Ocean Rate Report: Jitters For Bulkers, Steady For Boxes

If dry bulk ocean shipping was a professional football team, it would be the New Orleans Saints. The Saints have performed brilliantly on rare occasions (Super Bowl XLIV, the final 37 seconds of this week's game), but for the vast majority of the time (every year since 1967 with the exception of 2010), they've either failed so miserably that stadium-goers wore brown paper bags over their heads or they've come up maddeningly short despite enormous promise.

Today's dry bulk investors are like Saints fans. Despite all the dashed hopes and gut-wrenching disappointments over the years, they maintain stubborn allegiance and keep the faith that this time, finally, it will be different.

Dry bulk shipping's Super Bowl XLIV was the historic, fortune-inducing golden era of 2003-8, when at one point, bulker owners were raking in over $230,000 per day in the spot market. In the eyes of Wall Street investors, the sector has been living in the long shadow of that peak ever since.

This year is being touted as dry bulk's turnaround season. After a rough debut, when rates plummeted to $5,000 per day, rates began to take flight in June and July, particularly for larger vessels in the Capesize class, which have capacities of 100,000 deadweight tons (DWT) or more. Midsized bulkers such as those in the Panamax class (65,000-90,000 DWT) followed suit.

On Sept. 4, Capesize rates hit $37,500/day, their highest level in five years, while the Baltic Dry Index, Baltic Capesize Index and Baltic Panamax Index posted their top scores since 2010. Equity analysts dubbed the dry bulk rally "sizzling" and "ferocious."

Since then, however, rates have declined. Not significantly, but enough to elicit worries of another false start given dry bulk's track record, reminiscent of that moment in every Saints season when a sinking feeling sets in among die-hard fans, a sense – sometimes an overreaction – of "here we go again."

According to Clarksons Platou Securities, Capesize rates were assessed at $35,500 per day on Sept. 10, down 4.9% week-on-week, and Panamax rates were $18,800 per day, down 5.6% week-on-week.

Ben Nolan, shipping analyst at Stifel, believes that to some extent, the recent dry bulk rate strength has been a mirage.

The IMO 2020 rule requires ships not equipped with exhaust-gas scrubbers to burn more expensive fuel with sulfur content of 0.5% or less starting Jan. 1. As bulkers are removed from service to install scrubbers, capacity is decreased and rates temporarily rise.

According to Nolan, "It does not seem like the dry bulk market should be near a 10-year high. Fundamentally, it shouldn't be." He argued that "it can be definitively said that the improvement in rates is entirely unrelated to demand fundamentals" and that "the only variable driving the improvement in market conditions is vessels being taken out of service to have scrubber retrofits, which at any one time may account for 5% of the dry bulk fleet being offline."

Public companies with spot Capesize and Panamax spot exposure: Genco Shipping & Trading GNK, Golden Ocean (NASDAQ: GOGL), Scorpio Bulkers SALT, Star Bulk SBLK, Safe Bulkers SB, Seanergy SHIP

Containers: ‘So far, so good'

While dry bulk players contend with butterflies in their stomachs as the recovery season loses some of its sizzle, the container shipping industry is letting out an audible sigh of relief.

The cost to transport boxes on the China-U.S. route remained alarmingly low throughout August at a time when pricing should have been seasonally rising, eliciting fears of a significant demand slowdown. Rates finally made their expected upward turn in early September, and now, it appears they are holding up at a higher level.

The cost to transport a 40-foot-equivalent unit (FEU) container is tracked on a daily basis by Freightos. The index level on the trans-Pacific route between China and the North American West Coast (SONAR: FBXD: CNAW) implied a Sept. 10 price of $1,520 per FEU, while the implied rate to the East Coast (SONAR: FBXD: CNAE) was $3,079 per FEU (significantly higher than the previous day's price).

According to Eytan Buchman, chief marketing officer of Freightos, "August's trans-Pacific prices had carriers hoping for a change in fortunes in September. So far, so good.

"Pricing is already looking stronger, supported by rush orders ahead of Oct. 1's tariff increases. On the West Coast, the average daily price so far [as of Sept. 9] is 16% higher than for the daily August average, and higher than the daily average for every month after January."

Buchman continued, "From now, the upcoming Golden Week bottleneck and Black Friday inventory stocking should see demand stay high and prices relatively buoyant."

Asked about the advance-shipping effect, Buchman told FreightWaves, "When short notice of a tariff change is given, suppliers can still expedite orders that are nearly shipment ready and sometimes they can arrange rush orders, although this last option isn't often possible because Chinese suppliers generally don't have surplus material or keep stock on hand. Time-dependent, this can also include shipments that normally go on the China-East Coast lane going on the China-West Coast lane instead." More FreightWaves/American Shipper articles by Greg Miller

Public shipping companies with exposure to spot box shipping rates: Maersk Line MAERB, Hapag-Lloyd HLAG, Matson (NYSE: MATX), Evergreen Marine (TWSE: 2603), Hyundai Merchant Marine (KS: 011200)

Editor's note: Freightos has a business agreement with FreightWaves that includes editorial coverage.

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