The Baltic Exchange’s dry bulk sea freight index slingshot recovery continued this week, up for the 11th straight session on Friday by 5.8% to a two-month high of 1,211 points. The BDI rose about 37.2% for the week, its second straight weekly rise. Pressure is coming from the re-opening of China and PMI reports indicating the Chinese manufacturing sector is returning strongly. The BDI was over the 1,000-point threshold for the first time since early January with ease. The biggest boost came from from the capesize sector as its 5TC of spot-rate averages shot up for a tenth successive day, jumping 19.5% Friday to an over six-week high of 1,195 points.
Ocean freight rates 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 has only been lower than it is today 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.
Global shipping found itself in turmoil after Russia’s invasion of Ukraine, right on the heels of Covid afflicted shipping channels since 2020.
Baltic Exchange Dry Index (BDI) Segments (March 3, 2023)
- The Baltic Exchange’s dry bulk sea freight index was up 37.2% for the week, after last week’s gain of on 64%, which was the most since mid-June 2020. The index, extending gains to an eleventh fifth session.
- The overall index, which factors in rates for capesize, panamax and supramax shipping vessels carrying dry bulk commodities was up Friday was up for the 11th straight session on Friday, rising about 5.8% to a two-month high of 1,211 points.
- The capesize index which tracks iron ore and coal cargos of 150,000 tonnes, advanced for a tenth successive day Friday, jumping 19.5% to an over six-week high of 1,195 points.
- 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, was up for the ninth straight session, adding 9 points at 1,565 points Friday.
- Among smaller vessels, the supramax index fell 3 points to 1,189 points Friday, up 71% for the week taking a breather after starting the week at 695 points. (The supramax index the week prior was up about 43% for the week, posting its biggest weekly rise on record).
- Broker Fearnleys has recorded an all-time high count of vessels heading to load and discharge countries in the North Atlantic. At the same time, demand is recovering strongly in Asia.
- “This combination of increasing demand and a ‘wrongly’ positioned fleet is what is causing the extremely sharp upturn,” Fearnleys noted in a weekly report. “Pacific activity is strong, as is business out of the US Gulf and East Coast South America. Minor bulks and major bulks like grain and coal are being moved, and the tonnage balance is quickly firming up in both basins.”
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)
Drewry’s World Container Index (WCI) is down over 80% y/y to $1,859/40ft, lowest since June 2020, down 2% this week. All major China to US and EU routes are lower with new container ships deliveries from Mch to add further pressure. The Drewry WCI is still up from the pre-pandemic rates averaging US$1,420 in 2019.
Factors influencing Freight right now.
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
- The biggest factor affecting freight is the surge in Covid-19 cases in China is impacting the completion of manufacturing orders. China’s economic recovery prospects in 2023 is dependent on countering a wave of local COVID-19 infections.
- Worldwide Logistics expecting Chinese factories to shut down two weeks earlier than usual for Chinese Lunar New Year, Chinese New Year’s Eve falls on Jan. 21 next year.
- U.S. manufacturing orders from China already down 40% due to an unrelenting demand collapse.
- Orders for ocean bookings continue to be softer according to SONAR Data.
- “With 1/2 or even 3/4 [of the] labor force being infected and not able to work, many China manufacturers can not operate properly but produce less than their optimal outputs,” Hong Kong-based shipping firm HLS wrote in a note to clients.
- “The container pickup, loading, and drayage (trucking) are also affected as all businesses are facing the impacts of COVID. We expect a very soft volume after the Lunar New Year because a lot of factories have slowed production due to the increasing infection, and have to cancel or delay the bookings for the 2nd half of January and also early February.”
- “The unrelenting decline in container freight rates from Asia, caused by a collapse in demand, is compelling ocean carriers to blank more sailings than ever before as vessel utilization hits new lows,” said Joe Monaghan, CEO of Worldwide Logistics Group.
- For the Port of Shanghai, the world’s number one container port, the report warned that “Cancellations are increasing as many factories can’t operate properly due to a lot of workers getting infected with Covid.”
- The same warning was also highlighted for the Port of Shenzhen, the fourth-largest container port in the world and the city that is home to Apple manufacturers. “The booking cancellation is increasing as many factories can’t operate properly due to a lot of workers getting invested with Covid,” the report said.
- Qingdao, the sixth-largest port in the world, is reported as having factories with only “1/4 labor force and can not ensure normal production.”
- The Ocean Alliance (CMA CGM, Cosco Shipping, OOCL and Evergreen) and THE Alliance (Ocean Network Express, Hapag-Lloyd, HMM and Yang Ming Line) have cut overall vessel capacity by 40-50% up to Chinese New Year.
2. US Port Delays
- 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.
- Maersk, largest container shipping company after earnings; “It is clear that freight rates have peaked and started to normalize during the quarter, driven by both decreasing demand and easing of supply chain congestion”
- The 2M Alliance of Maersk and MSC has suspended almost half of its U.S. West Coast services for December.
- Port of New York and New Jersey is the top among all U.S. ports for a fourth-consecutive month based on November 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
- This year, 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.”
- Leading container group A.P. Moller-Maersk told its customers last quarter it was struggling to move goods around the world.
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