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Dry Bulk It’s January and just as the sun rises every day, the time between Christmas and Chinese New Year is the traditional period where dry bulk takes a breather. Yes, the Chinese economy might not grow as strongly in 2022 as many in dry bulk had hoped, but there is still little reason to expect that the current upcycle is coming to a close any time soon, multiple analysts believe. “Although the high level of volatility in 2021 might be slowing down, the dry bulk sector remains in an upcycle driven by relatively low growth in supply, strong demand for bulk commodities, and continuing infrastructure bottlenecks and supply chain constraints that affect the whole shipping universe,” Breakwave Advisors suggested last week. Looking further ahead, Lorentzen & Stemoco predicts demand for the dry bulk shipping market will outstrip modest supply growth this year and continue to do so until 2024. Lorentzen & Stemoco predicts vessel capacity utilisation will firm up to 87.6% this year and tighten further to 88.6% next year before possibly hitting 90.7% in 2024. The 90% vessel capacity utilisation is the magic threshold as outlined by Dr Martin Stopford in his Maritime Economics book where freight rates leap as bargaining power shifts from charterers to shipowners. Tankers It’s been a painful month for tanker owners. Even rising oil prices have failed to lift the gloom. Rates for VLCCs have skirted near all-time lows. Multiple analysts including BRS and Jefferies suggest owners need to hold out until the second half of the year for oil demand to get back to pre-pandemic levels. Looking further ahead however there is an argument to be made that now is the time to buy into tanker stocks at the bottom of the cycle. “Oil demand is recovering, supply is responding, capacity is set for limited growth, and rates can move only one way from here,” a bullish report from Evercore stated this week. According to data from tanker broker Gibson, 2023 newbuilding deliveries are running at a 25-year low with 2024 deliveries also looking to be relatively low. Given the massive amount of containership and LNG orders last year, most bluechip yards are now fully booked for 2023 meaning the tanker fleet will register minimal growth over the next couple of years. More immediately there is an argument to be made that things are not quite as bad as some would suggest - it just depends what matrix you prefer. Viewed from a tonne-mile perspective, VLCCs have failed to recover ground lost during Covid, as pointed out recently by Braemar ACM. VLCCs started 2020, pre-Covid, with VLCC tonne-mile demand of around 18bn tonne-miles and have only recently recovered to 17.5bn tonne-miles – some 3% shy of pre-Covid levels. Oil demand is also still 1.6% below levels in Q4 201 However, VLCC demand as measured by oil on the water, something Braemar ACM claims as the truest measure of dynamic fleet demand, this is already about 5.4% up on January last year, and 10% up on January 2020 before the Covid pandemic. On this measure Braemar ACM observes the sector is just 1% (or 8 VLCCs) more oversupplied today than it was on the eve of the exceptionally strong market of the first half 2020. Containers The opening days of the new year in the world of container shipping have been a continuation of the main themes that contributed to a record-breaking 2021. Covid-19-related delays, rates climbing to new highs and the general public increasingly conversant in all things shipping. Can container shipping better its financial performance of last year where liners were tipped by consultants Drewry to have made a combined EBIT in excess of $190bn? Annual contract freight rates this year will be going up by more than 60% on the major routes, when compared with 2021 contract rates, Drewry estimates. Taking into account both spot rates and contract freight rates, average container shipping rates will see a further annual increase in 2022: the latest Drewry Container Forecaster expects an increase of 16% in 2022, following the doubling of rates in 2021. Drewry came out this week, stating it does indeed see liner shipping boosting its coffers further this year, predicting a collective EBIT of $200bn. Analysts at HSBC, meanwhile, reckon liner shipping will make a $163bn operating profit this year, up 8% year-on-year. If ships remain tied up then there’s little chance of a rate collapse anytime soon. Logistics giant Kuehne+Nagel’s digital platform seaexplorer has developed a unique Global Disruption Indicator, which tallies the cumulative teu waiting time in days based on container vessel capacity in disrupted hot spots. The indicator shows that today’s ship logjams are roughly 11 times what they ought to be for the long vessel queues to start to ease. Data from San Francisco-based freight forwarding and customs brokerage Flexport shows containers are taking twice as long to reach their destination compared to the pre-pandemic period. Sea-Intelligence data shows that pre-pandemic typically 2% of containership capacity was caught up in delays, a figure that shot up to 11% in 2021.

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