HANSA 03-2022

MÄRKTE | MARKETS Market

MÄRKTE | MARKETS Market heating again after Lunar New Year The national holidays in China offered a brief respite but they didn’t throw the container and dry markets off course. By Michael Hollmann Freight and charter rates across container, dry bulk and project/breakbulk shipping have either recovered quickly or even hit fresh highs shortly after Chinese New Year, the only exception being a rather muted capesize segment. The effect that the break in industrial activity in China had on container shipping was modest by all accounts. The flow of loaded containers into the ports slowed as to be expected, however the cargo backlog in ports and yards was big enough to prevent any drop in utilisation of liner vessels. Firm statistical evidence is not available due to the lag in loading data. But idle fleet data shows that inactive capacity has only continued shrinking. Further, anecdotal reports from freight forwarders suggest that the tightness and prolonged lead times for bookings on headhaul routes from Asia and also from Europe (transatlantic) have not relaxed. As things stand, booking activity for containers ex China ramps up faster than the backlog of cargo dissipates, thus preventing any meaningful relaxation in the market. More or less all official statements either from container line or forwarding executives in the past weeks say that the extreme capacity shortages will continue into the second half of the year. Following slight reductions in container spot rates from near all-time highs, the lines are already pressing for notable increases again, through general rate increases (GRI) or peak season surcharges. This goes especially for the Far East/ North America trade with a 1,000 $/FEU hike coming up and for the transatlantic westbound trade where peak season surcharges are to be increased by 2,000 $/TEU going into spring. Looking at the Xeneta Shipping Index for container freight rates with up to 31-days validity, only the Far East/North Europe route suffered a 5.4 % decline in prices month-on-month whereas rates for transpacific eastbound and especially for transatlantic westbound liftings went up further. Important to keep in mind, though, that fleet productivity in container shipping remains heavily constrained due to port congestion on the US West Coast and in China where local covid outbreaks and quarantine measures in port cities continue hampering cargo operations to some extent. Meanwhile chartering enquiry by liner operators perked up remarkably again after a short lull. Short-term and longer period rates both started trending up, pushing charter market indices like the New Con- Tex past their record levels of last autumn. Even at these dizzy heights, forward demand for tonnage as far ahead as 2023 remains brisk – both in chartering and sale & purchase. All indices for breakbulk rising Due to lack of cellular vessels, plenty of tonnage demand still flows into the geared bulk carrier and multipurpose segments. »After a brief quiet spell around Chinese New Year, all sorts of conventional ships capable of carrying containers are soughtafter again«, as one Hamburg shipbroker explained. The other alternative for shippers is to convert containerized cargoes back into bulk and breakbulk which resulted in more full charters of multipurpose ships for commodities like bagged coffee ex Brazil in recent weeks. The effect is the same: more general cargo and bulk vessels get used for business previously covered by container lines. Thus it is no surprise to see freight and especially period charter rates for multipurpose heavy lift ships continue climbing. Average period hires for 12,500 dwt freighters are now near 22,000 $/day after VIEWPOINT More volatility, more price risk The spike in bunker prices will not ebb anytime soon, reducing shipowners’ flexibility to reposition tonnage. Meanwhile interest in scrubber-fitted vessels keeps growing due to the increased price spread between HFO and VLSFO, explains Harro Booth, managing director of bunker trader Elboil. Bunker prices hit record levels, so did freight rates in some sectors. Is fuel cost a major issue again for operators? Harro Booth: There are reports of dry bulk owners refraining from sending Harro Booth – Managing Director of Elboil empty vessels to the more attractive Atlantic market (soybean export) because of the high cost of repositioning. Instead they opt to stay in the Pacific. Ourselves we haven’t had any indications across our © Elboil portfolio of operators switching to slow steaming or making similar operational changes. Don’t forget: for operators in certain trades it is impossible to slow down to save fuel as schedule reliability is already at a record low. What about price risk? Given the current backwardation of crude (and bunker) prices, is this the time to hedge bunker exposure or should operators wait for further price declines? Booth: Price risk is always an issue and therefore hedging is something we generally advise and offer to our clients. Whether or not »now is the time« is difficult to predict. A large American financial institution forecast 100 $/b (Brent) by Q3/22. We expect further volatility and 10 HANSA – International Maritime Journal 03 | 2022

Orders & Sales – Container Ships New Orders Probably also due to Chinese New Year, less major newbuilding projects have been published in the last weeks. Reports that Zodiac Maritime is behind an order for six 16,000 TEUs with LNG propulsion at Korean DSME have not been confirmed yet. Secondhand Sales Interest in second-hand tonnage is not dwindling in the new year. Latest transactions reportedly include the sale of the German-built 2,490 TEU vessels »Cindy« and »Elizabeth« for .5 and million respectively by Tufton and MSC‘s purchase of Sinokor vessels »Singapore Bridge« (4,250 TEU), »Baltic South« (4,400 TEU) and »North Bridge« (4,300 TEU) for 3 million en bloc. Several more negotiations are said to be underway, especially in smaller segments. Demolition Sales Silence continues to prevail on this front. Hapag-Lloyd boss Rolf Habben Jansen does expect that demolition will probably increase this year and continue to rise in the coming years. At present, however, the fleet is being left on the world‘s oceans. a +4.6 % month-on-month rise in February, according to Toepfer’s Multipurpose Index. »The market is pretty strained, it is tough to find any additional vessels«, said Lars Feller, president of dship Carriers. Project shippers are thus faced with an extreme lack of spot or early prompt capacity. »Exporters in Europe have to factor in 2–6 weeks waiting time. In Asia it’s even 2–4 months,« according to Feller. Lars Rolner, founder and partner of United Heavy Lift (UHL) with its fleet of 26 multipurpose ships, said that his company has seen continued high enquiry from all high-end project and machinery segments, »a lot of wind energy equipment but also yachts, port mobile cranes, all sort of plant equipment and more and more oil- and gas-related cargoes.« Two large freight contracts signed by UHL last year are alone going to absorb around 40 % of its fleet capacity, as Rolner points out. Further large project contracts are under negotiation, he said. The Market Sentiment Index (MSI) of One World Shipbrokers – the shop set up by former SAL COO Justin Archard in 2020 – points to further upside potential in project shipping. Gauging a range of factors from cargo booking activity, voyage results to investment and recruitment trends at carriers, the index went up further by 1.1 to 58.8 points (values >50 signalling growth) for January. The leading indicator for the 6-months outlook even increased a bit faster, by 2.0 to 59.4 points. Container ship t / c market 3500 3000 2500 2000 16.09.21 Container freight market WCI Shanghai-Rotterdam WCI Shanghai-Los Angeles MÄRKTE | MARKETS COMPASS ConTex 13,612 $ /FEU 10,682 $ /FEU 17.02.22 Month on Month 3,344 +11.6 % Dry cargo / Bulk Baltic Dry Index 1,886 Time charter averages / spot: $ /d Capesize 5TC average 12,000 Panamax 5TC average (82k) 21,288 Supramax 10TC average (58k) 25,588 Handysize 7TC average (38k) 22,644 Forward / ffa front month (Mar 22): $ /d Capesize 180k 16,857 Panamax 82k 25,150 MPP TMI – Toepfer's er's Multipurpose Index February '22 21,863 $ - 3.1 % - 4.6 % + 28.0 % + 40.4 % + 16.8 % + 31.2 % + 12.1 % + 46.1 % + 37.1 % another rise in the short term which will also send bunker prices skywards. The scrubber spread has widened significantly again with corresponding benefits for scrubber-fitted tonnage. Will it remain that way? Booth: Spreads have generally increased but with significant regional differences: 165 $/mt in the ARA region versus 222 $/mt in Fujairah where VLSFO supplies have diminished as cargo traders prefer to send VLSFO to Asia where profit margins are higher. Whether or not these spreads will remain, is yet to be seen. But for sure, interest in scrubber-fitted vessels is going up. The total number of scrubberfitted ships grew from 2,609 to over 3,580 since January 2021. More and more ships are designed for LNG operation despite the surge in gas prices and marine LNG. What’s the outlook? Booth: The fact is that presently marine LNG is not competitive compared with other fuel options. Notwithstanding, the fleet under LNG operation keeps expanding considerably. Last year 240 LNG dual-fuel units were contracted as per DNV. Clearly, many industry players consider it to be a transitional fuel towards zero carbon as green fuels will unlikely be available at scale by 2030. Many of our own customers are still cautious, though, due to lack of LNG bunkering infrastructure and availability of more cost-effective fuels such as VLSFO or biofuel blends. February '21 7,146 $ 12,500 tdw MPP/HL »F-Type« vessel for a 6–12 months TC Tankers Baltic Dirty Tanker Index Baltic Clean Tanker Index 692 679 + 0.0 % + 19.8 % Shortsea / Coaster Norbroker 3,500 dwt earnings est. € HC Shortsea Index BMTI/EUSSIX Black Sea route ($/t) 6,300 31.46 27.83 + 26.0 % + 3.6 % - 18.7 % Norbroker: spot t/c equivalent assessment basis round voyage North Sea/Baltic; HC Shipping & Chartering index tracking spot freights on 5 intra-European routes; BMTI/EUSSIX: 3,000 t Odessa to Sea of Marmara Bunkers VLSFO 0.5 Rotterdam $ /t MGO Rotterdam $ /t Forward / Swap price Q2/22 VLSFO 0.5 Rotterdam $ /t 690 827 625 + 4.1 % + 7.0 % + 6.7 % Data per 17.02.2022, month-on-month HANSA – International Maritime Journal 03 | 2022 11