Baltic Freight Index Snaps Four Week Rally, falls 22% as Vessel Rates Exceeded Equilibrium- TC Shipping Monitor

The Baltic Capesize Index was down 12 points, or 0.5%, at 2,483 on Friday. It declined 22% for the week after it had surged 52% the prior week with the impact of cargoes such as iron ore and coal pushing bids higher. Iron ore futures were again higher, but vessel rates had exceeded equilibrium and came back as a result. The BDI had more than doubled in November to hit a one-and-a-half-year peak. The capesize index fell 33% for the week after it had jumped about 84% the prior week.

The panamax index fell 6% this week, the biggest weekly fall in a month after it had gained 13% the prior week to its highest level since July 2022. The supramax index was up 3.3% for the week after it was up 16% for the week prior.

Panamax Vessel at Sea

Dalian iron ore futures gained, buoyed by robust export data from China and speculation of economic stimulus. The move followed last week where prices had their first weekly loss in seven as China’s government continued to intervene in the market to regulate prices.

China’s property sector is its largest steel consumer. Lower-than-expected Chinese steel output, and a protracted property crisis has continued to hamper any sustained demand. Singapore iron ore futures continue to oscillate around news of China’s faltering economic recovery and optimism over its near-term demand prospects.

China is the world’s largest consumer of iron ore and Australia the world’s largest producer and exporter. On Friday iron ore futures rose, reversing earlier weakness and on track for weekly gains, on signs of a stabilizing Chinese economy underpinned sentiment already buoyed on extra stimulus for the world’s biggest steel producer.

Global shipping has been swirling around since Russia’s invasion of Ukraine, right on the heels of Covid afflicted shipping channels since 2020. Since then, it has been trying to find it’s feet and the latest setback was the COVID shutdown in China and reopening.

Baltic Exchange Dry Index (BDI) Segments (December 8, 2023)

  • The Baltic Exchange’s dry bulk sea freight index snapped its four-week winning streak and was down 12 points, or 0.5%, at 2,483 on Friday.
  • The overall index, which factors in rates for capesize, panamax and supramax shipping vessels carrying dry bulk commodities finished down by 22% for the week after it rose 52% for the week prior. The main index more than doubled in November to hit a one-and-a-half-year peak.
  • The capesize 5TC index which tracks iron ore and coal cargos of 150,000 tonnes on Friday jumped 56 points, or 1.3%, to 4,259. The index fell about 33% for the week, after it had jumped about 84% in its best week since March the prior week. It had soared the most in over two years with the impact of cargoes such as iron ore and coal pushing bids higher.
  • The weighted average spot rate across five key capesize routes rose by $466 and was assessed by panelists at $35,320
  • “The capesize shortage in the Atlantic could last for the rest of the year, and as such freight rates could stay strong in December,” Filipe Gouveia, shipping market analyst at BIMCO, said, adding that rates will likely cool in the first quarter of 2024.
  • The Panamax 5TC basket of spot-rate averages across five key routes which usually carry coal or grain cargoes of about 60,000 tonnes to 70,000 tonnes lost 93 points, or 4.2%, at 2,104. It fell 6% this week, the biggest weekly fall in a month. It gained 13% the prior week to its highest level since July 2022.
  • “The congestion in Brazil and restrictions in the Panama canal have impacted the panamax segment the most, limiting supply,” Gouveia said, as low water levels in the Amazon river left 157 panamax ships, about 5% of the fleet, waiting at Brazilian ports.
  • Average daily earnings for panamaxes, decreased $844 and was assessed by panelists at $18,932.
  • Among smaller vessels, the supramax index was down 17 points, or 1.1%, at 1,521 Friday. It was up about 3.3% for the week after rising 16% the week prior.
BDI Dec 7, 2023

We saw seen a pattern of sharp bounces and declines in the BDI all year. Ocean freight rates came were under pressure to start 2023, with the Baltic Dry Index (BDI) dipping to its lowest level in near three years as poor demand for vessels weighed on values. Since London’s Baltic Exchange began publishing the BDI in 1985 (originally the Baltic Freight Index), it had only been lower during two other periods: in the first half of 2020, at the height of pandemic lockdowns, and in the first half of 2016, during an extreme downturn for the dry bulk sector.

Baltic Dry hit a temporary peak on May 20, 2008, when the index hit 11,793. The lowest level ever reached was on Wednesday the 10th of February 2016, when the index dropped to 290 points.

Drewry’s World Container Index (WCI)

The Drewry container freight rate index rose 5.7% this week to $1461 per 40ft box, thereby reversing the weakness seen during the previous two weeks. The gain was led by double digit increases on the two China to EU routes. @Ole_S_Hansen Dec 8, 2023

Factors influencing Freight right now.

Ukraine

Freight costs for ships using Ukraine’s alternative export corridor have risen following an attack on a cargo vessel in the Black Sea off Odesa, brokers said Nov 10.

Ukrainian grain agricultural export rose by 15% to 4.8 million metric tons in October versus September thanks to a new Black Sea export corridor, the UCAB agricultural business association said on Thursday Nov 1.

Four vessels left Ukrainian Black Sea ports in the Odesa region last Friday, as shipping via a new export corridor resumed after a three-day pause, independent transport sector consultancy STC said. The alternative Black Sea export corridor will continue to function despite all threats, Ukraine President Volodymyr Zelenskiy said.

Ukraine had started exporting grain via Croatian seaports, aiming to broaden its export routes while its Black Sea ports are blocked, a senior Ukrainian official said last month.

Panama Canal

“The congestion in Brazil and restrictions in the Panama canal have impacted the panamax segment the most, limiting supply,” Gouveia said, as low water levels in the Amazon river left 157 panamax ships, about 5% of the fleet, waiting at Brazilian ports.

Update Nov 1 via Reuters

  • Daily ship crossings on the Panama Canal will be further reduced over the coming months due to a severe drought, the authorities managing the canal said late on Monday.
  • Booking slots will be cut to 25 per day between November 3 to November 6, the Panama Canal Authority (ACP) said in a shipping advisory, and will be gradually reduced further over the coming months to 18 per day beginning February 1, 2024.
  • The latest announcement comes after ship crossings were most recently reduced on Sep. 30 to 31 from 32, effective Nov 1.

Some ship charterers are opting to return to the US via alternate shipping routes like the Cape of Good hope or the Suez Canal.

Using alternate routes like the Cape of Good Hope or the Suez Canal to return to the US has caused a freight shortage because these routes add at least 20 additional days to the voyage, LPG shipping sources said.

  • A widening Houston-Asia arbitrage and an ongoing backlog of vessels looking to pass the Panama Canal, LPG shipping sources
  • VLGC freight rates from Houston to Chiba, Japan, reached $245/mt Sept. 21 for the first time since 2015, according to LPG shipping sources.
  • Houston to Chiba, Japan, freight rates were last higher July 23, 2015, at $280/mt.
  • Rates from Houston to Northwest Europe are also up, at $140/mt.

“A 13-day delay at Panama at current freight rates ($140k/day) is expensive, $1.8ish million,” an LPG shipping broker said. “The auction system commanded a payment of $2.45m a week ago, so Panama is difficult and expensive.”

According to Sept. 21 Panama Canal traffic data there were 115 vessels backlogged at the Panama Canal. Of those 100 were backlogged for the Panamax locks, while 15 were backlogged for the Neo-Panamax locks. the 9/22/23 note from S&P Global

“The Panamax market remains buoyant, with high vessel counts in East Coast South America boosting a rally that has seen the BPI index reach new highs since July,” shipbroker Fearnleys wrote in a weekly note.

“Factors such as increased vessels heading to the US and a low vessel presence East of Suez could further spur the rally,” the 9/15/23 note adds.

Panama Canal Update Sept 1:

Isaac Hankes, senior weather analyst at London Stock Exchange Group, said the first seven months of this year have marked the driest start since 2015, which had similar rainfall rates.

  • “This represents a departure from a long-term wetter trend as reflected by data from 1981-present.”
  • “While the low rainfall rate itself is not historic in nature over the long-term, 2023 does show the largest decline in rainfall rate year over year on the record. This sudden drying after a wet 2022 is the likely culprit for the rapid drop in canal water levels,”
  • Hankes said a slight improvement in rainfall over the past two months has helped to stabilize Panama Cana water levels after months of sharp declines, noting the rains have not been enough to raise water levels or to lessen the drought. “A worsening scenario was simply avoided,” he said.
  • “The forecast through the next two weeks does show a more significant period of high rainfall that could finally start to raise water levels in the canal. Unfortunately, high rainfall is likely to be temporary, as the second half of September is likely to feature widespread dryness once again across Panama. Furthermore, season forecast guidance through the end of the year suggests that dry weather could persist,”

The Panama Canal Authority extended through Sept. 2 restrictions for vessels to transit through the waterway and keeping the number of vessels authorized to pass per day to a maximum of 32.

The Panama Canal restrictions, implemented in recent months as the rainy season in Panama has come late this year, could add more pressure on consumer goods prices, according to maritime firms and experts, as delays and extra fees add to shipping costs.

“The South Atlantic’s demand remains robust in September, with owners in the European community shipowners’ associations, confident in asking prices above previous rates,” shipbroker Fearnleys said in a weekly note, referring to the panamax segment.

Tanker Market

The tanker market showed a mixed performance in August. Dirty tanker freight rates continued to decline
across all monitored routes, as long tonnage lists and reduced activities weighed on rates.

VLCCs were down 12% m-o-m on the Middle East-to-East route.
In the Suezmax market, rates on the US to Europe route fell 20%, despite the region seeing slightly more activity.
Aframax rates on the Mediterranean-to-Northwest Europe route declined 20%. Limited activities also prompted increased competition between the various vessel classes, further weighing on rates.
In contrast, clean spot freight rates saw another month of improvements across the board on all monitored routes, amid increased activities toward the end of the month.

Via OPEC September MOMR

Iron Ore

Iron ore continued to rally for a third week of gains supported by supply concerns and resumed hopes of improved demand from China’s property sector, its largest steel consumer. Lower-than-expected Chinese steel output, and a protracted property crisis has continueds to hamper any sustained demand. Singapore iron ore futures continue to oscillate around news of China’s faltering economic recovery and optimism over its near-term demand prospects.

China Plan to Cap Steel output at 2022 level

Dalian iron ore futures had their first weekly loss in seven as China’s government continued to intervene in the market to regulate prices, although the contract gained on Friday due to positive factory data and optimism over the property sector.

The most-traded January iron ore on China’s Dalian Commodity Exchange was up 1.1% at 966 yuan ($135.37) per metric ton, as of 0320 GMT. For the week so far, Dalian iron ore prices lost 1.1%.

On the Singapore Exchange, the benchmark January iron ore traded flat at $129.6 a metric ton.

China is set to release a plan capping domestic steelmakers’ output at 2022 levels. The strategy may help steel prices by reducing oversupply but could put pressure on mills that are already suffering from low profits. The planned cap is open to review in the second half of the year depending on market conditions, Bloomberg reported.

Capesize Iron ore loading

China’s National Development and Reform Commission did not immediately respond to a request for comment. While the government may not require steel mills to reduce production by a certain percentage this year, a target on per-ton emissions will remain in place, Bloomberg said, citing people familiar with the matter.

China plans to cut steel output, but it may not impact country’s iron ore demand, Clarksons Securities says

Bloomberg Trade Tracker

Eight of 10 indicators on the Bloomberg Trade Tracker in negative territory as of Feb. 17, a very slight improvement from nine at the start of the year. Ports are seeing fewer delays and higher throughput, pointing to a letup in the supply chain stress that’s hindered world trade since 2020. – Bloomberg

1. China’s Covid Impact

CNBC Supply Chain Heat Map Dec 4, 2022

Key Chinese Ports

  • The Port of Shanghai is the world’s number one container port.
  • The Port of Shenzhen is the fourth-largest container port in the world and the city that is home to Apple manufacturers.
  • Qingdao is the sixth-largest port in the world, is reported as having factories.
Dry Bulk Rotes Source: SEC

2. US Port Delays

CNBC Supply Chain Heat Map Oct 28, 2022*
  • U.S. West Coast ports take biggest hit as spot rate for a container from Asia to the U.S. West Coast has crossed the breakeven point
  • The Biden administration sweeping export restrictions against Russia, hammering its access to global exports following Moscow’s attack on Ukraine.
  • The 2M Alliance of Maersk and MSC has suspended almost half of its U.S. West Coast services in December.
  • Port of New York and New Jersey was the top among all U.S. ports for a fifth-consecutive month based on December data.
  • West Coast ports of Los Angeles and Long Beach experienced the largest drop in trade, according to Josh Brazil, vice president of supply chain insights at Project44, as shippers also rerouted some of their shipments to the East Coast to avoid the risk of a major union strike at West Coast ports.

3. European Ukraine Impact and UK Strikes

CNBC Supply Chain Heat Map Sep 7, 2022*
  • In 2022 the U.S. has imported more goods from Europe than China, a big shift from the 2010s, according to Project 44.
  • Germany’s exports to the U.S. were almost 50% higher in September year over year. Germany’s mechanical engineering sector has boosted its exports to the U.S. by almost 20% in a year over year comparison of the first nine months of 2022, according to Project 44.
  • The U.S. is the top trade partner, representing 30% of Port of Liverpool volume.
  • Approximately $1 billion in trade is moved weekly at the Port of Liverpool.
  • Diageo, Caterpillar, Donaldson, and Xerox are just some companies who use Liverpool port.
  • “The economic and political climate in the U.K. is volatile and this sustained disruption will start to cause sustained problems at a time when imports are becoming very expensive due to the weak pound and some U.S. exporters will be starting to price risk back into their contracts.”

The Baltic Dry Index (BDI) is a composite of the dry bulk timecharter averages and provides a continuous time series since 1985. The BDI is a composite of and factors in rates for Capesize, Panamax and Supramax Timecharter Averages. It is reported around the world as a proxy for dry bulk shipping stocks as well as a general shipping market bellwether.

  • Baltic Capesize Index (40%)
  • Baltic Panamax Index (30%) 
  • Baltic Supramax Index (30%) 

There a number of negative catalysts stemming from the climate and supply crisis stifling demand. While we are seeing easing congestion at Chinese ports and thin coal cargo flows out of the Pacific are weighing on capesizes. Steel futures prices in China jumped, with hot-rolled coils and construction rebar climbing more than 4% in intraday trade to narrow the gap with spot prices, as traders cheered a marginal improvement in consumption of industrial metals.

With China striving to ease it’s energy crisis by limiting steel production to limit industrial power usage portside inventory of iron ore has swollen to the highest level in 31 months. China is the world’s top steel producer and their restrictions have crushed demand. for iron ore.

What are the Baltic indices?

From The Baltic Exchange

The Baltic indices are based on assessments of the cost of transporting various bulk cargoes, both wet (eg crude oil and oil products),dry (eg coal and iron ore), gas (LNG and LPG) made by leading shipbroking houses located around the world on a per tonne and daily hire basis. The information is collated and published by the Baltic Exchange. We also provide daily container market assessments in collaboration with Freightos and a weekly air freight index as well as assessments on vessel operating costs, Sale & Purchase and vessel recycling prices. 

The principal dry cargo indices are:

  • The Baltic Exchange Capesize Index (BCI); The Brazil-China iron ore route is often considered the key driver of rates for Capesize vessels, which are commonly employed on the route.
  • Baltic Exchange Panamax Index (BPI)
  • Baltic Exchange Supramax Index (BSI)
  • Baltic Exchange Handysize index (BHSI).
  • Baltic Exchange Dry Index (BDI) is calculated by taking the timecharter components of the Baltic’s capesize, panamax and supramax indices. 

The Baltic Exchange International Tanker Routes (BITR) reports on international oil routes and makes up the Baltic Exchange Dirty Tanker Index (BDTI) and the Baltic Exchange Clean Tanker Index (BCTI). 

We cover the gas markets through our LNG (BLNG) and LPG (BLPG) assessments. 

Shipping investors are able to assess the health of vessel earnings through our quarterly operating expenses assessments, as well as our weekly Sale & Purchase and Recycling assessments. 
Forward curves for all listed freight contracts are also published on a daily basis.

*The CNBC Supply Chain Heat Map data providers are artificial intelligence and predictive analytics company Everstream Analytics; global freight booking platform Freightos, creator of the Freightos Baltic Dry Index; logistics provider OL USA; supply chain intelligence platform FreightWaves; supply chain platform Blume Global; third-party logistics provider Orient Star Group; marine analytics firm MarineTraffic; maritime visibility data company Project44; maritime transport data company MDS Transmodal UK; ocean and air freight rate benchmarking and market analytics platform Xeneta; leading provider of research and analysis Sea-Intelligence ApS; Crane Worldwide Logistics; and air, DHL Global Forwarding; freight logistics provider Seko Logistics; and Planet, provider of global, daily satellite imagery and geospatial solutions.

Source: The Baltic Exchange CNBC Bloomberg

From The TradersCommunity US Research Desk