Weekly Shipping Market Update / Week 46 / 15th November – 21st November 2021 By Thomas Chasapis, Research Analyst of Allied Shipbroking

It is rather difficult to describe the current situation in the dry bulk sector, given the disarray that has been noted in the freight market during the past few weeks or so. The big step back in earnings halfway through the 4th quarter of the year, makes this shake up reasonable at the moment. As we have mentioned in earlier market views, the downside risk is present and, for those involved, the recent “tight window” to adjust properly to the recent hefty shifts in the market has been a reminder of just that.
Steep corrections in the spot market are not a new concept in shipping markets and do not easily arise concerns (if their duration is not prolonged), especially at the cur-rent freight market levels we are seeing when compared to recent history. However, there are trends that support this emphatic trajectory in this sector and overall sustainability of the market at the same time. The below graph gives an idea of this. Having used the average return figures for forward curves of FFA contracts with swap period within the next 3 years (2022, 2023, 2024), it is rather obvious that the current forward view is heavily influenced by current freight market sentiment (and momentum). Obviously, no one argues that these two markets should move independently, but the level of current dependency seems to be rather “problematic”. The same trend, more importantly, is also taking form in the SnP market, with the current “bid-ask” spread in asset price levels seemingly being on the rise.
Albeit being at an early stage in the game, this situation of late can have however multiple interpretations. An interesting one would be of a market aiming for its macro balance levels, whilst moving within different support-resistance levels. Another theory would be that there are many parties involved who seek stability through “mean-reverting” strategies (i.e., average spot freight numbers of the past 3 or 5 years, etc.), when the uncertainty of where we stand in the economic cycle is on the rise. I would personally point as overall causes the present fragile (volatile) macros, the mispricing of market risk, the general regulatory and technological transition period we are going through, as well as additive noise through the pluralism of different dynamics that push and pull the market across all directions.
Freight Market / Dry Bulkers / Spot Market
Capesize – Another correction was witnessed this past week in the Capesize segment, with the BCI TCA falling just below the US$30,000/day. Sentiment continue being relatively robust, albeit interest for iron ore shipments from both Australia and Brazil is less vivid as of late. The fall was more intense in the Pacific, while plummeting iron ore prices shape a new framework in the market, which will be interest to see how it will in turn affect the segment moving forward.
Panamax – A severe drop was seen last week in the Panamax market, as was depicted in the BPI TCA, which fell back to levels last seen in April (a 22.1% w-o-w decline). The weaker demand has had as a result the gradual buildup of unfixed tonnage in both the Atlantic and Pacific basins. Owners’ sentiment may have been hurt, but earnings are still holding at relatively adequate levels, compared to previous years.
Supramax – The market here moved sideways this past week, with an almost un-changed BSI TCA figure. In Asia, activity was scarce as charterers took a step back last week, with an improved interest likely to be seen in the coming week. In the Atlantic, things were better, as the USG market was once again relatively active.
Handysize – The declining momentum continued last week in the Handysize market, nourished by the lack of fresh enquiries. The BHSI TCA figure fell to US$28,090/day, posting a 3.3% weekly decline. There was little interest from charterers this past week on all key trading routes, increasing the available tonnage and upsetting the balance, with owners now keen to fix their units at trimmed down levels.
Freight Market / Tankers / Spot Market
Crude Oil Carriers – The market was still on a declining path this past week overall and this was reflected in the 5% fall noted in the BDTI figure. Despite the negative momentum, some improvement was seen in the VLCC market. However, this rise in demand was not robust enough to shift sentiment in the market just yet. In contrast, it was a very quiet week for the Suezmaxes. Hardly any fresh interest emerged in both the WAF and Black Sea regions, further increasing the levels of open tonnage seen. The lack of fresh enquiries was apparent in the Aframax market as well last week. Demand was poor in both the NSEA and the USG, with owners though expecting a shift in direction before the end of the year.
Oil Products – On the DPP front, it was a mixed week in terms of freight earnings. Interest for the ARA-USG trade route improved, while at the same time though, gains were curbed by a quiet market elsewhere. On the CPP front, it was an uninspiring week, with lack of fresh demand having as a result the further build up of available tonnage. Losses were trimmed by an active CONT-USAC market.
Sale & Purchase / Newbuilding orders
Interest for newbuilding projects was once again moderate in the dry bulk segment, even if it lost some steam as of late, hurt by the recent correction that has taken place in the freight market. Overall sentiment is still relatively robust and as long as second-hand asset prices continue on a rising path, expectations are for more businesses to take place in the near term. During this past week, a contract for 4 Kamsramaxes and 6 small bulkers were reported, all from Chinese interests. On the tankers’ side of things, there were no new deals taking place for yet another week. Given the persisting poor demand profile in the market and the still relatively “high” newbuilding prices, it is of little surprise that we have not seen any sharp renewal in interest from the side of buyers. This is not expected to change significantly in the near future. Finally, declined activity was seen in the container and gas sectors are well this past week, although this may well be just a temporary pause in the overall frenzy that has been noted of late.
Sale & Purchase / Secondhand Sales
On the dry bulk side, interest was once again vivid, despite the corrections noted in the freight earnings. Sentiment is robust and current rates are still considered as a positive aspect. Deals were noted across the whole spectrum of size classes this past week, albeit focus was given to handysizes. The current earnings to asset value ratio seem to be more attractive in the smaller units, with upside potential though being lower. We expect activity to remain strong in the segment with more business likely to emerge by the end of the year.
On the tanker side, it was also an active week, despite the poor demand and supply fundamentals dominating the market. Sentiment has started to improve in the segment, in line with the interest for crude oil (and petroleum products) shipments and thus more keen buyers have started to be emerge in the market. Product tankers were once again at the center of activity, albeit several deals were reported in the crude oil space as well.
Sale & Purchase / Demolition Sales
Tankers continue being the key stockpile for the ship recycling market, with more and more owners taking the option to offload their vintage units due to the persistence of uninspiring freight earnings. However, the anticipated market rebound in the segment could up-set the pool of potential tonnage available for recycling in the coming weeks. Interest for demolition in the rest of the key shipping sectors continues to be minimal. Bangladesh was not able to attract many units during this past week, with fundamentals though remaining robust in the country. Therefore, we expect more deals to emerge in the coming weeks. In contrast, India has seen its activity rising as of late, with HKC deals still being a key source. However, the diminished scrap prices noted these past couple of week is likely to di-verge interest elsewhere in the near future. Finally, another quiet week was noted in Pakistan, as local players were not able to compete with the rest of the Indian Sub-Continent. Prices are still firm, while deteriorating fundamentals elsewhere could possibly allow for a rise activity for local breakers in the near term.
Trade Indicators / Markets – Currencies – Commodities
International Seaways has struck a deal to finance its new dual-fuel VLCCs using Chinese sale-and-leaseback cash.
The New York-listed US owner said China’s Bank of Communications (Bocomm) has bought the 300,000-dwt ships set for delivery from Daewoo Shipbuilding & Marine Engineering in South Korea in the first quarter of 2023.
The deal with Bocomm kicks in once construction begins on the first tanker this month.
The funding will run to $245m, with bareboat charters back to Inter-national Seaways over seven years from delivery.
DSME priced the vessels at $100m each in a statement last December.
International Seaways has unspecified purchase options attached to the financing.
It is the second major sale-leaseback financing entered into by Sea-ways in less than a month. Source: Tradewinds

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