners and managers must rely on good old fashioned seamanlike common sense and decency to resolve, because the one thing both groups now have in common besides history is that none of them can go home. As no Chinese curse ever said, we live in interesting times.