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Dry Bulk Cape rates were down below $3,000 yesterday, compounding an absolute shocking August. A combination of slowing Chinese demand and easing port congestion have made for one of the worst months on record, and puts the traditional stronger final quarter in doubt. “Right now, the challenge in staking out an upward direction in capesize bulk carrier freight rates is two-fold,” argued analysts at Lorenzten & Co in a recent report. Any uptick is riding on an economic recovery in China pushing up requirements for steel and requirements for imports of iron ore, and, secondly, the ability by miners in West Australia and Brazil to come to market with enough cargo. The unwinding of port congestion has been the other more subtle reason for the fading fortunes of the big bulk carriers. Last year, congestion, principally in China, sucked up a huge amount of tonnage. According to data from brokers Braemar, queues of laden bulk carriers reached as high as 61.5m dwt in September 2021, equivalent to 6.8% of the fleet. Now queues currently lie at 38.5m dwt for the fleet, a 37.5% decline from the highs last year and 18.4% below the five-year average. “[B]ulk carrier congestion will not play as prominent a role in supporting the market going forward as it did in prior years, particularly since the pandemic began,” Braemar predicted in a recent report. For capesizes, the C5 iron ore route from West Australia to China is the single largest route in terms of tonnes moved. Since the start of the year, the average laden leg duration has declined by what Braemar estimates to be 4.5 days, thanks mainly to a reduction in time waiting to discharge in China as well as improving average load waiting times in west Australia. Tankers All month Splash has been reporting on the soaring fortunes of the tanker sector. Whether spot or long-term rates, or asset values - everything has headed north in August. Prices for newbuilds and secondhand tonnage are now “on a tear”, according to a recent report from Poten & Partners. The last time asset prices increased like that was during the tanker supercycle from 2004 to 2008. The VLCC earnings climb since June has been christened the most impressive summer rally in the sector on record by Castor Analytics in the US. From early June until the middle of August, time charter equivalents (TCEs) for non-eco tonnage rose by $65,000 per day, finally dragging the sector out of its loss-making habits, which had been impossible to shrug off throughout the first half of the year. “Never has so much crude oil been imported by Europe on VLCC tonnage and for the first time since the 1990s, European imports are now a significant part of VLCC global demand,” Castor stated in a new report, adding: “This has caused a geographic fragmentation of the fleet and much tighter position lists east of Suez, a development which has driven charterers’ ‘Fear Index’ higher.” “Spot fixture volumes in the Arabian Gulf have returned to pre-pandemic levels during the past two months while US Gulf fixture activity is approaching record levels,” an update from Jefferies pointed out. Equally bullish are analysts at HSBC, noting in a report published this week: “We believe the tanker sector could serve as a natural hedge against recession, as a retreat in oil price due to weaker economic activity will drive restocking demand from potential contango trades and thus support tanker earnings, especially given current low inventory levels.” Oil tanker supply/demand and fleet utilisation Source: Cleaves Shipping Fund Containers One wag on Twitter this week expounded on a theory that the "container spot rates dropped this much this week" is the new "there are this many ships outside _ port this week”. “Moderately interesting to people outside the industry, old news or largely irrelevant to people inside it,” the commentator suggested, and, while amusing and not incorrect, the fact is, wherever you look the container markets are coming off the boil fast - albeit from incredibly overheated levels. The latest spot rate data published by Drewry’s World Container Index shows an accelerating trend in terms of rate declines on Shanghai to Los Angeles and Shanghai to Rotterdam. The Shanghai to Los Angeles rate dropped 6% last week, and has dropped 10% over just two weeks. Prior to that it had taken five weeks to accomplish a 10% rate decline. Shanghai to Rotterdam rates dropped 5% last week and have dropped 9% in total over the past two weeks. Prior to that it had taken eight weeks for the rate to decline 10%. Likewise, last week’s 275 point drop on the Shanghai Containerized Freight Index (SCFI) was one of the largest in its history. “This clearly signals a weakness in the market, especially as we right now ought to be in the midst of the peak season prior to Chinese Golden week in a month's time,” commented Lars Jensen from Vespucci Maritime. “The lag of inventory overload, coupled with the effects of growing inflation has caught up with the system,” suggested Jonathan Kempe, the CEO of Shipz, going on to predict further declines in both demand and rates over the next six months. “Our foray into a global economic slowdown is well under way,” Kempe warned. The demand-led spikes seen during the pandemic that propelled container shipping to record earnings are now a thing of the past, according to recent analysis from Copenhagen-based Sea-Intelligence. Sea-Intelligence has run the numbers on supply and demand during the covid era, and its conclusions add to the growing consensus that volumes are slipping, and it is only supply chain chaos such as port congestion that is helping prop up rates. Global demand was consistently at a level 10% higher than capacity, from November 2020 to January 2022, according to Sea-Intelligence. However, the gap has been narrowing, and the most recent data from June, shows a gap down to 2% versus the pre-pandemic levels. “All in all, what the data shows is that the extreme spikes in freight rates in 2021 were indeed driven by a situation where demand suddenly exceeded capacity at a global level – but it can also be clearly seen that this was an effect primarily driven by the unavailability of capacity,” Sea-Intelligence argued. The recent trend towards normalisation has in turn also been primarily driven by gradual improvements in schedule reliability and vessel delays, Sea-Intelligence suggested, going on to predict that the supply/demand balance will continue to decline, and freight rates will be under increasing downwards pressure. However, Parash Jain, HSBC’s global head of shipping and ports research, maintained that liner shipping now has a stronger bargaining position thanks to consolidation. “Going forward, we argue that after years of consolidation and the formation of mega shipping alliances, the shipping lines have learnt the capacity discipline and while there might still be volatility in freight rates, the rock-bottom level of freight rates seen in the past decade might no longer persist in the future,” Jain said.

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