After the free fall in charter rates across the dry bulk and container ship sectors in spring, markets have begun to stabilise or even bounce back. The largest vessels are reaping the greatest benefits.
The worst of the corona crisis is over. That at least seems to be the mood among most chartering people[ds_preview], be it in the dry cargo, project/mpp or in the container ship sector. No doubt, the effects of the crash in earnings since February will continue to be felt on the balance sheets of shipowners, with even shooting stars such as MPC Container Ships getting forced into financial restructurings.
But the trend in voyage earnings and time charter rates is sideways or even showing up again. The most conspicuous sign of a rebound is the recent surge in the Baltic Dry Index led by the 180,000 dwt capesize class. It makes market participants rub their eyes: Having traded at sub-OPEX levels for the better part of the last months, average time charter earnings suddenly bursted into the very high $ 20,000’s per day – just shy of the $ 30,000-barrier which many consider to be the breakeven level for a lot of modern vessels delivered throughout the 2010’s.
Panamax (74,000-82,500 dwt), supramax (52,000-58,000 dwt) and handysize bulkers (28,000-38,000 dwt) are trailing somewhat behind. However, rates of $ 11,000 (panamax) and $ 6,700-$ 7,300 (handy, supra) are probably way more than shipowners were expecting to achieve just a few weeks ago. The main driver of the current recovery is rampant seaborne iron ore demand in China where the steels and infrastructure construction sectors are seeing a speedy recovery. Seaborne iron ore demand year-to-date already exceeds volumes in the corresponding period last year while steel production and export of steels (important for handy and supramaxes) came back onto growth retail in April, too.
China leading the recovery
China is buying all the iron ore it can get amid supply constraints as illustrated by iron prices (62% CIF China) above the 100 $/t-mark for several weeks in a row. Panamaxes and supramaxes are benefiting from continued strong grain flows ex East Coast South America, beyond the typical peak season, while the US Gulf as important loading region for handies and supras has sprung to life again, too. In the multipurpose heavy-lift sector, time charter rates are at least stabilising following the steep corrections of April and May, according to Toepfer’s multipurpose index.
Most 12,000 dwt »workhorse«-type vessels have been absorbed back into the project tramp trades, with the Far East even faced with a tightness in heavy-lift capable vessels, as brokers point out.In container shipping, liner operators have done a remarkable job in maintaining and pushing up freight rates, prompting analysts to revise their doom-and-gloom forecast of spring. Some now even project billions of profits instead of losses for liner carriers this year.
The second quarter proved to be the most challenging for them. Latest data from UK consultant Container Trades Statistics (CTS) point to a year-on-year drop in full container loadings worldwide of 18% in April. Will it have been the low-point? Latest investor guidance by Maersk and by freight forwarding giant DSV fuel hopes that the collapse in trade volumes was not as severe as expected. Trade data for May is going to be released shortly, it will give an indication whether the general cargo/container trades are on an upward trajectory again, narrowing the gap with last year. Port call statistics by Clarkson Research point in that direction already: traffic for deep sea cargo vessels in the dry and container segments are only reduced by 7-8% year-on-year in June versus a fall of 10% during May.
Fixing spree for large boxships
The container ship charter market also witnessed a sudden change of sentiment. Fixing activity – especially for post-panamax and classic panamax vessels – went through the roof at the start of June after 2-3 months in which redeliveries outweighed new fixtures by far. One Hamburg-based broker recorded around 40 fixtures of post-panamax ships during the first two weeks of June – double the volume during the whole month of May. According to Alphaliner, the number of ships in spot positions fell by 17% to 223 worldwide within a fortnight as per 15 June. There are now the first signs of ships fixing above last done, with levels for 8,500TEU vessels recovering from $ 12,000 to around $ 17,000 for longer durations.
Classic panamaxes managed to stop the decline and lift fixing levels above $ 7,000 per day again. For the sub-panamax and feeder classes below 4,000TEU, the rate trend is still sideways but the good thing is that ships continue to be able to cover their operating expenses.On the other hand, latest macro-economic data does not make for comfortable reading, with both the World Bank and the IMF down-grading their world GDP growth forecast to around -5% for 2020. Growth in 2021 is not expected to make up for the losses this year. However, these are all value/monetary considerations, weighed down by the price falls for oil and other commodities.
The volume and tonne mile prospects, that are key for shipping, may be better than overall GDP developments. Restocking and inventory building in the dry goods segments as well as increased tonne mile demand for tankers – China buying more from Atlantic producers… – could offer more unexpected tail winds, even during the traditional summer lull.
Michael Hollmann
