19 week: Russian River, Azov Sea, Caspian Sea; Coaster shipments
The freight market in the Azov region still was “knocked out” on the 19th week. Since the volume of the export quota was fulfilled, no new contracts could be concluded. Almost all attempts to find alternative solutions and get permission to export were unsuccessful, and the week passed in the doldrums. The situation was slightly brightened up for Owners by the news that some Exporters refused part of the declared volume, and about 80,000 tons of cargo allowed for export has appeared on the market. This volume has been completely fixed almost immediately. According to market insiders, it was done by some major player. Many Owners are sure that such situations with the rejection of previously declared volume will occur more often near the end of June, so the market may still be in demand for tonnage in the current grain season. Meanwhile, rates from the Azov Sea ports have fallen to the lowest annual values.
In addition to the fulfilled quota, the market is also negatively affected by the seasonal factor. The low activity in the first half of May is always associated with holidays in Russia; and in the second half of May, Islamic holidays begin. Since the tonnage supply on the market seriously exceeds the demand for it so far, the situation with the holidays did not significantly affect the freight rates and the fleet positioning. Owners are more concerned with the issues of instantaneous loading of their vessels and do not make strategic plans for several weeks ahead.
Non-grain and niche cargoes remained workable on the market. Increased activity, for example, is shown by shippers of sawn wood. However, despite the low freight rates and flexibility of Owners, it is not always possible for the parties to confirm the deal. Due to the unstable situation in the recipient countries and difficulties with financing and obtaining of loans, market participants who do not have their own working assets cannot find financing to enter into new contracts with producers.
Experts of the grain market note that spring frosts and insufficient amount of precipitations in the southern regions of Russia may seriously affect the yield of winter crops. The forecast for the new crop has already been lowered by analysts by 5 million tons, to 123 million. According to producers, there is not enough moisture at the local level, and the summer is expected to be hot, which also does not add any optimism in regards to the yield of the upcoming season. However, there are no problems with precipitations in the Central and Northern regions of Russia, so there may be expected an increase in grain supplies from these regions; this may support freight from the river and the Azov ports. Nevertheless, experts are betting that the freight market will be very slow to recover from the current crisis so far, and rates will reach profitability only by the end of the summer.
The introduction of restrictions on grain exports from Russia has had a negative impact on the European wheat market. Shipments from Ukraine, Romania and Bulgaria have come to a standstill, as far as no agreement has yet been reached on the price. The domestic market in Romania offers producers a price significantly higher than the export price. Amid the drought and forecasts of a low harvest, low volumes of grain exports are expected from this country. In Ukraine, also due to the large price difference between exports and the domestic market in favor of the latter, goods such as bran and meal are mainly shipped, and wheat shipments are discussed mainly for July dates.
The Russian grain quota has hit hard not only the country’s coaster market, but also the Black and Mediterranean seas freight. A large number of open river-sea type vessels are trying to find work in an unusual for them region betting on dumping, and thereby reduce the market. The beneficiaries of this situation are Charterers of transit cargo. Transshipment on the Kavkaz roads almost completely stopped upon fulfillment of the quota. There were a lot of Russian-flagged vessels on the market, and competition for transit cargo increased sharply. Rates began to decline both for general cargo towards the Caspian Sea and for fertilizers and sulfur in the backhaul direction. At the same time, there is still a large deficit of the cargo offer from the river, which negatively affects the market. Some Owners are so desperate that they are ready to go in ballast from the Azov and Black seas to the Mediterranean Sea for the purpose of taking general cargo in transit to the Caspian Sea.
In the Caspian region itself, the freight market continues to fall due to the lack of grain cargo owning to fulfillment of quota. Caspian Owners are ready to take any backhaul cargo from Iranian ports to Makhachkala, Astrakhan and even to river ports to reduce their losses.