The dry bulk market has experienced a record-breaking year in terms of freight rates across the Pacific and Atlantic basins. The resurgence of economies post-pandemic, an increase in Chinese commodity demand and vessel supply inefficiencies have all underpinned strong rates.
Argus spoke to Christian Vinther Christensen, head of Danish shipping company DS Norden’s Dry Operator division, about the current market and the outlook for the coming year.
How do you think shortages of coal in China and India will impact the market during the coming months?
In the very short term, the shortages are a bullish sign for the dry bulk market. Coal movements are also less efficient when they are made over longer distances. Indonesia to China is quite an efficient route with a short tonne-mile, but Panamax vessels have also been going from the US east coast to China, which is very long distance, and increases the tonne-mile demand in the market.
But the affinity of coal and gas is not good for the dry cargo market because shortages of both are disrupting the market, and if there are factories in China closing down for a period of time — especially in dry cargo-intensive businesses such as cement, steel or fertilisers — that is demand destructive and not good for dry bulk vessels. While bottlenecks might be good in the short term — as reflected in the fantastic spot rates we have seen — we should also start worrying about the knock-on effects.
Chinese congestion has been a major factor behind rates being so high. Do you expect this to ease? Or is this a long-term situation?
Norden has been monitoring congestion very closely and on a daily basis. It is expected that congestion rates will fall, and they have already started declining in China. The Covid-19 effect on Chinese ports has started to ease as Chinese industry slows seasonally, which means they have fewer throughputs and eventually less of a bottleneck. But we have started seeing congestion in other places where it is high season for exports, such as the Panama Canal and South America.
The Panamax market has also been boosted by more grain heading from the US Gulf coast to China. Now we are heading into US grain export season again, what are your expectations for the 2021-22 season?
The Panamax market has underperformed in the past year compared with smaller ship segments, such as Supramax and Handysize, where rates have been higher. But we are now in the middle of US Gulf exports season, so the Panamax sphere is very strong, especially in the spot market. Panamaxes are being used more and more for US Gulf exports.
We have also seen dry bulk vessels being used instead of containers for things like grain and scrap metal, because of the very high containership rates. Do you think this trend is here to stay?
We have even heard reports of containers themselves being loaded onto dry bulk vessels.
Is this a something that you would expect to see more of? And are there risks involved?
Container congestion remains very high, which is very good for the spillover of cargoes from containers into Handysize vessels. While there may be containers loaded on bulkers, this is not usual, and it is very inefficient for containers to be loaded on dry bulk vessels.
Some vessels today have features like the open hatchet, and these have some container ability. But what happens more is the spillover of cargoes that would usually go into containers going into Handysize vessels. Container cargoes being loaded on dry vessels may not be a long-term trend, though. As more containers are built in the coming years, there may not be a need for this.
What do you think will be the main drivers of the dry bulk market in the coming year and do you expect high rates to continue?
Norden is positive on the market outlook as world economies are doing well and recovering post-pandemic. Interest rates are still low and there have been many government programmes to boost infrastructure, and this is very beneficial for the dry bulk market. Commodities such as cement and steel benefit greatly from an increase in infrastructure projects.
What is also important is the supply side, which can provide a boost to the market, even if demand decreases. There is not an oversupply of dry bulk vessels in the market and the dry bulk orderbook is 6pc of overall fleet, which is historically quite low. There two main drivers of a low orderbook which can benefit the dry bulk market — firstly, shipyards are full of containership newbuilds and secondly shipowners have concerns over what ships they want to build at a time when technology is changing. But market volatility is here to stay in the coming year, with many ups and downs, and that is something good for shipowners as they are trading and taking positions in the market.
Shipping has been increasingly impacted by greenhouse gas emissions regulations demanding higher efficiency. How have these regulations impacted the dry bulk market, and what impact do you see in the near term? What measures is Norden taking to comply with these regulations and what do you think is the fuel of the future?
The IMO regulations are not ambitious enough and there is more to be done, which is why the EU and governments are imposing taxes and taking further measures. There is a lot of trialling involved, which is why Norden has a ship performing a complete carbon-free voyage on biofuels with used cooking oil. Norden has also formed alliances calling for policies that demand higher targets. While the effects are not visible at the moment, they will be when the new EU taxonomy starts in 2023, and this is something that shipowners need to be prepared for. There is no silver bullet for a fossil fuel-free engine, which is why it is important to collaborate with customers on making voyages more efficient.
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