Turkey coal, coke imports may face coronavirus hurdles

A debate over who will pay extra fees in the event ports launch operational restrictions to prevent the spread of the coronavirus may result in fewer coal or petroleum coke cargoes imported to Turkey in the coming weeks.

Disagreements over liability for additional coronavirus-related port costs on Turkey-bound cargoes are slowing freight fixing activity for dry bulk carriers and could hamper spot trade.

Many charterers and shipowners have started introducing new clauses that look to shift liability for unprecedented events to the other counterparty and require compensation for any additional costs or liabilities related to the coronavirus.

Turkish buyers are unwilling to pay any additional fees if ports declare force majeure or introduce other rules that result in extended waiting times while Turkey-bound cargoes are already at sea. Some argue this is a risk that should be taken by sellers or vessel operators.

On the other hand, sellers are unwilling to cover such costs fully. One alternative could be to share liability with the buying counterparty.

For existing contracts, determining the liability of the various counterparties would strictly depend on the contractual terms for these transactions. Most long-term contracts have force majeure clauses that define each party's responsibilities in the event of such declarations. But others, particularly contracts for spot supplies, have not typically included such clauses in the past.

Disagreement over liability has already slowed talks — both on the commodity and freight trading side — for new cargoes and could hurt spot trade going forward.

The lack of related clauses in contracts and disagreement between counterparties could end up in legal suits, if Turkish ports announce restrictions.

Some companies have already started considering the possibility. One coke trading firm said it had included force majeure clauses in the most recent two offers for spot supplies it had made to Turkish clients. And a cement maker has introduced voluntary new measures on cargoes already on the water, asking all crew members to measure their body temperature and report it back to the buyer starting from five days ahead of the expected arrival date.

Longer-haul routes, such as Colombia to Turkey, could be less exposed to quarantine rules by Turkish ports, as it takes about 20 days to transit from Colombia to Turkey, which is longer than the typical 14-day offshore waiting time requested by ports in other countries. Shipments from closer destinations such as Russia could be more exposed to virus-related risks.

The number of confirmed coronavirus cases and deaths in Turkey is still low compared with other countries, and the government has so far not introduced any measures to limit activity for businesses or ports. But it could start announcing restrictions in the coming weeks if the spread of the virus quickens, as has been the case in many other countries so far. Most European businesses have declared force majeure or significantly cut operations because of lockdowns. The Indian and South African governments launched 21 and 19-day lockdowns, respectively, last week. More countries could follow.

May-June impact

Some participants do not foresee issues with April deliveries, but said they could encounter hurdles for cargoes delivered later in the second quarter.

Large utilities, which secure most of their supplies from Colombia, could be particularly affected as Colombian producers last week announced significant cuts in coal production as the country went into lockdown. Operations at Colombian ports were also restricted. Producers are thought to be able to meet most of their long-term contractual commitments for April through stocks already at ports, but it is uncertain if they will manage to fully meet obligations from May onwards.

Turkish utilities may start looking for supplies from Russia, which is conveniently placed for short shipping times to Turkey, if there are disruptions in Colombian deliveries, a participant said.

On the other hand, less supply availability could be at least partly offset by weaker demand for seaborne coal, as a lockdown in Turkey would result in a sharp drop in power and industrial output. A stronger renewable generation outlook may further cut the call on thermal output in the coming months. Turkey's hydropower reservoir stocks switched to a surplus to a year earlier, rising to 47.7pc of capacity on 27 March from 42.9pc on 16 March. This is a 1.1 percentage point surplus to a year earlier, when unusually strong hydropower generation weighed on imported coal-fired power output.

Restrictions in Egypt

Market participants are watching how counterparties handle disruptions in another key Mediterranean importing country, Egypt.

The country on 25 March implemented a partial curfew on vehicle transportation at ports, with no private or public transportation authorised from 19:00-06:00.

The curfew was declared for two weeks, with only trucks carrying food and pharmaceutical goods exempt, participants said. Even though unloading of cargoes continues during these hours, related delays are affecting discharge rates and there is uncertainty over which counterparty will be held liable for the additional costs incurred.

Although companies may be encouraged to include virus-related clauses in their contracts going forward, at least one company whose coke cargo is currently being delivered to Egypt was understood to not have any such clauses included in the contract.

By Erisa Senerdem