Over the past 45th week on the Azov market there has not been much change. Freight rates were stagnating due to low Traders’ activity, which was balanced by a small amount of opening tonnage. Russian wheat is higher-quality, and it’s more expensive than competitors’ offers. Therefore Russian wheat sale transactions are rather few; nowadays, bran, sunflower seeds, peas and corn are mainly shipped from the Azov Sea.
The high price of Russian wheat had a negative impact also on the volumes shipped from Kavkaz roads. The main export wheat flow comes from deep-sea Novorossiysk port via parcels of 20-50 thousand tons. Taking into account the delivery to the port, it turns out to be much cheaper than shipping by coasters from the Azov Sea. Due to the lack of demand for tonnage from Charterers working on transshipment on Kavkaz roads, the market is going down. It is expected that in the near future, producers and Traders on the domestic market will be forced to reduce prices in order to increase the competitiveness of the Russian wheat price on FOB basis on the world market.
Due to the lack of Russian-flagged fleet from the river, the demand for the cabotage tonnage has increased in contemplation of the navigation end. Exporters seek to export the remaining volumes under contracts to the ports of Astrakhan, Azov or Rostov, followed by transshipment to the river-sea type vessels. Owners of such fleet continue to fix vessels on spot basis and prefer short voyages to the Black Sea Turkey and Marmara. During the reporting week the freight rate for the voyage from Rostov to Samsun was at the level USD 20 per ton of wheat; significant fall in rates before year-end is rather unlikely due to forthcoming imposition of ice restrictions and charges.
The Caspian market continues to go up. The main drivers of growth are the roaring demand for tonnage from the river at the point of the navigation end, as well as news regarding the memorandum on the wheat supply under government contracts signed by Russia and Iran. Amid the background of this news, many Charterers began to exhibit activity in the conclusion of winter contracts, with the consequence that the fleet turned out to be in even greater short supply than it was before. Shipping corn from Astrakhan is at a rate of USD 40 per ton, the rate from Volgograd is about USD 53 per ton.
The market is also supported by sharply increased demand for tonnage for Kazakh wheat supplies. Before now, local shippers used mostly deep-sea Iranian-flagged vessels for such contracts. This year, however, many shippers refuse to load such vessels because of the American sanctions imposed against Iran. Thuswise, the Kazakh grain cargo flow will compete with the Russian one for the Russian-flagged fleet, raising the rates in the region.
The Azov freight market continued a smooth decline in rates on the 44th week. The cargo offer lagged behind the fleet turnover rate, resulting in an increase in the spot tonnage amount, which pulled the market down. Owners accept the decreasing trend, but choose long-distance voyages, which is why rates for them fall faster than rates for short ones. Along with the demand for long-distance voyages, the demand for backhaul cargo is growing.
The main factor determining the low freight rates continues to be grain traders’ activity, which is weak for this time of year. The high purchase price in the domestic market makes Russian grain too expensive compared to the offers of Ukrainian competitors and kills its export prospects. Market insiders expect that in the near future producers will begin to reduce the price of grain because a lot of it has accumulated in storages, and no grain season has occurred.
Based on the quotes of the last major tenders (Egypt, Turkey and Algeria), the Russian origin grain may be among the winners. Experience has shown that such lots are more often shipped from deep water (Novorossiysk port). Many traders believe that the high purchase price of grain in Novorossiysk inhibits exports from the Azov Sea; it’s a lot more lucrative for shippers to ship grain on CPT terms to major players than to ship it on FOB terms from low water.
Azov-Don Basin Administration informed market insiders about the closure of locks No. 1-15 from November 27, 2019 on. There remains the possibility of commercial locking, the terms of which need to be negotiated in advance. Subject to favorable hydro-meteorological conditions, it is possible to extend the work of the locks until December 1.
For the Russian-flagged fleet, the freight market moves into a different segment near the end of navigation. Amid the background of decrease of rates from the Azov Sea ports, the demand for shipments from river elevators remains high, and the Russian-flagged fleet is still in short supply. Freight rates are joining the ranks of non-market.
In the Caspian region, rates have been growing steadily for a month. Seizing the moment, Owners dictate their terms not only for spot contracts, but also for long-term winter ones. Some believe that 2-3 of them are risky, but highly paid voyages in the Caspian Sea are comparable in profitability with 2 of 3 months of work in the Azov Sea in wintertime. This is the most important factor for the decision-making on a matter of wintering in the Caspian Sea.
On the week 43 Azov market looked sluggish, as major part of local fleet has been employed with very few spot openings and Owners were not keen on fixing ahead. Freight-wise almost nothing has changed: workable level from Rostov to Samsun amounted to 21 usd pmt. Several factors have restrained the market growth:
Firstly, wheat FOB prices at Rostov is currently well above the level, at which it is possible to plan long-term contracts. Shippers are forced to keep up with Novo, where higher price tempt the producers to deliver their goods there. Another supportive fact is slight weakening of usd to rur ratio, which stimulate the price growth.
Secondly, in the light of negative news regarding bad quality of Russian wheat delivered to Vietnam, there has been a break in negotiations with Turkish buyers, who exercised ‘wait-and-see’ approach. Consequently very few sales contracts have been concluded on end-October – beg-November.
A lot of Ship Owners refuse to believe in market stagnation and postponed fixtures of their opening fleet to the next week. During negotiations they advise 5 usd higher than real market level, hoping that Charterers shall improve their bids. This also may cause the opposite effect: increase of spot tonnage followed by rates decline. To these days most Owners consider short-leg voyages as the best course of action, which due to high turnover provide more profit and due to same reason shall speed up the fall if the rates start to decrease.
Taganrog bay still suffers from the strong winds, affecting water level and aggravate the issue with permissible draft level at ADSC. Still, the voyages ex Yeysk, Temryuk and Taganrog are in great demand, while lack of cargo orders pushes the Owners to consider risky business from Rostov/Azov with underload if only to avoid time losses and sustain continuous fleet traffic.
Caspian market is on the rise with abundance of cargo orders and continuous improvement of already high rates. Severe lack of Russian-flagged tonnage, which is already in full employed on voyages ex river ports to Iran, shall only escalate the closer we are to navigation end. Part of the fleet are now finishing their last voyages in Caspian region and will then take transit cargo to Black Sea, which enlarge the gap between vessels supply and demand. Tendency to start negotiations on spot only is kept, as Owners try to maximize the profit from every fixture, which is quite easy now.
Due to draught in Iran, part of the local producers has refused to sell wheat to the state at offered price. Chances are, Iran may temporarily let loose the ongoing embargo and start to import wheat. In this case, winter period shall see improved fleet demand and higher rates. Currently Ship Owners are exploring opportunities to sign winter-long contracts whereas indicative rates are fluctuating around 20 usd pmt from Caspian Sea ports and around 30 usd from Astrakhan.
Freight rates in the Azov region have shown positive movements of about 1-2 usd pmt during week 42. Rostov – Samsun lastdone was 21-21 usd per tonne of wheat. On the previous week Owners still had the upper hand during negotiations, being supported by Turkish importers’ growing demand for wheat and subsequently increasing rates.
Market participants consider grain prices may with high chances bounce off in the nearest future. This is owing to Egypt’s lowering dependence on wheat of Russian origin, introduction of temporal wheat import ban by Vietnam (which is in top-5 list of importers of Russian grains), risk of US sanctions against Turkey and slightly weakened lira. All these factors make a negative impact on trading activity in the area and question the continuing growth of Importers’ agriproducts demand. Rates improvement’ slowdown is expected, that is why Ship Owners are already considering contract jobs and keen on fixing with far laycan dates. Nevertheless tonnage which opens on the end-October being offered 3-4 usd higher than current workable level, that is understandably unappealing to the Charterers.
Unfavorable winds at Taganrog bay are still limiting port calls to Rostov and Azov for part of local fleet. In such conditions omskiy-type vessels, which have least draft, are in great demand where others are bound to wait for water level increase. Owners who fixed their ladies one or two weeks ago are now trying to employ the fact the tonnage running late to their advantage and escape performance of current voyage as market has dramatically grown up since then and spot fixtures have become more attractive.
Shippers ex most remote river terminals are ready to dump the price only to successfully ship their volumes, thus avoiding winter storing of goods or land transportation. All market participants are aware that in the light of soonest closure of navigation (27 of November is the last working day of Balakovo water-lock) freight rates shall only grow.
Charterers, aiming to somehow cut the losses of unfinished contracts, are now considering employment of cabotage river fleet (COA terms usually) with transshipment at Astrakhan or Volgograd. Better part of mentioned tonnage already works on Kavkaz lighterage and, in order to remove vessel from the program, rate shall be 2-3 usd higher than market level. Ship Owners in their turn prefer short legs so as to maximize their profits on the growing market.
Caspian region has retained decent pace of growth. On the average, rates have added 2 usd pmt against the background of insufficient Russian-flagged tonnage supply. Lack of available fleet coupled with forthcoming end of navigation push Charterers to improve rates to guarantee shipments schedule, as high profitability of Iranian market allows it.
According to producers, this year may see record high corn yield, which being one of the main agriproducts in Caspian trade. Thus, winter period promises improved fleet demand that will support regional market after navigation end.
In the 41st week freight rates in the Azov region rose by USD 1 per ton, thereby predictably showing a positive trend. The minimum rate on the basis of voyage from Rostov (Azov) to Samsun is at the level of USD 20 per ton of wheat. Some Owners fixed at the rates USD 1-2 higher for Charterers’ account, who did not have time to ship the goods earlier in expectation of low rates on the growing market. Now they had to pay more in an effort to fulfil the obligations under their contracts.
Experts agree that the grain market has rebounded from the bottom and it is expected to grow in the near future. The export grain price continued to go up, and importers are behaving much more aggressively than two or three weeks ago. As a consequence, spot tonnage was fully fixed in the region, which resulted in a shortage of vessels due to the fact that the major part of the fleet switched to other regions or works on Kavkaz roads transshipment.
In conditions of fleet shortage most of Owners do not hurry to fix their vessels for far dates, waiting for the most favorable cargo offers in spot. At the same time, if Charterers confirm the rate of USD 1-2 above the market, Owners are ready to switch the vessel from transshipment for the voyage.
Freight rates for grain from the river increased by USD 5-6 per ton on the Volga River and USD 3 from Astrakhan. Shippers are ready to pay, the most important thing for them is to ship the entire agreed volume and close the current contracts. All in all, the market shifted in favor of Owners. Despite the rather high rates from river ports at the moment, experts agree that they will continue to grow until the end of the river navigation, amid an acute fleet shortage and a large number of offers. Shipments to be made before the end of navigation will go up in rate by another USD 3-4.
Some Owners already refuse from long-distance passages to the river due to weather worsening, and those who work at the river, traditionally switch their tonnage from North to South upon the end of navigation. Considering this, over the end of October to the beginning of November period, the last opportunity for fixing in the current calendar year will open for Shippers from hard-to-reach river elevators of the middle Volga.
Navigation on the Volga-Don Canal is planned to be closed on the 27th of November. Therefore Owners of the Russian-flagged fleet greatly drive up the rates for upcoming voyages and try to exclude from the options loading at Rostov above the railway bridge to avoid long delays due to water level fluctuations. Such ports as Yeisk, Taganrog and Temryuk are in great demand as the draft there allows to load up to full capacity and to start a voyage without any issues.
The sharp increase in rates is restrained by competition on the commodity market from the side of Ukraine, where the hryvnia has weakened significantly against the US dollar and gave a boost the growth of Ukrainian exports. This has a positive impact on the market of sea transportation from deep-water ports. There is also being observed an increase in freight rates by an average of USD 2-3 at these ports.
In keeping with the growth of rates on the river, the Caspian market continued its rapid growth during the reporting week. Although traders have not yet felt relief in making payments from Iran, the approach of the navigation end is seriously pushing shippers to sell the accumulated goods and makes it easier for Iranian importers to negotiate cargo payments. If at the beginning of the reporting week, the workable rate was at the level of USD 29 per ton of corn from Astrakhan to Iran, then at the end of the week Owners negotiated the rates by USD 3-4 higher. Experts consider that growth will continue, and Owners will wait till the last minute before vessel fixing.
On the 40th week freight rates in the Azov region showed long-awaited activity and continued to grow for the third week in a row. They were supported by the strengthening US dollar, which made it easier for Traders to conclude deals. The inert dynamics of shipments in the first months of the current season has led to the accumulation of significant stocks by shippers. Exchange rate fluctuations play a big part for them as far as activity on the market increases sharply with the jumps in the exchange rate. On average, freight rates increased by USD 2-3 within a week. Now the working rate from Rostov to Marmara is at the level of USD 22 per ton of grain, against the average rate of USD 19 a week ago.
Bad weather in the Adriatic Sea favored the rates growth. Strong winds and rains made it difficult for vessels to return from this region, and the tonnage supply in Azov decreased. Owners are ready to discuss prompt dates, but they give ideas around USD 2-3 higher for 41st-42nd weeks. It is worthy of note that rates have already begun to fall gradually by USD 1-2 per week in the same dates last year (41st-42nd weeks of 2018), and this year the market is picking up speed oppositely. It is still possible that the record harvest will show itself, and we will see the real grain season, though with some delay.
Long-distance voyages are not in favor as far as Owners prefer the Black Sea and Marmara Sea, trying to make as many voyages from the river before the end of navigation. From mid-autumn, the market will begin to offer beet pulp, which is traditionally shipped to Italy, Spain and Morocco. This will increase cargo offer and give a boost the rates for long-distance voyages.
With existing freight rates for grain, coal continues to be more interesting because of the lack of idleness risks due to weather conditions. However, since Charterers and Traders on the coal market prefer to conclude contracts of affreightment and rarely work in the spot, the October program may be considered closed with the tonnage, which was fixed in the last week. Non-weather cargo offers will still be interesting for Owners who work from the Azov Sea ports, but the fleet demand for non-grain cargoes is pretty weak.
According to the data from port agents, the possibility exists of significant water level fluctuations in the Azov region on the 41st week. This may lead to a powerful increase in rates from Azov and Rostov, while freight rates from the deep-water ports of Yeisk and Temryuk will show a more restrained growth. According to the gauging station, as at the end of the reporting week, the water level at Rostov was 12 cm above zero, having fallen by 25 cm for the previous 24 hours. Many Charterers already had to pay extra for the bridge passage at Rostov. Most Owners prefer not to risk entering Rostov and Azov, moving their vessels to the deep-water ports of Yeisk and Temryuk.
The freight market of river ports is still overheated. There is no lack of cargo offers, but it is necessary to ship these cargoes before the end of navigation, in order not to arrange rail transportation to Rostov later, or to leave in storage until next year. Vessels will have time to make another 1-2 voyages at most, and when negotiating cargo from the river, Owners have the upper hand most commonly. Being picky, they dictate inflated rates and fix the vessels closer to the spot dates.
The Caspian market is growing faster than the Azov one, largely due to the news that Iran has signed the Temporary agreement bill for establishing a free trade zone with the Eurasian Economic Union. Apart from the simplifying of the payment for goods procedure, it also means that Iranian vessels will be able to work in transit between the Caspian and Black Seas along with Russian, Azerbaijanian and Kazakh ones. However, currently in the region there is still a lack of the Russian-flagged fleet. The number of cargoes on the Caspian Sea increased, which raised the average rate for voyages from Astrakhan to the level of USD 30. The main demand for spot tonnage is formed by the Volgograd region. In order to insure against a possible sharp rates jump by the middle-end of October, some Shippers try to fix the vessel for several consecutive voyages to be sure of fulfilling contracts on time and at a set rate. Shipments from Aktau (Kazakhstan), where part of the vessels switched to work, were more active during the reporting week. Experts anticipate further rate growth in the Caspian region on the 41st week.
Freight rates on the 39th week continued to grow in the Azov region, and by the end of the week the rate on the basis of the voyage from Rostov to Marmara reached a level of USD 20 per ton of wheat. This is USD 1 more than a week ago, but significantly lower than last year’s rates (USD 32 per ton of wheat on the similar basis on the 39th week of 2018). Experts attribute the increase in rates, firstly, with the fall of the ruble, which made Russian wheat more attractive in price on the world market, and secondly, with low spot tonnage supply in the region. Some vessels were delayed in the Black Sea because of the storm, and Charterers with contract deadlines were forced to raise offers amid a backdrop of the formed lack of tonnage. At the same time, Owners observing the growing cargo offer were in no hurry to fix their fleet and held on to it until the spot dates.
Despite the increased rates, there were very few open positions in spot/prompt by the end of the 39th week. Owners, in a bid to minimize losses from low rates of last weeks, switch to work from the Black Sea ports, where they get USD 18-20 per ton of wheat on the basis of the voyage to Marmara.
With the onset of autumn, non-weather goods such as coal, iron and timber are traditionally in great demand from Owners’ side. Handling and paperwork of such cargoes take much less time than the grain. With weather conditions worsening in the region, the difference in the speed of working the vessels is growing, which makes non-weather cargo more profitable from the point of view of the voyage economy.
Due to the lack of fleet for the grain export Producers are experiencing a deficiency of storage areas. Elevators are filled with grain from the southern regions, and they additionally receive crops from the Central and Northern regions of Russia. This led to a high demand for the river fleet, which is used for the barley and corn export from remote places to Astrakhan with following transshipment to Iranian vessels.
The bridge construction across the Strait continues in the Dardanelles. Owners expect that the construction works will intensify in the near future, which may lead to a decrease in Strait passage speed. This forces Owners to refuse from long-distance voyages and increases the difference in freight cost between the Marmara Sea ports and the Mediterranean Sea ports.
Although the closure of navigation from the river is expected in usual time this year, the shipping traffic will be limited due to low water level. According to data from the Ministry of Natural Resources, shipping companies were warned about this in advance. This is keeping freight rates for transit voyages from the Black Sea to the Caspian Sea at a high level. Owners of Russian-flagged vessels will have time to perform another 1-2 transit voyages, and they are raising the bar in negotiations as high as possible. As of yet, It is more profitable for Charterers to overpay than to assume the risks of additional cargo transshipment.
The Caspian freight market revived after weeks of stagnancy and showed an average growth of USD 1-2 on the 39th week. Experts associate this primarily with the market insiders’ expectations for the forthcoming simplification of the settlements procedure with Iranian partners. In addition, some Iranian Owners switched to contractual work from Aktau, which reduced the Iranian-flagged tonnage supply and also contributed to the growth of rates.
In the middle of the reporting week, the workshops at the Garabogaz Fertilizer Plant (Turkmenistan) began to start up gradually after prevention activity. The estimated capacity of 3500 tons of urea fertilizers per day should be reached on the 40th week, which will restore the flow of back-haul cargo from the Caspian Sea and increase competition between Charterers.
The 38th week in the Azov region began energetically and ended with a small but steady increase in rates. For today, the freight rate ex Rostov to Marmara is keeping at the level of USD 19 per ton, which is USD 1-2 more than a week ago.
Experts associate the market revival with the continued fall in export wheat prices and the results announcement of tenders of TMO (for the purchase of 250000 tons of soft milling wheat) and the Egyptian state company GASC (230000 tons of Russian wheat has been purchased), execution of which has begun on the reporting week.
For the first time in a long time, the Azov region faced a serious lack of spot tonnage. This is due to season-related winds in the Taganrog Bay, which blew all last week and prevented normal navigation at the ADSC. Sensing the upcoming demand, Owners are waiting for higher rates and prefer to fix on the spot. Charterers, who planned to make spot shipments, are forced to raise the rate to fulfill the signed contracts.
Owners prefer short voyages, therefore the voyages to the Black Sea created an overdemand, which puts back the rates growth. As a consequence, there may be a more significant difference between the rates to the Black Sea and to Marmara/Izmir over the next several weeks.
The Black Sea region market is strongly influenced by the actions of a major player in the person of Miro Group, which is controlled by VTB. Many traditional destinations such as Mediterranean Turkey, Egypt, North Africa and Mediterranean Europe are closing with large parcels from deep-sea ports. In such a case, in the wake of rates rising from the Azov Sea, the difference in prices on CIF basis ex Novorossiysk and Azov Sea ports for the long-distance voyages will grow. According to data from experts, this will lead to a reduction in long-distance voyage by the river-sea fleet.
The Caspian market remains stable. Owners still hold the current level of rates, despite the relatively low demand for the fleet in the region. In many instances, this is happening due to rumors about the payment system integration between Russian and Iranian companies in circumvention of the SWIFT system, which should significantly simplify and speed the movement of funds, and return the activity to the normal state of business. According to data from Astrakhan stevedoring companies, the planned volume of transshipment in October should increase by one third, which also stokes the freight market, and rates for prompt fleet are growing faster.
East winds blew in the Azov Sea all 37th week, which greatly decreased the water level in the Azov-Don Sea Canal. As a result, almost the entire fleet working in the region stood for a week in wait for the water level increasing, and the queues have accumulated both at the entrance and at the outing of the ADSC. On the one hand, this led to the fact that the market showed a small growth, as Charterers who were looking for a replacement for the delayed vessels fixed the entire spot tonnage. On the other hand, there was no serious increase in rates, as the grain market is still on the decline. Producers believe that the grain price has already reached a minimum, and the growth will begin in the next two weeks. Buyers are not in a hurry with purchases and are trying to push the market even lower.
It is expected that the activity on the commodity trade market of Russian goods will be minimal in the 38th week. The reason for this is the geopolitical situation with attacks on Saudi oil refineries. The market is waiting for the growth of oil prices and, the growth of the ruble against the US dollar accordingly. Therefore, the export prices decline will be countervailed by the rise in goods prices expressed in US dollar, and it will not bring sellers and buyers closer to the deal closing.
The fact that due to lingering delays resulted from the bad weather conditions in the last few weeks, almost the entire fleet has already been fixed before the end of the month, may play into hands of Owners. Charterers currently making deals with a delivery date before the end of the month will have to pay more for the spot fleet. In such a case, rates may grow slowly even with low trading activity, until the situation with the fleet is normalized.
The freight market in the Caspian Sea again showed negative dynamics after the recent stabilization. The main factors affecting the market are the same: difficulties in receiving funds from Iran and, as a consequence, the slack period in the work of major Charterers and shippers, as well as the clear fleet overabundance and dumping from the side of the Iranian-flagged fleet Owners.
The transit cargo market is gradually entering its completion phase. River navigation closes at the end of November, and Owners are already beginning to organize further work of the fleet in such a way as to position their vessels in the one basin or another for the winter. This situation also strongly affects the level of freight rates, which can already differ greatly in dependence to the approaching of the end of navigation. For spot dates, Owners use current market levels, while they quote an average of 15-20% more expensive for mid-October. Transit rates for voyages to the Caspian region are also growing on the basis that the main supplier of back-haul cargoes from the Caspian Sea, the Garabogaz Fertilizer Plant, is still closed due to prevention activity. Most likely, in order to avoid traditional idle time, Owners will prefer more reliable (fast) cargoes from the river to the Black Sea at the end of navigation.
Despite the decline in grain export prices, business activity in the Azov region remains low. The current situation leads to the free tonnage overabundance in both spot and prompt. If last week Owners greatly drove up the rates for two weeks ahead, then this week the difference between spot and prompt rates has narrowed significantly.
Weather conditions began to have a major impact on the fleet disposition in the Azov region. In the first place, the weather worsened in the Kerch Strait, which slowed down the passage of vessels, as well as suspended transshipment on the Kavkaz roads. In the second place, the water level at Azov-Don Sea Canal outing may drop next week due to offshore winds, which will lead to delays and disturb the cargo export dynamics from Rostov, Azov and river ports. Experience has shown that such delays favorably affect the freight market growth, due to the fact that Charterers begin to pay excess for spot tonnage in a bid to arrange quicker shipment of the contracted cargo.
Given the low demand for tonnage in the Azov region, some Owners are forced to relocate their fleet. Sea vessels, which usually work from Temryuk in the height of the season, move to the Black Sea Ukrainian ports to take the cargo up to the full capacity. Old sea-river type vessels, which the major Charterers do not consider in connection with the insurance requirements, also shift to perform voyages ex Ukrainian ports. Under conditions of limited cargo offer on the market, non-standard parcels less than 3000 tons are not in favor, therefore Owners of vessels up to 3000 tons switch to work in the Mediterranean Sea. Such Owners’ strategy is not typical for September; usually this movement begins closer to winter.