Freight rates on all three very large gas carrier (VLGC) assessments have hit their highest since 19 January 2021, buoyed by tightening vessel numbers in the Mideast Gulf and US Gulf basins.
The cost of freight for a VLGC moving from Ras Tanura, Saudi Arabia, to Chiba, Japan, reached $85/t on 20 May, up by $17/t since the start of the month. In the US Gulf, the rate for a VLGC loading from Houston to Chiba was at $132.50/t on 20 May, up by $8.25/t since the start of the month. And the rate for a VLGC moving between Houston and Flushing in the Netherlands hit $75.50/t on 19 May, up by $3.75/t since the start of the month.
The 16-month highs can be attributed to a tightening VLGC fleet — particularly as congestion in the Panama Canal and at Indian ports is keeping ships out of the market for long periods.
Waiting times at the Neopanamax locks in the Panama Canal have been on the rise recently, reaching their highest since mid-November 2021, prompting shipowners and traders to test alternative routes to ballast to the US Gulf including round the Cape of Good Hope or through the Suez Canal.
Delays peaked at 17 days on 11 May for northbound transits, with double-digit waiting times lasting between 4-18 May. While southbound transit waiting times peaked at 13 days on 2 May, double-digit delays have occurred periodically in May.
Delays through the canal can affect exports from the US Gulf coast, with charterers having to factor in the risk of late delivery, especially on southbound voyages with laden VLGCs destined for east Asia. But it also makes it difficult for charterers to meet loading dates for ballasting legs with northbound transits.
As a result, there has been a significant increase in US bookings to northwest Europe instead of the standard Houston-Chiba journey. US LPG flows to northwest Europe hit an 18-month high in April, with the arbitrage conducive to liquidity on this route.
But both the US Gulf-Asia and US Gulf-northwest Europe arbitrage windows have widened sufficiently in recent weeks to drive exports from the US. This increase in vessel demand and rising delays in the Panama Canal have certainly helped tighten the VLGC market, and in turn lifted freight rates.
In the Mideast Gulf, vessel availability has also tightened, with a number of VLGCs lured out of the region to load the more profitable cargoes from the US.
There have also been some delays at Indian ports, which have resulted in some vessels unable to meet future laycans. The port of Haldia suspended operations at the HOJ-2 jetty for 45 days from 3 May, for civil works and the upgrading of the firefighting facility.
Panama Canal delays have now started to ease, with some of the backlog at the Neopanamax locks clearing. Northbound delays were estimated at around five days on 23 May, while southbound waiting times were around three days. But the US arbitrages remain open and demand from northwest Europe for LPG remains firm.
