Shipowners’ organization Bimco is predicting potential demand destruction from the Ukraine war that will hurt all vessel markets. Looking beyond any short-term export implications, the Denmark-based body’s chief shipping analyst, Niels Rasmussen, is taking a wider and distinctly bearish view of the conflict’s impact on the global economy. Immediate commodity price increases and supply challenges are likely to be felt throughout 2022, and sanctions against Russia are not likely to be lifted any time soon, he believes. “This may have sustained spill-over impact on the global economy,” he said.

Oil, wheat, and maize — all key exports from Russia and Ukraine — are trading at decade-highs already, fueling inflation further. Increased shipping costs due to historically high bunker prices will add to the inflationary pressure, and higher prices may lead to destruction of demand as consumers and businesses prioritize spending, Rasmussen forecast. He also pointed to a study by the National Institute of Economic & Social Research in the UK that estimates the war could reduce global GDP growth by as much as 1%. “No matter the specific Russia and Ukraine export developments, this will hurt growth projections for all shipping sectors,” Rasmussen said. The situation might delay a long-awaited tanker recovery, he believes, due to soaring prices denting demand. China could buy more Russian oil, and European buyers turn to the Middle East, boosting tonne miles. But despite this, Rasmussen foresees overall demand still suffering if high prices are sustained. “We therefore believe that the much-awaited rebound in the tanker markets will be further delayed and be more muted than otherwise expected,” he said.

As for bulkers, he finds it hard to imagine that what is left of Ukraine’s 2021 harvest will be shipped. The 2022 harvest may also be hit. “How much of Ukraine’s export can be replaced by export from other countries remains to be seen, but to the extent that it is possible, it could lead to increased tonne-miles demand,” the analyst said. “All in all, we believe that despite possibilities of increasing tonne-miles demand for certain commodities, the war in Ukraine is a net negative for the bulk market, driven by both a lack of commodity supply and reduced demand due to price increases.”

In the container ship market, soaring demand and rates will come back to earth faster if growth is hit, Bimco predicted. Many of the largest container lines have decided to suspend bookings to and from Ukraine and Russia even though no sanctions are currently in place. Neither is a key market, but Rasmussen warned that on specific trades the loss of Russian and Ukrainian volumes may be felt — particularly for reefers. “The impact of the war on the global economy and consumer confidence may, however, weaken growth prospects,” he said. But any impact is probably some way off yet, he added.

The disruption to global wheat supplies caused by the Russian invasion of Ukraine has elevated wheat prices to record levels. Prices of Russian 12.5% FOB have reached figures above USD 400/tonne while Australian Premium White (APW) reached USD 380/tonne.

Australian suppliers are expecting a surge in export demand in the near to medium term. Though short-term potential is seen lacking due to already pressured supply chains from an all-time high harvest. Traders see a record breaking 17.2 MMT of grain being shipped from Western Australia in MY 2021/22. The previous record stood at 15.0 MMT last year.

With prices showing no signs of easing, buyers have returned to the market after a week of inactivity, particularly in Asia. Thailand and Philippines buyers issued buy tenders for feed wheat on March 2nd, and South Korea has followed suit for wheat arriving in July.

Corn prices have also rallied as MY 2021/22 is marked by drastic change in buying patterns among Asian buyers. China has been on a grain buying spree to replenish stocks for food security reasons. China has booked 5.0 MMT of wheat for May shipments. Chinese activity has pushed other Asian buyers to buy well ahead of the curve amid supply tightness.

For the two first months of 2021, Chinese coal imports amounted to 35.4 MMT and was thus down 14.0% YOY – the lowest figure seen since 2016. In our view, the decline could be attributed to the Indonesian export ban and subsequent rise in domestic production, as we estimate that Indonesia accounted for roughly 2/3 of China’s seaborne thermal coal imports during 2021.  In a response to rising domestic coal prices, China’s domestic coal production rose 10% YOY for December – with the incremental production of 35.0 MMT comparing with the monthly average import volume of 25.7 MMT between 2019-2021. We note that relative to Indonesia’s average monthly export volume for 2021, we estimate January at 40% and February above 80% – to us signaling a gradual normalization for the country’s coal exports.

New York-listed Eagle Bulk Shipping typically doesn’t like to charter out its vessels but has made a lucrative exception for a bulker that benefited from both its exhaust-gas scrubber and war-driven market disruption in the Black Sea. Eagle chief executive Gary Vogel told equity analysts on an earnings call on Friday that the 64,000 Stockholm Eagle (built 2016) had been fixed to an unidentified charterer for between five and seven months at a robust $36,500 a day. The disclosure surprised analyst Magnus Fyhr of HC Wainwright, who questioned why a user would lock in a rate that is above current spot assessments around $27,000 per day. “That’s a scrubber-fitted ultramax and the benefit of the scrubber is over $3,000 per day —even greater in Singapore. It’s in the Far East where rates are really pushing up. There’s a lot of strength in the Pacific on dislocation from what’s going on in Ukraine,” Vogel told Fyhr.

Eagle typically uses paper contracts, or FFAs, to hedge against volatility in spot rates. “It’s five months to seven months. We usually don’t like to relet our ships because of that optional period. But when the rate is such that we can lock in this type of cash flow, it’s a better tool than FFAs,” Vogel said. Widening fuel spreads between low sulphur fuel oil (LSFO) and the cheaper high sulphur fuel oil (HSFO) used by 90% of Eagle’s fleet have continued to ramp up in recent weeks, with the current gap of $235 per tonne reaching a two-year high, Vogel said. This has offered a turbo boost to Eagle’s benefits from a spot market that is already firming off lows seen in January, which is typically the weakest month for dry rates.

Jefferies analyst Randy Giveans said in a client note on Friday that Eagle is one of the top three US-listed owners set to benefit from the trend, along with bulker peer Star Bulk Carriers and product tanker owner Scorpio Tankers. Fyhr asked Vogel whether Eagle is preparing to capitalize on the current spread with paper hedges over the remainder of 2022, much as it did in 2020 when the IMO 2020 sulphur cap regime took effect. Noting that the forward spread is expected to drop to $165 per tonne for the remainder of the year, Vogel added, “It’s something we’re looking at. You could see us start to layer in some spreads and hedges.” Vogel said 93% of Eagle’s competitors in the ultramax and supramax sectors do not use scrubbers. The Eagle boss said it is too early to tell how the market will be influenced by disruption from Russia’s invasion of Ukraine, but there were early signs of rates benefit through greater tonne miles. Eagle in recent days has fixed two coal cargoes from Indonesia to Europe at about $32,000 a day, he said. “It’s the first time we have moved coal from Southeast Asia to the continent — that involves some pretty long tonne miles,” he said.

The invasion of Ukraine has sent European coal buyers on the hunt further afield for the commodity as they seek to replace Russian volumes. The moves have brought back the rare trade from South Africa to the continent and even sparked shipments from as far away as Indonesia. A TradeWinds review of satellite tracking data from VesselsValue shows at least three laden kamsarmax bulkers in the Atlantic whose last port of call was the Richards Bay Coal Terminal in South Africa.

Kuang Ming Shipping’s 82,100-dwt KM Keelung (built 2010), for example, is bound for Brunsbuettel, Germany, after stopping at the coal export facility, where cargoes generally head eastbound to Asia. Costamare’s 81,500-dwt Farmer (built 2012), meanwhile, has Las Palmas, Spain, as its destination, though it may be a waypoint to its destination elsewhere. The Navios Maritime Holdings-controlled, 82,000-dwt Navios Magellan II (built 2020) is bound to Montoir, France, after stopping at the Richards Bay Coal Terminal. While the terminal is not listed by name on any of the ships’ destination information in Automatic Information System data, the vessels’ track put them at the coal docks rather than other dry bulk export terminals across Richards Bay. Last year, the terminal pushed out 58.7 MMT of coal but most of it went to Asia, with just 4% bound for Europe. But European coal buyers have shown a willingness to reach farther into export markets. On Friday, Eagle Bulk Shipping chief executive Gary Vogel said his company, which owns supramax and ultramax bulkers, shipped two cargoes of coal to Europe from Indonesia in fixtures that had a time-charter equivalent rate of $32,000 per day. “This is the first time the company has ever moved coal from Southeast Asia to the Continent on what is a very long tonne-mile trade,” Vogel told analysts in a conference call. That vessel demand draw from Europe, he said, is helping to put pressure on the market in the Far East, pushing rates upward there.

In addition to impacting access to Russian coal, the conflict in Ukraine has put more pressure on Europe’s efforts to back away from the carbon-intense commodity in its electricity generation, as gas prices spike. Braemar ACM Shipbroking said on Tuesday that it may not be profitable for power plants to switch from gas to coal before April 2024 — a year later than estimates from before the invasion. “The gas supply crunch experienced by Europe this winter has been compounded by Russia’s invasion of Ukraine, in which sanctions may hamper Russian gas exports to Europe,” the shipbroker said. Braemar ACM previously suggested that sanctions on Russia could send European buyers further afield for both coal and grain. In the panamax and kamsarmax market, the was in an upward trajectory on Friday after events in Ukraine led the market to stumble early in the week, as ships in the Black Sea or East Mediterranean had to hunt for new employment. But strength in the Asia market, including the demand to move Indonesian coal, helped push average time-charter equivalent rates for 82,000-dwt vessels to above $25,000 per day on Friday, the highest level since 10 January.

Shipping has come further than many think on ESG as the issues become increasingly prominent in securing finance, panelists said during TradeWinds’ US shipowner’s forum on Thursday. J Goldman & Co partner David Mack said shipping has made strides when it comes to environmental, social and governance (ESG) issues, with even commodities trading houses talking up things like diversity and cutting emissions. “I think shipping probably isn’t being given enough credit for the changes that have happened in the industry,” Mack said at the TradeWinds Shipowners Forum USA. “I think that will come through over time with higher valuations and better earnings. I think the issue that a lot of people probably do struggle with, you’re making more efficient ships, but you’re still making the instruments that are polluting much of the world. I think the important issue though is investors need to treat it like a transition, rather than a big bang changeover. It’s not like tomorrow we’re going to have ships that are zero emissions.”

He cited conversations he had with an unnamed container line transitioning to dual-fuel ships and their belief they have plenty of time to cut emissions, as necessary. Half of that discussion, Mack said, focused on ESG and he believed the focus on those issues how will put them ahead of the curve versus smaller, lesser-capitalized competitors. For Chris Weyers, the managing director for maritime services at investment bank Stifel, ESG took center stage after Joe Biden won the US presidency and Democrats took majorities in congress. “[Then] there was a big push, and a lot of institutional investors came on board with the decarbonization approach,” he said. The E, environmental, was the biggest factor in ESG, Weyers said, with big private equity firms and hedge funds cutting out upstream oil and gas investments and turning a skeptical eye toward shipping’s space in the energy supply chain. “Then in the midstream space, which is traditional shipping, there’s still a lot of investors that are interested,” he said. “But they do want to see a carbon reduction angle to any investment they’re willing to make.”

Conflict in Ukraine has caused shipping hedge fund Cleaves Asset Management to add shares in tanker companies and gas carriers to its investment portfolio. But Joakim Hannisdahl, the fund’s founder, and CEO, said the fund has mixed feelings about making this pivot. “The Russian invasion of Ukraine has created a lot of opportunity in shipping which we have successfully seized, but our overarching sentiment is with the people of Ukraine,” he said in the firm’s monthly report for February. “When the invasion started, we swiftly executed our action plan: Investing heavily in oil tankers with some allocation towards gas carriers.” Hannisdahl placed 38% of the fund’s capital in oil tankers and 8% in LNG carriers after the news broker. Another 4% was placed in VLGCs. Most of these positions have since been closed out, Hannisdahl said in an update on Twitter on Wednesday.

Before making the new investments, just over half of the fund’s exposure consisted of investments in dry-bulk stocks plus a cash position in Norwegian krone. Both have been adjusted. CAM had previously taken a bullish stance on dry bulk stocks and built a significant dry bulk position during January. Its cash position was drawn down to zero within the space of just two trading days following the invasion, the firm said. CAM does not disclose the size of its assets under management (AUM) publicly but said its index-based unaudited net asset value stood at 114 points at the end of February. This is up by 16% from January and by 18% this year to date. Hannisdahl told TradeWinds in February that the fund expects to increase its AUM “manifold” once it merges its temporary Norwegian business structure into an Irish collective asset-management vehicle in April.

The hedge fund had no intention of buying into tanker stocks prior to the military action in Ukraine, Hannisdahl said. Earnings were at all-time lows and tanker companies are unveiling their fourth-quarter results in “one of the worst reporting seasons on record”, he noted. “However, as seen so many times before in shipping: When a black-swan event occurs, you need to be pragmatic as an investor.” For Cleaves, this meant packing the fund’s portfolio with a basket of oil tanker shares, with some suezmax, aframax and product tanker exposure — ready for a predicted rise in freight rates. And what a rise it was. Average suezmax spot rates had been negative prior to the invasion, but surged to over $90,000 per day over the course of three trading days. Aframax rates increased tenfold. This had had a knock-on effect on stocks. Nordic American Tankers, which is part of Cleaves’ portfolio, has seen its share price rocket by just under 50%.

CAM also loaded up on LNG stocks, in anticipation of disruption to seaborne natural gas trade that could be positive for LNG carriers. “The picture is however ambiguous with Russian gas pipe exports to Europe being more or less landlocked, while liquefaction terminals are already running at close to full capacity worldwide,” Hannisdahl said. “Thus, we could see a situation where European demand displaces more tonne-mile-heavy Asian imports from the US.” LNG diverted from the Middle East to Europe could have a slightly negative impact on tonne-miles, but this could be offset by longer trips from Australia. Russian gas is not currently subject to trade sanctions and trips to Europe from the huge Yamal LNG project in Russia’s Far East will add to tonne-miles too.

CAM also anticipates “improving economics of moving LPG from the US to the Far East” and has bought shares in owners of VLGCs accordingly. Hannisdahl said the fund expects spot rates and equities to rise going forward. Already, he said, the LNG price differential between the US and the Far East has risen rapidly. The fund is still highly optimistic about the outlook for bulk carriers, but Hannisdahl said the Ukraine conflict has created uncertainties in the near term. Disruptions to Russian coal volumes, which are now subject to trade sanctions, could add to tonne-mile demand for bulkers as European’s source coal from further afield and Russian coal finds its way to alternative destinations, he said.

International Group P&I clubs are reviewing their obligations to Russian shipowners considering the growing array of sanctions from multiple governments, according to industry sources. While few representatives of the 13 marine mutuals that make up the IG were willing to go into details of their deliberations, given the obvious sensitivity of the situation, several privately confirmed that the matter is being discussed. Lawyers believe that there is nothing in any of the sanctions rolled out so far by the US, European Union, Britain, Canada, or Australia that rules out providing cover to Russia-linked shipping per se. However, marine insurers are naturally wary after been prohibited from providing cover for vessels involved in trading with Iran and have also had to review their conduct in relation to Venezuela. That has led to increasing awareness that a rapid response might be needed should the net be extended to take in Russia. “There is no doubt that the developing sanctions landscape is going to have a major impact on large parts of the shipping industry,” said Nick Austin, a shipping partner at law firm Reed Smith. “But the devil will be in the detail. The market will have to keep close tabs on the regulations as they are published by the authorities. The market is scrambling to get to grips with what the sanctions mean in practice, and the steps they need to take.”

The IG ruminations come after West of England confirmed that it axed cover for two of the five Russian-financed ships specifically singled out by the US due to links with Promsvyazbank-affiliated PSB Leasing. The vessels have been named as FESCO Magadan (IMO: 9287699) and FESCO Moneron (IMO: 9277412), both Russian-flag 800 teu feeders built in 2003. “We can confirm that we held the entry for these two ships,” West said in a statement. “Due to their recent designation by the US authorities however cover has been terminated in accordance with our rules.” North Group director Mike Salthouse, who is also chair of the IG sanctions committee, said sanctions against Russian have so far avoided energy and shipping and are focused instead on financial services and individuals. “As you know, clubs do not provide cover for unlawful trade, which includes a breach of applicable sanctions, or a trade by an entered vessel that would put a club at risk of breaking sanctions,” he said. He declined to discuss whether any sanctions committee meetings are underway or planned to discuss the Russia situation, other than to affirm that the committee “meets regularly.” IG chief executive Nick Shaw declined to comment. “The imposition of sanctions by the US, UK and EU creates a fluid and fast-moving situation to which we as a leading marine insurer need to respond,” said Gard, the world’s largest P&I and hull provider. “The key for us is to assist our members and clients during these difficult and turbulent times and to effectively protect people, property and the environment while ensuring that we meet all the relevant external requirements and sanctions imposed.”

In a separate development, PR firm Navigate Response, which has a strong shipping focus, has ended its relationship with Sovcomflot, Russia’s largest shipping company. A Navigate Response spokesperson said that the contract had been terminated to avoid any potential knock-on effects. The firm will take a financial hit therefore, as Sovcomflot was one of its larger accounts, with whom it has worked with for several years. German shipowners’ association Verband Deutscher Reeder has condemned Russia’s military incursion into Ukraine. VDR president Gaby Bornheim used the organization’s annual press conference in Hamburg to highlight the thousands of Ukrainian and Russian seafarers working on the German merchant fleet. “Given these and other circumstances, we are shocked by current developments and condemn Russia’s war of aggression against Ukraine,” she said. Ms Bornheim also pointed out to the ships currently stranded in Ukrainian ports and demanded that all vessels and their crews be allowed to leave the conflict zone unharmed. “Russia must respect the freedom of navigation. Uninvolved merchant vessels must not be attacked.”

New York-listed Eagle Bulk shipping closed out 2021 with another record quarter and is guiding to more strong rates as its mid-sized bulkers continue to outperform larger units. The Stamford, Connecticut-based shipowner turned in net income of $87.5m, or $6.79 per share. However, its adjusted net income of $5.40 per share fell well short of consensus analyst expectations of $6.19 per share, according to investor website Seeking Alpha. The profit allowed Eagle to declare a shareholder dividend of $2.05, slightly up from the $2 figure paid on third-quarter earnings of $78.3m under the company’s new dividend policy, which targets a payout of at least 30% of net income.

For the current quarter, Gary Vogel-led Eagle pointed to time charter equivalent (TCE) rates of $27,200 per day with 95% of days booked, nearly double the $15,124 that the company earned in the first three months of 2021. The first three months of 2021 were unusually strong for what is traditionally dry bulk’s weakest earnings period, although coming off a much lower prevailing market.

“Eagle achieved record results once again this quarter as we were able to capitalize on the continued strength of the dry bulk market,” Vogel said in the earnings statement. “Our record $88m of net income for the fourth quarter capped off a truly extraordinary year for the company – in terms of fleet growth, balance sheet optimization, and TCE performance.” Vogel said Eagle has since October paid down more than $70m in debt and declared cumulative cash dividends of $53m. It was the second consecutive record quarter for the owner of 53 supramax and ultramax bulkers. “Looking ahead, we have experienced increased volatility in Q1 on the back of short-term demand impacts in addition to typical seasonal weakness. I believe we have navigated these well,” Vogel said.

While Eagle’s rates for the first quarter have held up well, they are down from the $32,400 TCE the owner had guided to in its last earnings report, with about 75% of operating days booked. This reflects expected seasonal weakness amid factors including the winter Olympics games in Beijing. The guidance also reflected a premium over the $13,170 average year to date for capesizes and $23,267 by panamaxes, according to Baltic indices. It is also better than the $21,932 average thus far for the Baltic Supramax Index. Net revenue for the quarter were $184.7m compared to $75.2m for the same period of 2020. For the year, Eagle reported net income of $184.9m or $14.91 per share.

Diana Shipping and EuroDry both locked in charter deals lasting around a year as period rates for larger bulkers continued a steady march upward. New York-listed Diana chartered two vessels to US commodities giant Cargill in four days that showed rising term rates for capesizes and kamsarmaxes. In the latest transaction, the Greek shipowner said Thursday that Cargill’s Swiss chartering arm re-upped its contract for the 179,000-dwt Santa Barbara (built 2015) at $29,500 per day, minus a 4.75% commission. For the Semiramis Paliou-led company, that’s a significant earnings improvement for the vessel, which was pocketing $17,250 per day minus commission in the vessel’s previous deal. The new charter, worth more than $12.2m in gross revenue, is scheduled to last until at least May 2023. The deal comes as shipbrokers see the value of one-year capesize deals on the rise.

Fearnleys’ latest assessment of a 12-month charter of a 180,000-dwt vessel came in at $29,000 per day, up $2,000 for the prior week. “Period ships are still in demand and there is a steady flow of period fixtures,” the Norwegian broking house said of the capesize market on Wednesday. Capesize period rates are somewhat higher than the less buoyant spot market, where the Baltic Exchange puts average earnings at just under $13,600 per day on Thursday. Diana, which owns 34 bulkers, similarly took advantage of a rising period market for kamsarmax vessels by tying up its 82,200-dwt Medusa (built 2010) in a charter to Cargill. The ship will fetch $26,000 per day, minus a 4.75% commission, until at least May 2023. Worth $11.2m under that minimum term, the charter could last until July of next year. That rate marks a 136% increase in the daily charter rate for the Medusa.

The deal came in a week that saw Fearnleys hike its estimate for kamsarmax charters of one year in duration to $27,500 per day, a $500 improvement on the prior week. That’s better than the rebounding kamsarmax spot market. The Baltic Exchange’s spot rate averages for panamaxes — which is assessed entirely based on kamsarmax-size vessels — stood at just under $23,300 per day. That’s the highest level since 11 January.

Meanwhile, fellow Greek shipowner EuroDry fixed out a supramax bulker for at least 11 months. The New York-listed bulker owner said its 57,900-dwt Molyvos Luck (built 2014) was locked into a charter that could last up to 13 months at a rate of $25,750 per day. The ship is expected to begin the contract in May, after completion of its current term contract. The charterer was not disclosed. Broker assessments for charter rates in the supramax segment are mixed. Clarksons’ latest estimate put a one-year charter of a 58,000-dwt vessel at $25,500 per day on Friday, a dip from $26,250 per day a week earlier. And while Fearnleys’ estimate on Wednesday showed an unchanged $28,000 per day price tag on a similar deal, estimates by London shipbroker Alibra on the same day showed period rates on the rise for supramaxes and ultramaxes compared to the prior week.

For Athens-based EuroDry, the Molyvos Luck deal nearly doubles earnings for the vessel when compared to its current charter, according to chief executive Aristides Pittas. The contract brings in at least $8.5m in gross charter revenue and at least $5.5m in Ebitda. “This new charter will improve our profitability and cash flow visibility, with our charter coverage standing at about 29% for 2022,” Pittas said. Supramaxes have been experiencing a sharper rebound in the spot market, where rates are somewhat higher than the daily fee to be earned by the Molyvos Luck in its new contract. The Baltic Exchange’s estimate of spot earnings in this sector surged to $27,700 per day on Thursday, which is the highest level since mid-December. That spot market strength has been driven primarily by the Asian market, as Atlantic basin rates suffer from the impact of Russia’s invasion of Ukraine. “The Atlantic has seen more levels in the Black Sea continue to tumble. With the ongoing situation in the Ukraine still unclear, brokers spoke of owners unwilling to trade this region and many leaving the area where possible,” Baltic Exchange analysts said in their daily report on Thursday. “By contrast, the Asian routes made strong positive gains.”