TC Trade Monitor: Baltic Dry Freight Index Slingshot Rebound Continues for Third Straight Week

The Baltic Exchange’s dry bulk sea freight index slingshot recovery continued this week, up for the third straight week, spurred on by higher rates for all vessel segments.  The biggest boost came from the capesize sector as its 5TC of spot-rate averages shot up about 46% for the week, its third in a row. The BDI rose about 17.6% for the week, up 45 points, or about 3.3% Friday, at 1,424, the highest since late-December 2022. Pressure is coming from the re-opening of China with PMI reports indicating the Chinese manufacturing sector is returning strongly.

Capesize Iron ore loading

We have seen sharp bounces in ocean freight rates after they 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.

Global shipping found itself in turmoil after 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.

Baltic Exchange Dry Index (BDI) Segments (March 10, 2023)

  • The Baltic Exchange’s dry bulk sea freight index was up 17.6% for the week, after the last two week’s gains of 37.2% and 64%, which was the most since mid-June 2020. The index, extending gains to three weeks.
  • The overall index, which factors in rates for capesize, panamax and supramax shipping vessels carrying dry bulk commodities was up 45 points, or about 3.3%, at 1,424, the highest since late-December 2022, on Friday.
  • The capesize index which tracks iron ore and coal cargos of 150,000 tonnes, gained 82 points, or about 5%, at 1,744. The index rose about 46% for the week, its third in a row. Average daily earnings for capesizes, which typically transport 150,000-tonne cargoes such as iron ore and coal, gained $683 at $14,466.
  • 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 30 points, or about 1.9%, at 1,654. It also marked its third straight weekly gain, rising 5.7% for the week. Average daily earnings for panamaxes, which usually carry coal or grain cargoes of about 60,000 to 70,000 tonnes, rose by $267 to $14,884.
  • Among smaller vessels, the supramax index rise continued Friday, the supramax index rose 29 points to 1,209. The index was just 695 points two weeks ago. (The supramax index the week prior was up about 43% three weeks ago, posting its biggest weekly rise on record).
  • Last week 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.”
BDI March 10, 2023

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) has fallen in all but one of the past 52 weeks, this week it hit a June 2020 low, down 2.8% this week to $1806 pr 40ft box, a YoY decline of 80%. Losses seen on all the major China to US and EU routes as well as EU to NY. The Drewry WCI is still up from the pre-pandemic rates averaging US$1,420 in 2019.

via @Ole_S_Hansen

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

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