It has been a busy start to the year for supply chain executives working for US wholesaler Costco, the fifth largest retailer in the world.

Costco sent the boxship charter markets into overdrive recently when it teamed with US carrier Pasha Hawaii to take seven charters for ships ranging in size from 2,100 to 3,500 teu with most taken on a three-year basis.

These ships will now face greater scrutiny however as shareholders have voted for a proposal that called on the retailer to set out plans to reach net-zero greenhouse-gas emissions by 2050 or sooner including across Costco’s supply chain, known as Scope 3 emissions. While shareholder resolutions are not legally binding in the US, the results of the vote last Thursday serve as another reminder to global liners that their customers are under enormous pressure to slash total emissions.

“We need more time to determine how we can achieve meaningful and operationally-viable absolute CO2 [equivalent] reductions in our operations and our global value chain,” Costco said in the wake of the vote.

In October last year Amazon and IKEA committed to move their products off fossil fuel ships by 2040, joining companies including Unilever and Patagonia.

With Europe on edge about a possible conflict between Ukraine and Russia, shipowners around the world are eyeing the potential disruption and resulting extended tonne-mile scenario as a spur for earnings. There are around 100,000 Russian troops massed on the border with Ukraine and frantic diplomatic efforts are ongoing to avoid an invasion. Russia’s importance to European energy cannot be understated. Eurostat data shows that Russia delivered 46.8% of natural gas imports to Europe during the first semester last year. Russia’s share of oil was 24.7%, ahead of Norway’s 9.1% and Kazakhstan’s 8.9%. The country is also the top supplier of coal to the continent. Russian and Ukrainian wheat exports combined, meanwhile, total about a quarter of the global trade.

Russia exported about 7.6m barrels per day of crude and refined products to the rest of the world in 2021 – three times as much as Iran. Russian oil exports represent 8% of global oil demand, a tenth of the global seaborne oil trade volume and about 7% of international tanker tonne-miles according to data from Braemar ACM. Europe currently accounts for two-thirds of Russian crude exports; half its fuel oil exports and about three-quarters of its CPP exports. Just how much of this could be redirected by Moscow to clients in Asia, led by India and China, remains to be seen. One other possible line of action that Europe and the US might take in the event of an invasion is to put sanctions on the Russian-owned fleet, something that has stymied trade for the likes of Iran and Venezuela in recent years. Nearly 2% of the global tanker fleet is owned or controlled by Russian interests, according to Braemar ACM. Ownership is most concentrated in the aframax fleet, with almost 8% of the global aframax fleet owned by Russian interests.

In terms of the repercussions for the LNG trades, analysts at broker Affinity note that the US is gearing up to offer greater volumes of gas to Europe. Likewise, China has started reselling some LNG cargoes to Europe while Australia has said it is ready to send gas shipments to Europe too. “The huge tonne-miles involved in LNG being transported from Australia to Europe would bode well for the LNG carrier markets, in addition to volumes originating from Qatar, with the loss of Russian natural gas via pipeline,” Affinity pointed out in a recent note to clients.

In dry bulk, grain volumes out of the Black Sea, particularly corn and wheat, may face “some headwinds” in the near term because of friction in the region, Braemar ACM warned in a recent note. For coal, Europe would have few options if Russia was barred. Imports of Russian steam coal into Europe, of which the majority ships to Germany, Belgium, and the Netherlands, totaled 33.6 MMT in 2021, increasing by 23% year-on-year. “Although the EU may intend on looking elsewhere for coal in the event sanctions were put in place, it will be difficult to secure equal volumes from other sources. Supply constraints in other key suppliers in the Atlantic basin, namely Colombia and the US have contributed to an already tight coal market. Further, the ongoing Indonesian coal export ban, although easing, has put seaborne coal supply under even more pressure,” Braemar ACM pointed out, going on to warn that during periods of conflict, shipping typically sees rising insurance premiums for vessels entering disputed regions.

Danish container analysts at Sea-Intelligence have pointed out too that the escalating crisis carries a risk element for shipping services into the ports in Ukraine, but also has a risk element related to cyber-attacks against infrastructure – such as shipping and ports – in many NATO countries. Finally, there is the issue of crews, with both Ukraine and Russia being among the most important sourcing nations in the world. Diplomatic efforts continue, with US Secretary of State Antony Blinken due to hold talks with Russian Foreign Minister Sergei Lavrov later today.

Germany’s Hapag-Lloyd has emerged as another bellwether for the liner industry after reporting a four-fold increase in earnings in 2021. The world’s fifth-largest liner operator raked in Ebitda of $12.8bn last year, according to preliminary figures released today. That is massively up from with $3.1bn in 2020 and hits the top end of what the company had forecast on 29 October. The results were propelled by a particularly strong market in the fourth quarter. This saw Ebitda climb to $4.7bn and Ebit hit $4.2bn. The performance was fueled by a rise in average freight rates to $2,577 per teu in the fourth quarter, some 15% higher than the previous quarter.

The Hamburg-based company attributed the staggering improvement to significantly improved freight rates resulting from a very strong demand for goods exported from Asia. The company said major disruptions in global supply chains led to a significant increase in transport expenses. Volumes transported were on a par with the prior year at 11.9m teu due to strained supply chains. Revenues increased to roughly $26.4bn in the year as freight rates doubled. Average freight rate were $2,003 per teu, compared with $1,115 per teu in the previous year. Hapag-Lloyd will release its audited financial figures and outlook on 10 March.

But analysts including Fearnleys Securities believe the preliminary results bode well for other liner operators including Israeli carrier Zim. Hapag-Lloyd expanded its fleet last year to 257 container ships, 23 more than in the previous year. Ten of those ships came from the takeover of Rotterdam-based liner operator NileDutch. The company is also a partner in THE Alliance along with Ocean Network Express (ONE), which has unveiled a stunning set of results. Earlier this week, ONE forecast a $15.4bn profit for the full Japanese financial year. The Singapore-based carrier logged a profit of $4.9bn for the period from October to December, up from the previous year’s figure of $3.94bn.

The Japanese-owned company expects to make a profit of $4.75bn in the final quarter of the Japanese financial year, despite Chinese New Year and blank sailings due to supply chain disruptions.

Cape rates have pulled out of a 19-month low as the Chinese New Year kicks off. The average weighted time charter rose to $10,753 per day at the close on the Baltic Exchange on February 1. That is 85% higher than the year’s low on January 26. Any upside will be capped by seasonality, as February is considered the weakest month of the year owing to the lunar new year holidays, according to Breakwave Advisors.

“We believe capesize rates have already seen the lows for this year,” the US-based consultancy said in a note. “That does not necessarily mean a sharp recovery is imminent.” The company expects rates to hover at around current levels for the next several weeks as “seasonality remains a headwind for iron ore trading”, it said, adding that it expects a sharp recovery in spring as healthy rates in the other segments pull up the largest bulkers.

With commodity prices high, there are “many reasons to be optimistic” about the dry bulk market, it said, noting how China’s macroeconomic data has bottomed out, and activity should thus pick up over the next few months. “We anticipate sequential improvements in steel output and better sentiment around the steel-intensive industries, which should flow through the dry bulk markets,” Breakwave said, given easing financing conditions and more economic stimulus.

China’s steel production contracted 3% to 1.03bn tonnes last year, compared with 2020, according to the latest statistics by the World Steel Association. In December, output dropped 6.8% to 86.2 MMT. Global output ended the year 3.6% higher, despite a 3% fall in December.

Meanwhile, Anglo American is anticipating iron ore production at 63-67 MMT this year, up from 63.8 MMT in 2021. Its Kumba operation in South Africa is expected to produce 39-41 MMT, with its Minas-Rio mine in Brazil making up the rest, dependent on the extent of Covid-19 related disruptions, combined with third-party rail and port performance in South Africa. Production guidance for metallurgical coal is pegged at 20-22 MMT this year, compared with 15 MMT in 2021.

It is no accident that many of the capesize bulk carriers on order at shipyards in Asia are newcastlemaxes measuring 300 meters long and 50 meters wide. Those are the maximum dimensions for bulkers to fit in Australia’s port of Newcastle, the world’s largest hub for coal exports. TradeWinds recently reported a move by Eastern Pacific Shipping to officially stop carrying the commodity on its commercially managed bulkers. This is an important step, as it is a recognition by a major shipping company that its environmental, social, and corporate governance (ESG) policies can, and should, take into consideration what cargoes it is willing to carry. It is a move that might be hard for a VLCC owner to carry out in crude. But bulker owners, even those with newcastlemaxes, have a choice. Idan Ofer’s Eastern Pacific has made a choice that undoubtedly reflects a greater commitment to sustainability than continuing to carry the commodity.

But this move comes up against the paradox of coal: in a world facing the need to cut its greenhouse gas output, the hunger for coal has reached record heights. Bulkers will be carrying large quantities of coal for some time to come. Coal remains the top fuel for electricity generation in the world, but that appeared to be changing in 2019 and 2020. Coal-fired power generation was slumping and there was belief that it might have peaked in 2018. That is not how it turned out. While the International Energy Agency (IEA) has yet to tabulate the final number for last year, it predicted in a December report that 2021 would be the highest on record for coal-fired power production. Coal took the brunt of the power demand slump when the world was hit by the Covid-19 pandemic, but then economies came racing back with a fury, particularly China, the world’s leading consumer of the commodity. Asia’s reliance on coal came to the fore in recent months. In Indonesia, a shortage of coal led the government to temporarily ban coal exports, tying up a swathe of bulkers that were either loaded, loading, or waiting to be loaded at the start of this year.

China curbed its steel industry ahead of the Winter Olympics, which impacted imports of the coking coal used by that sector, but the gloves are expected to come off this month. The one issue that most highlighted China’s dependence on coal was a power crisis in September and October last year, fueled by a shortage of the commodity as the economy bounced back faster than domestic mines could keep up with. And the IEA, an international advisory body on energy, believes coal may still have demand records ahead even as countries push for renewables. While coal is expected to decline in the US, the economic powerhouses of Asia will be in the driver’s seat. The IEA estimates that China’s demand will grow by 1% per year, and India’s coal consumption will jump by 4% per year in the years ahead. After rebounding 6% to nearly 7.91bn tonnes in 2021, the IEA estimated that global coal demand should rise to nearly 8.03bn tonnes this year, beating a record set in 2013. It is then expected to stay there until the end of 2024.

That is not likely to last forever, but the trend line shows no hurry to meet calls to phase out unabated coal-fired power by 2050, even though the IEA considers coal to be the single-largest source of global carbon emissions. Eastern Pacific chief executive Cyril Ducau told TradeWinds correspondent Jonathan Boonzaier that the company wants to play a “small role” in reducing the economic viability of coal, in support of the Glasgow Climate Pact forged at the close of the United Nations’ COP26 conference last year. That is in line with other efforts to put pressure on coal through shipping. Reuters reported in November that six European financing houses that provide 5% of the dry bulk sector’s capital finance were reducing exposures to vessels that carry coal or were considering it. Insurance giant Swiss Re also swore off reinsuring thermal coal transport starting in 2023.

All the while, coal may not have reached its peak, and even when demand for the commodity ultimately begins its descent, there will still need to be bulkers to carry it for some time to come. The question is, will other shipowners and operators follow the path forged by Eastern Pacific, distinguishing themselves by shunning coal?

India’s Great Eastern Shipping has logged better quarterly earnings as bulker rates hit 20-year highs. The Mumbai-listed owner said net profit in its third quarter ending 31 December reached INR 2.05bn ($27.4m) from INR 1.76bn a year ago. Revenue rose to INR 9.3bn, against INR 8.5bn. Bulker time charter earnings soared 168% from the same period in the previous year, hitting $31,003 per day.

Great Eastern said that dry tonne-miles rose by 4.8% year-on-year in 2021, primarily led by trade growth in minor bulks. The global fleet grew 3.5%, but congestion, which had touched a 10-year high of 5% in the July to September period, helped tighten the market. The owner’s crude tankers saw rates slip 27% to $12,098 per day from a year ago, while product carriers were up 2% to $10,689.

Great Eastern noted an increase in oil demand, with higher refinery runs leading to an increase in trade during the quarter. “However, while product trade is 3% below pre-Covid levels, crude trade continues to be much worse, at 10% lower,” the owner said. Supply overhang continued as the fleet grew by about 2% year-on-year, not counting the release of floating storage vessels. The company assessed the last three months of 2021 as the second-weakest third quarter since 1990. “The silver lining is that both crude oil and product inventories have been drawn down by about 10%, and are now below their five-year lows,” the shipowner said.

The LPG carrier fleet put on 6% to reach earnings of $28,609 per day. VLGC spot earnings averaged $39,800, down from the previous year, but still strong, the company added. Trade demand grew 4.5% from last year, but fleet supply growth of 6% and high bunker prices led to a drop in earnings. Strong US LPG exports and increased congestion at the Panama Canal continued to support the freight market, however. The owner’s gas vessels have 89% of days booked for the year ending 31 March. Bulkers stand on 49%, with tankers averaging 32.5%.

India’s biggest private shipowner controls 45 vessels, plus 23 offshore units.

It was in June last year that Splash first reported of a major retailer, Home Depot, chartering in container tonnage to battle the ongoing supply chain crisis. At the time, the news was seismic, highlighting the severity of the transport chaos on the transpacific. Since then, a host of other major retail brands, including Walmart and IKEA, have pursued similar tactics. Now, one Chinese furniture manufacturer has taken the next step.

Clarkson Research Services is reporting Loctek Ergonomic has ordered an 1,800 teu boxship from Huanghai Shipbuilding for a swift delivery in the first quarter next year. The Ningbo-headquartered desk manufacturer has managed to negotiate a competitive $32.6m for the new ship whereas secondhand tonnage for similar sized ships is now trading at around $50m.

“In order to further enhance the company’s competitiveness and accelerate the company’s overseas business development, the company plans to sign an 1,800 TEU containership construction contract with a domestic first-class shipyard,” Loctek Ergonomic stated in a stock exchange filing.

Among all categories shipped via containers, it has been assembled furniture that has borne the brunt of today’s sky high freight rates. Freight rates account for more than two-thirds of the retail value of these goods, severely impacting profitability for many in the furniture business.

Ocean Network Express (ONE) has lifted its full year forecast for the 2021 financial year to $15.4bn. The bullish projection comes as the world’s sixth-largest liner operator reported third-quarter results nearly $1bn higher than the previous year. The Japanese-owned company logged a profit of $4.9bn for the period from October to December, up from the previous year’s figure of $3.94bn. That was largely due to ongoing strong demand and improvements in the freight market.

In October, ONE expected to make a $11.76bn profit for the current financial year. But strong cargo demand and ongoing turmoil in the global supply chain had pushed up spot rates, it said. So, the company expects to make a profit of $4.75bn in the final quarter of the financial year, despite Chinese New Year and blank sailings disrupting supply chains.

Chief executive Jeremy Nixon praised the “strong performance. Our balance sheet is now fully restored with some increasing safety buffer to support the business’ future investment needs.” Nixon added that the company is in the process of finalizing a midterm business plan. That had the aim of providing “a healthy balance between improving product competitiveness, annual investor returns and future long term enterprise value growth”.

Global supply chain bottlenecks continued to impact marine and inland operational environments, and disruption was likely to remain so for the majority of 2022, Nixon said. He said the situation was particularly acute in North America where ONE is only able to deploy around 80% of its proforma weekly capacity. The company expects to recoup higher yields in ongoing contract negotiations with shippers. “The 2022 client contracting is now well underway with January-December contracts completed, and April-March now commencing,” Nixon said. “The fixed contract rate levels for 2022 are already indicating a significant yield enhancement over 2021 level. “Meantime the short-term spot market remains firm,” he said.

ONE continues to launch new services, despite a shortage of market tonnage and challenging main port operations. Recently launched services include a Russia-Far East service linking China and South Korea, and a direct service between Nhava Sheva in India and its core transshipment hub in Singapore.

ONE is strengthening its environmental capabilities and has opened a green strategy department at its Singapore headquarters. Nixon said this had been launched in preparation for ONE’s future newbuilding requirements and help reduce the company’s carbon footprint.

ONE’s revenues in the third quarter were $8.3bn. Revenues for the first three quarters of the Japanese financial year were $21.6bn.

Shipping Strategy expects the dry bulk market to peak this year, earlier than previously forecast. With demand growth levelling off at 4%-5%, in line with historical averages, and fleet growth at 2%, after scrapping, the market looks to be in owners’ favor, the UK-based consultancy said in an outlook report.

Demand growth last year came in at 7.6% in volume terms, which translated to 15% activity growth for capesizes, as measured by tonne-miles adjusted for productivity measures such as port times, sailing speeds, and dry dockings. Fleet growth was at 3.4%.

“Even with the lower demand figures this year, the favorable demand-supply fundamentals will see freight rates in all bulk segments up a notch versus last year,” its founder Mark Williams said.

This year’s demand figures consider a slowdown in China, where economic growth is forecast at 7.2% versus 8.1% in the past year. Capesizes are highly correlated to China’s gross domestic product outcomes due to the heavy-reliance on steel-making commodities, while panamaxes respond to wider emerging markets GDP, according to Mr Williams. China’s slowly imploding property market may therefore derail demand for steel and construction materials, both of which will fall under the country’s carbon trading system this year, he said, which may in turn affect bulk carrier demand. “But it’s not just a China story as the slowdown is partially offset by activity in the rest of the world, which has led to a trade surplus,” he said, adding that he assumes the same level of fleet inefficiencies as last year.

The earlier peak in the cycle, which was forecast for 2023, is due to stimuli related to the public health situation, which also pushed back new deliveries, he said. Meanwhile, new orders are being stymied by a shortage of shipbuilding capacity, high newbuilding prices and continuing uncertainty over which low-carbon fuel solution to choose, presumably for all “the latent demand to bubble up later this decade,” Mr Williams said. About 300 bulkers were ordered in 2021, a third of which were placed in the final quarter, he said. Only a quarter had some form of low-carbon technology specified.

About 20m dwt are due for delivery this year in what may pan out to be a low scrapping year, and 17m dwt in 2023.

The progression of the pandemic and cyber-attacks are two of the key threats that could put a pause on any recovery to the container shipping market and disrupted supply chains. “In the happy scenario, with no additional shocks to the system, we could hope for a reversal towards normal operations towards the end of the year, and hope for a normalization of freight rates halfway through 2023,” Vespucci Maritime chief executive Lars Jensen said in a webinar.

But he warned that shippers should not make plans based around that scenario. “There are two extremely large risks right now,” he said. “One is shutdowns in China because of the coronavirus. You could have Shanghai closed tomorrow and that is very much still on the cards.” The second was the high risks of cyber-attacks on critical infrastructure because of the Russia-Ukraine conflict. “Keep in mind that when Maersk was taken down by a cyber-attack in 2017, that was an attack on Ukraine by Russia,” Mr Jensen said. “Nobody even targeted Maersk; they were purely collateral damage.”

Back then, the market could handle the world’s largest carrier being out of action for a week because there was buffer capacity in the system. “Right now, there is zero buffer capacity,” he said. “Bring down a line or bring down one or two major ports and the mess we have now will look like nothing compared to what could happen.”

For individual shippers there was little to be done to mitigate the risks, however. “There is not a lot you can do right now, except ask yourself, is there any critical data I need where I am dependent on looking up that data from one of my suppliers. You may want to make sure you have an offline version available.” Even if neither of those scenarios played out, any “normalization” of freight rates would be at a level “substantially higher” than in the past and would remain there.

“When people ask when will things return to normal, they tend to mean paying less than $1,000 dollars to send a box to the US west coast,” said Sea-Intelligence vice-president Bjorn Vang Jensen. “The answer is not for a long time. I just don’t see that happening. That mindset needs to die.”

Mr Jensen said that adaptation to the new circumstances was not only possible but necessary. “The very largest importers are poised to make record profits in 2021 despite the operational problems and despite the high freight rates,” he said. “That clearly shows us that if you are really hurting and struggling in the current environment, the harsh message is that you have to look at your business model. How do you make it work under these conditions rather than hope for the market to come back?”