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Dry Bulk Capes returned to their traditional spot at the top of the dry bulk earnings podium this month in emphatic fashion. The question remains, however, just how far can this rally run? The bulls are running for sure. Capesize freight rates are firing, propelling the Baltic Dry Index to 11-year highs with capes at their highest seasonal level since 2008 – the final few months of dry bulk’s last bullrun. Capes smashed through the $30,000 a day mark last week and are on track to break $40,000 levels this week with analysts openly talking up $50,000 possibilities. China sourcing cargoes, led by iron ore, from alternative locations other than Australia and Brazil has primed the cape market. India, China and Russia all saw their highest monthly export total on record in March, with 1.9m, 1.4m and 3.2m tonnes of dry bulk loaded on capesizes according to AIS tracking data analysed by Braemar ACM. Meanwhile, capesize cargoes loaded in Canada and Indonesia increased 55% and 127% month-on-month in March respectively, totalling 5.6m and 6.3m tonnes, marking Indonesia’s second strongest month on record. Cape loadings in South Africa and the US increased by 18% and 30% month-on-month respectively in March. “High iron ore prices have likely allowed China to diversify its iron ore purchases away from the low cost Brazilian and Australian producers. At these price levels, smaller miners have emerged as exporters, helping to boost bulker demand,” Braemar ACM observed in a recent note to clients. “It’s not only the very profitable iron ore trade being active but also the coal segment is keeping itself busy adding gasoline to the fire,” Fearnleys noted in a recent report. Growing Chinese coal demands was something also picked up this month by UK broker Arrow. “China appears to be short coal, supply gaps are trying to be filled by turning to the seaborne market and snapping up lots of Indo coal and even stretching out to Colombian and rarely taken South African,” Arrow pointed out in a new coal report. “With the peak power demand season approaching and land-based supply of coal hindered, seaborne coal demand looks set to rise and could be the dark horse of the dry cargo market in 2021.” Cleaves Securities has predicted the dry bulk run could push on for the next couple of years. “Given the historically low orderbook, very limited demand growth is needed to significantly improve fleet utilization and potentially push dry bulk earnings into super-cycle territory going forward,” Cleaves stated in a report out earlier this month. Cleaves’s high case scenario sees capes averaging $70,000 a day in 2022. Many owners have been questioning whether asset prices have leapt too far this year for them to get in on the booming market, but Cleaves clearly thinks there is still plenty of upside to come. Secondhand values surged in Q1 with Cleaves’ dry bulk asset price index up 19% quarter-on-quarter, led by panamaxes and supramaxes. Cleaves sees further upside to its asset price index, potentially up by 59% by Q2 2023. In a June to April 16 timeframe tracked by Clarksons, the bulk carrier secondhand price index has increased by 31%. The price of a 10-year-old capesize has increased by 40% to $27.25m and the price of a 10-year-old supramax has increased by 35% to $14.5m. Tankers Buy low, sell high - the mantra of every shipowner worth his or her salt. Tankers do appear to be over the worst, and buying activity has been sensational over the past six months, oblivious to the often negative rates on offer. Clarksons notes that Q4 2020 and Q1 2021 have represented the two strongest ever quarters for tanker sales.S&P activity has shifted towards older VLCCs where prices are rocketing. Take Greece’s Eastern Mediterranean, as a good example. It has just sold the 300,000 dwt Santa Marina for around $28.5m. Clarksons compared the sale with a deal from February. Then the similar-sized, Eneos Breeze fetched $23m. Witness too, the reemergence of Bob Burke into the VL segment. Burke’s Ridgebury Tankers has just reentered the VLCC space, laying down $120m for four vintage tankers, its first VLCC purchases since 2017. “This further demonstrates that many tanker owners are committed to securing tonnage before the anticipated market upturn in the second half of the year,” Clarksons noted of the Ridgebury deal in the broker’s latest weekly report. As and when VLCCs do come back in favour, they could be prized assets as newbuilds will be slim on the ground. Owners wanting to place orders at yards for large-sized tonnage are going to have to be patient with most reputable shipbuilders now unable to offer any delivery slots for big ships until 2024. The Qataris decision last year to book up to 100 slots for large LNG carrier construction combined with extreme ultra-large boxship ordering over the last eight months has seen berths taken up at key yards across Asia. Data from brokers BRS shows that remarkably in just week 17 of the year, on a number of ships basis, total vessel ordering activity so far in 2021 already equates to 48% and 46% of the orders placed in 2020 and the average number of orders placed per year across 2016 to 20, respectively. Banchero Costa reported earlier this month that more newbuilds were contracted in the first three months of the year than in any Q1 since 2008, the final year of shipping’s last great bull-run. Alphatanker, a unit of BRS, is reporting this week that it is now almost impossible for owners to order a large tanker in a Chinese yard for delivery before 2024. Increasingly, Korean yards are in a similar situation, all of which has had the knock-on effect of increasing valuations for secondhand tonnage. This sudden full up nature of yards in Asia for large-sized ships was touched upon last week by Hugo De Stoop, the CEO of Euronav. Commenting on the decision to order two VLCCs at Hyundai Samho in South Korea, De Stoop discussed rising steel prices and constraints over yards capacity to 2024. “While contracting and orderbook-to-fleet ratio remains at an historical low in the tanker segment, elevated contracting activity from other segments has reduced available capacity to build VLCCs for the upcoming years at a time when the sector needs to replace maturing vessels with more environmentally friendly designs,” Euronav stated in a release last week. Containers The red-hot container market is smashing records across the board. Just how long can the good times last? The Shanghai Containerized Freight Index (SCFI) – the benchmark liner spot reference – hit a new all-time record on Friday of 2,980 points, with the average spot price per teu around the world now hitting the $3,000 mark. Rates had been easing from record highs in January for two months, but then the delays brought about by the blockage of the Suez Canal sparked another rates rally this month. Strong spot earnings have also forced shippers’ hands, signing highly elevated annual contract terms. The red-hot markets have seen secondhand boxship prices soar, while charter rates are also in record territory. The going charter rate for an 8,500 teu ship stood at $54,000 a day as of last Friday, with 4,250 teu ships commanding $42,000 a day and 2,500 teu vessels able to bag $28,000 a day. Ships fixed this month are creating new milestones – as well as potential millstones if the markets turn sour anytime soon. As an example, Israeli carrier ZIM has taken the 9,034 teu Seamax Niantic for a very long five-year employment with Alphaliner suggesting the Eli Glickman-led liner is paying $50,000 a day for the ship. “There is no end in sight to the current strong market, with the squeeze of supply showing no sign of easing in the medium term, while demand remains robust across all ship sizes,” Alphaliner noted recently, adding: “Charterers will, at least until the summer, continue to struggle to find the tonnage they need to cover their requirements, having no other choice but to accept the terms offered by owners to fix the few ships that become available for charter.” “With very little prompt tonnage workable for sale or charter, operators are looking ever further forward for charter laycans in the larger sizes with rumours of 8,500 teu vessels under discussion for extension from Q1 2022, demonstrating the faith operators have in these rates remaining firm for quite some time,” broker Braemar ACM noted last week. The overall containership secondhand price index, according to Clarksons, has increased by 47% between June last year through to April 16. The price of a 10-year-old 6,600 teu unit has increased by 138% ($29m) to $50m over the same period, whilst the price of a 10-year-old 4,500 teu unit has risen by 268% ($25.5m) to $35m. “Port congestion and delays at both origins and destinations are expected to make the container shortage in Asia worse over the next few weeks, before easing in early June,” commented Judah Levine, research lead at box booking platform Freightos, on the current supply chain issues facing the liner shipping business. As to how long these incredible rates can last, A.P. Møller – Mærsk, the owner of the world’s largest containerline, said on Monday it expected the exceptional market situation to continue into the fourth quarter. Maersk now anticipates its full year net profit could be twice as high as earlier estimates, hitting somewhere between $9bn to $11bn. Maersk’s outlook for the global market demand growth for the full-year 2021 has been revised up to 5-7% from previously 3-5% British shipping consultants Drewry, meanwhile, are predicting container shipping will smash last year’s record profits in 2021, with 2022 also tipped to be highly profitable. “The container shipping market has never been so hot,” a new report from Drewry states. Braemar ACM concurred, noting in a report from earlier in the month: “The consensus amongst analysts is that this market is set to continue into 2022 and it is apparent that the liner companies are also backing these freight rates to continue for quite some time.”

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