In the Azov region, rates kept growing on the 14th week. Many experts agree that the increase in freight was on mere inertia of the previous weeks, at a time when the grain market is under strong pressure from a number of factors. Firstly, this is the ruble strengthening, even if it’s quite shaky, amid increased oil prices. Secondly, a sharp spike in the wheat price, which has gained about USD 10 over the past week; this coincided with organization problems of logistics in exporting countries. At the last, thirdly, the Russian Government has restricted grain exports by introducing a quota for wheat exports until the end of June this year. Since April 10, it has additionally banned the export of sunflower, rice, soy beans and a number of other crops. Logic dictates that the freight market is likely to collapse in the near future. In anticipation of this, many Owners are ready to fix their fleet for far dates.
Commonly Owners see performing voyages to Italy or Spain as an opportunity to profit off of a higher rate. However, as it stands now in the regions of Receivers, they are not allowed to pay above the market. Thus, if Owners ready to perform a voyage to Italy offer the rate over USD 40 per ton on the basis of the voyage from Rostov to Adriatic, then Charterers are ready to pay only a little more than USD 30.
Many Exporters who have signed contracts for sunflower seeds shipments have faced problems with issuing phytosanitary certificates. A few weeks ago, there were rumors that the quarantine services received an unspoken order from the RF Ministry of Agriculture to restrict the export of a number of crops, including sunflower. However, these restrictions could not affect products that have already passed quarantine tests: in the presence of a quarantine certificate, the regulatory authorities have to issue a phytosanitary certificate required for export. Nevertheless, on the 14th week, the FSVPS (Federal Service for Veterinary and Phytosanitary Surveillance) refused to issue the necessary documents until further clarification from the Ministry of Agriculture. As a result, on March 31, the EEC decided to ban the export of sunflower in the period from April 10 to June 30 this year in order to sustain the domestic market. On the one hand, this led to a sharp demand for seeds with shipments before April 10. However, amidst the lack of spot tonnage and phytosanitary certificates, which were no longer issued for a week, the adopted measure actually stopped exports instantly.
The weather actively interferes in the fleet positioning of the fleet on 14-15 weeks. Strong winds in the Black Sea slow down the vessels movement, which creates congestion in the Bosphorus and the Kerch Straits. If the rate level decreases in the near future, the market may expect a large amount of cancellations and, as a result, an increase in the number of open spot tonnage. Despite the fact that the river navigation opened a week earlier this year thanks to favorable weather conditions, there are not much shipments from river ports to the Black and Mediterranean seas. The low water level in the Don River has limited the draft of vessels to 2.9 meters when passing the Kochetovskiy lock. Significant improvements are not expected for April. As a result, grain will be transported by inland waterways to Rostov or Azov; there it will be transshipped for further shipment to the Black Sea.
The situation with rates in the Caspian region in whole is the same as in the Azov region. In the past few weeks, they have been growing due to increased demand for the fleet, which was caused by upcoming restrictions on the export of soybeans. The latter, along with corn and barley, are among the three most popular export from Russia positions in Iran. The introduction of a ban on the export of certain types of food products from the EEU countries, including corn, barley, and soy, had a negative impact on the freight market. Some Owners have already begun to complain about contracts cancellation, and the lack of cargo offer is dragging the market down.
During the 13th week, the Azov freight market showed growth again. This is still explained by the export activity due to an increase in the exchange rate difference between the US dollar and the ruble. Out of concern for the Russian market state, the Ministry of Agriculture imposed unspoken restrictions on the export of seeds, rice, millet, safflower, and officially banned the export of cereals to keep prices on the domestic market at the same level. At the same time, it was announced about the introducing of the temporary quota for the export of wheat, rye, barley and corn, which limits their export in the amount of 7 million tons from April 1 to June 30. Experts think that this measure will not significantly affect the market, as far as a smaller volume was expected for export (approximately 6.7 million tons) for the remaining three months of the current grain season.
Amid the background of increased rates, Charterers preferred to take their time and postpone shipments. Many of them were sure that a week off could stop the issuance of quarantine and phytosanitary certificates, which would lead to a reduction in shipments in the 14th weeks. However, as it became known at the end of the 12th week, all state authorities will continue their work, so Charterers will not have a chance of saving money. As a result, there is expected even greater imbalance in favor of the supply of cargo in the next week and, accordingly, a further increase in rates.
One of the key points of the coming season will be the low water level in the Don River. Upon the navigation start, the maximum draft of vessels will be limited to 2.9 meters, which will make the work in the inland waterways difficult for many Owners. The advantage will be taken by the vessels of Omskiy and Sibirskiy types. Other vessels types will not be able to work normally due to the low load capacity at this draft. Some of the signed contracts for work in transit and at the Volga River are already being revised. With the current trend, most of other coasters will look for cargo directly from the Azov Sea ports, which will be more interesting for Charterers. These vessels will likely take on a significant part of the cargo from the Azov region.
The demand for transit cargo from Turkey to the Caspian Sea increased sharply on the last week of March. As a result, almost all available tonnage for the first half of April was fixed. The average rates for such a voyage on the Omskiy type vessel range from USD 110 to USD 125 thousand lumpsum. In combination with backhaul fertilizers from the Caspian Sea, this looks much more attractive to Owners than a regular voyage from Rostov to Turkey. The current situation, especially in light of the expected low water level in the river this year, will greatly reduce the number of available Omskiy type vessels on the market, which importance is growing every week.
In the Caspian region, the effect of the ruble devaluation was delayed by about one to two weeks compared to the Azov region. Rates went up sharply on the back of increased demand only last week. There was a lot of cargo on the market, including from small Charterers, which caused euphoria among Owners, so they began to drive up rates and try to cancel current contracts. Many of them are actively working on loading options from the Middle Volga, as well as from Volgodonsk and Kalach. There are no problems with the draft at these ports yet, unlike the Don River, and the vessels can take cargo up to full capacity.
The trend for rates growth remained in the Azov region on the 12th week. Optimism on the market is explained by the increased demand for tonnage, and is further warmed up by the shortage of spot fleet in the region: the vessels fixed on long-distance voyages did not have time to return. The cargo offer on the market has grown, which has been driven by rising price of grain in the country. In the equivalent ruble amount, it neared the maximum for the past five years. Of course, the main driver of this price phenomenon was the devaluation of the ruble, which fell by more than 25% against the US dollar in a short time. At the same time, in the equivalent US dollar amount, the grain price continued to decline around the world, including Russia, reducing by about USD 4-5 per week. The value of wheat is strongly affected by the situation with falling oil prices, as well as by the decline in business activity in many importing countries, such as Italy and Egypt; due to coronavirus, there is expected a sharp decrease in cargo traffic.
On the growing market, Owners began to employ their vessels on short voyages, counting on the turnover of the fleet. In this situation, rates for long-distance voyages grew faster, not least because of the fact that many Mediterranean Sea ports are experiencing difficulties in vessels handling due to quarantine. There was observed an increased demand for such destinations as Samsun, Georgia and Romania during the reporting week. Owners are trying to reduce the possible number of passages through the Bosphorus and the Dardanelles straits in order to keep the high level of fleet turnover.
During the week, the vessels were delayed due to the weather. However, on the growing market, they were not cancelled; quite to the contrary, they were awaited for loading. Feeling that the market was playing into their hands at the end of March, Owners bid freight rates at the level of about USD 20 per ton on the basis of the voyage from Rostov to the Turkish Black Sea coast. At the same time, it was clear from their behavior that they were not ready to work firmly; they were only trying to raise the market. Of course, the number of cargo offer increased, but today’s market will not accept a sharp spike in rates by USD 4-5.
Administration of the Azov-Don Basin has officially announced that the maximum draft of vessels in the Azov-Don Sea Canal will be limited to 2.9 meters upon the navigation start. As long-time observations show, this is the minimum value of permissible draft over the past five years. This low water level is explained by the lack of snow in winter and poor precipitations amount in early spring. According to market insiders, this may make a significant contribution to the pricing of transportation from river elevators, as well as transit cargo from the Black Sea and Caspian Sea. The Omskiy-type vessels, which are able to take 3000 tons on 3.2 meters draft, remained the most convenient fleet for transportation on the river in recent years. However, the current water level won’t allow even these vessels to take cargo up to full draft; this means that the dead freight will be included in the rate. At the same time, cubic cargoes, such as sunflower seeds, safflower etc. are still in strong demand.
In the Caspian region, Charterers think that rates will fall upon the navigation start, as far as more Russian-flagged vessels from the Azov region will enter the market. Some Charterers preferred a wait-and-see approach and offer USD 5 below the current rate level in prompt. Owners, in their turn, expect the opposite situation; they explain this by the fact that most of the fleet will leave the Caspian market to work in transit, which, in their opinion, will jack up the rates even higher.
Freight rates in the Azov region remained at the same level as in the previous week. The decline in business activity due to the spread of coronavirus is the major obstacle to the market growth. COVID19 has taken over market participants’ minds: as practice shows, panic affects all the economy sectors in most countries which are significant players on the commodity market.
The main trends of the past week in this regard include the following news:
• Quarantine measures at ports lead to an increase in time of vessels handling. According to port agents from various countries, many ports now are imposing an additional quarantine period for vessels arriving from the countries with high risk of infection, on average about 14 days. This period should be counted from the moment of leaving the port of a country with a complicated virus situation; this makes long-distance voyages more interesting for Owners in the current conditions.
• Some Charterers began to complain about cancelling of advance contracts with consignees located in the COVID19-ravaged countries, especially in Italy, as receivers in their turn have faced irreducible difficulties in inland logistics and sale of goods. This leads to an increase in the number of spot tonnage in the region.
The second factor affecting the market is remaining the price of oil, which the ruble exchange rate largely depends on. The US dollar rate has grown significantly, and the export capacity of domestic goods has also increased a lot. Russia has been playing a key role on the global grain market for the past few years, and, given the current situation, many importers began to undercut their offers in expectation of a corresponding reduction in prices from Russian suppliers. As a result, the number of deals decreased last week, and the rate growth stopped.
The high volatility of the ruble slowed down imports, which hit the market of backhaul cargo in the region, as their cost has increased sharply; Charterers now need time to agree on new prices with receivers. This situation may lead to a rise in freight for long-distance voyages from the Azov Sea: Owners will include the back ballast passage to the freight rate.
Many Owners of the Russian-flagged fleet respond with great interest to offers of transit cargo from the Black Sea to the Caspian Sea; this is caused by the desire to reposition the fleet for further fixing on lucrative voyages with fertilizers from Turkmenistan. Owners are ready to make significant discounts, and some of them even are ready to run in ballast to the Caspian Sea, should the current freight level be preserved.
The Azov freight market continued to grow gradually due to a shortage of spot tonnage. Charterers expected that the elimination of ice restrictions will increase the tonnage supply in the region, but unfortunately for them this did not happen: Owners of such a fleet decided to make voyages from the Black Sea ports due to an extremely low freight level on Azov’s cargo orders. Charterers who needed to make shipments in the nearest dates were quite flexible during trading, which had significant impact on the freight market in whole. Many Owners who received more favorable offers for spot dates started to drive up their ideas for vessels opening in the second half of the month. Thus, the Azov freight market not only switched from stagnation to growth in the moment, but also formed a trend to increase.
Significant anxiety caused by the coronavirus began to affect the freight market as well. Israel has officially announced the imposition of 14-day quarantine for incomers from abroad, which de facto means an appropriate quarantine order for all the vessels entering Israeli ports. Most likely, this will lead to an astronomical rise in freight for voyages to Israel, as well as almost close the cargo flow to this country until the situation improves. Similar measures are currently being discussed for vessels that come from Italian and Iranian ports; this may also lead to difficulties with port calls to these countries.
OPEC’s failure has resulted in a fall in oil prices on foreign markets, which led to the devaluation of the ruble. A significant drop of the native currency commonly has a positive impact on exports, as local products become more competitive on foreign markets. Therefore, the number of new deals is expected to increase in the near future, and the demand for tonnage will rise accordingly. In this case, the freight will grow, despite the typical off-season for this time of year.
According to data from the Administration of the Azov-Don Basin, ice dues will be canceled starting from March 15. The locks in the Volga-Don Canal will start working on the commercial basis on March 24; they will work under normal conditions on April 1. The only open question is yet undetermined draft at canal.
In the Caspian region, the market has remained balanced for several weeks. Observations showed that Owners tried to put pressure on rates amid rumors about the introduction of a quarantine period for vessels arriving to Iran. These attempts however were warded off by weak cargo offer in the region, where activity is declining against the background of upcoming Iranian holidays. As a result, the rates remained at the same level as the week before.
In the Azov region, the trend for a slight increase continued during the 9th week. Rates on the basis of the voyage from Rostov to Samsun were at the level of USD 15 per ton of wheat. According to experts, this was contributed by a reduction in the number of spot tonnage. Many Owners in the past few weeks have favored long-distance voyages, so that they managed to reposition some of the vessels from the region. The situation on the commodity market remained difficult, but many Charterers were ready to pay extra for close shipment dates; this fact warmed up the market. Prompt rates did not grow, which indicates a negative expectation of Owners in short term perspective.
Additional risks include the unstable exchange rate of the Turkish Lira due to the continuing combat action involving the Turkish armed forces, as well as increased tensions between Russia and Turkey. At the same time, the price of grain continues to decline and Russian exporters do not keep up with its fall. According to Traders, this is another factor that may explain the low activity on the market. Many of them note that there are no reasons for a turning point, the market will stagnate until April or even longer; this situation will likely continue until the new grain season.
In the past two weeks, there has also been a clear trend to slow down coal shipments from the Azov Sea ports due to the seasonal factor: the heating season is nearly over in importing countries, so the demand for energy is declining. An additional factor preventing the freight market from growing is the elimination of ice restrictions in the Azov Sea. The amount of available tonnage in the region has grown, which resulted in increased competition among Owners.
Charterers and Owners are widely discussing news about the coronavirus. The hysteria caused by this disease brought down stock markets. However, according to experts, there are expected no global disturbances on the commodity markets. Thus, the demand for vessels should remain at the same level. Nevertheless, the reluctance of Owners to fix their fleet for voyages to countries with high disease burden may lead to the growth of the rates for such destinations.
The Caspian region market remained stable. Iranian importers closed their purchasing programs before Novruz Bayram, and there is no demand for prompt tonnage; this fact prevents rates from rising. However, there is still an opportunity to find cargo in the spot, but there are not many such offers. Therefore Charterers are taking advantage of the moment and trying to bargain for more favorable rates for themselves.
The Azov freight market showed signs of revival during the reporting week. Firstly, the number of spot vessels in the region has seriously decreased, which allowed Owners to take a break and try to raise rates for the next voyages. Secondly, the 9th week in Russia is shortened due to the celebration of Soviet Army and Navy Day: many Charterers decided to provide themselves with tonnage in advance; so the relatively high demand led to an increase in rates.
The results of the last Turkish tender, which were announced past week, had evoked widespread reaction. Players received a clear signal to reduce the price of grain, and after that, the number of cargo offers on the market has increased significantly. At the same time, Traders think that the price will continue to fall in the spring; therefore many sell autumn ‘futures’ at a price USD 2-4 lower than the current one.
The main trend of the Gulfood 2020 exhibition held in Dubai was a significant reduction in the price of wheat flour on foreign markets. According to experts, this chain reaction will also hit the price of wheat in the new grain season. At the same time, many flour millers will cut down expenses in all possible ways in order to reduce the cost of raw materials, and the main method for this is to increase the size of parcels of goods. This may affect the Azov coaster market in a negative way, since the main buyer and processor of Russian wheat is Turkey, where the goods are delivered in 3-5K parcels.
There is observed a growing trend on the Caspian market, which is caused not only by the forthcoming Novruz Bayram, but also by the increasing offer of fertilizers from Turkmenistan. Shipments from Bekdash to Baku (with further transportation to the Black Sea coast) are gradually turning into an independent cargo traffic that will soon be able to compete with grain shipments to Iran. The efficient speed of cargo handling and short transit time allow Owners to achieve high fleet turnover, and rising rates make these voyages more appealing. Market insiders think that this cargo flow may attract more tonnage from the Black Sea after the navigation open.
Over the past week, the balance of power in the Azov region has barely changed. Charterers ‘ freight ideas remain beyond the pale of profitability for Owners, so most of them prefer to fix their vessels in spot until an acceptable offer is received. Experience has shown that the spot fleet takes on average from 2 to 4 working days to find a suitable cargo. Commonly these vessels are fixed up by Charterers with contracts close to deadline; for them, the dates are more important than the additional margin of USD 1-2 per ton. The abundance of spot tonnage does not allow the market to grow, but there is no further way to decline, so rates remain stable for the second week in a row.
All ice restrictions were canceled in Azov and Rostov due to rising temperatures. Unfortunately for Owners, this factor may have only negative impact on the market: there may be an inflow of coaster fleet with no ice class to the region, which is already overstuffed with the tonnage supply. The Black Sea market is currently not far behind in dynamics from the Azov market, and in the next few weeks there is expected no growth.
Amid the background of grain trade activity tended to zero, the freight market survives largely by means of increased shipments of non-food cargoes. Coal, fertilizers, metals and general cargo are shipped with an unusually high intensity for this time period. Falling freight rates allow Exporters to compete on foreign commodity markets. However, since grain remains the main cargo nomenclature of the region, everyone agrees that freight growth is possible only with the resumption of active trade in this segment.
The Caspian region showed a slight increase during the reporting week. Owners attribute this to grown activity due to forthcoming Novruz Bayram. Many Iranian Importers commonly increase the volume of grain purchases before the holidays. The growing demand for tonnage allowed Owners to overcome a prolonged downward tendency in rates: the market showed growth from almost all ports, except for Volgograd; there, on the threshold of the navigation opening, the difference in rates with seaports is gradually coming to the usual values.
The Azov freight market continued its decline on the 6th week. The fall in freight rates is still dictated by the increase in the number of spot vessels and the lack of cargo in the region. Requirements of Receivers have been covered till March; therefore they enter into negotiations reluctantly and behave aggressively in a bid to knock the price down. Development of the situation will depend heavily on domestic prices for Russian grains. While wheat is falling by USD 2-5 on global markets, its price is far from decreasing in Russia, and it’s even growing in some regions.
Buyers closely monitor the economic situation in Russia, and even fluctuations in the ruble exchange rate are included in the offer, which leaves no wiggle room for sellers. It is expected that the grain price will continue to decline: producers still remain with substantial volumes of grain, while the fleet will work on the verge of profitability. Demand for tonnage may return after determination of the average market price for Russian wheat. Commonly, this happens when past tenders data reach the market; the closest tenders are Turkish. The situation on the market of coasters will largely depend on how grain Exporters will build their work: either through shipments from deep-water ports of the Black Sea or from the ports of the Azov region.
Experts note that now there are mostly traded niche positions: pulp, seeds, sfs meal, peas, bran, safflower. At the end of February, parcels of these goods are ready for shipment. For now, however, Owners show no interest in fixing their vessels for this cargo on such distant dates; they concentrate on fixing their spot positions. Market activity is expected to increase nearer the end of February, when there will be cargoes with delivery dates for March.
Navigation on the Volga-Don canal opens in April. Against the background of minimum rates in the Azov region, it is expected that the Russian-flagged fleet will eagerly look for either transit general cargo or cargo from the river to the Caspian Sea. Such voyages already are in great demand, and transit rates will expectedly decrease with the approach of the navigation period. This can be useful for Charterers who did not have time to take out their cargo during the previous navigation; they will now have the possibility to fix the vessel much cheaper.
Probably, this year we will observe year-round availability of the Volgograd port. With the approach of spring, it’s is becoming clear that weather conditions will not prevent its work. Owners review the possibility to take cargo from there, but still they try to include an extra pay for entering the river. Exporters also increase the number of requests for shipment of grain from Volgograd and Tatyanka. Unlike the Astrakhan region, these terminals do not require paying for overload on vehicles and extra costs for the delivery of goods. It is noted that Owners are keen to sign contracts for several consecutive voyages at an agreed rate, so as they may be on a safe side in case market’s fall.
However, the Caspian market continues its decline due to lack of cargo. There still remains a problem of the delivery of grain to Astrakhan, with a steady demand for it from Iranian importers’ side. Amid the background of changes in wheat prices in other regions, Receivers would definitely like to review the delivery terms; though, by the time new contracts are signed, the issue of cargo availability at the port of Astrakhan should be closed. Traders are counting on transportation by rail from the Northern regions. It is expected that at the end of February, the first wagons with grain will arrive; this may improve the situation on the freight market and stop its decline.
Freight market in the Azov region continued to go through difficult times during the 5th week. Extremely low trading activity created unfavorable conditions for removing vessels from the spot. At the beginning of the week, there was a lot of open tonnage; this fact leaned hard on freight rates, which sank by about USD 2 for spot positions during the reporting week. Discussed rates were at the level of USD 16 per ton of wheat on the basis of the voyage from Rostov to Marmara. Owners reckoned that the situation would not change much in the near future, and many of them tried to fix fleet in spot, holding prompt vessels out of market.
By the end of the week, major Charterers started to offer cargoes from the Azov ports, which were quickly fixed. Charterers tried to knock the rate down even more, but Owners bucked against it: current rates already are at the level of the voyage profitability, and it is easier for fleet to idle than to work. Next week, the tonnage supply will increase further due to vessels returning from long-distance voyages; this will additionally worsen the situation in the region. Due to the uncertainty on the commodity market, which will last at least until March, some shippers reckon that it is better to accumulate cargo volumes at river ports, as they see no reason to transport cargo to the Azov Sea ports due to unclear sail prospects.
Rumors are quickly circulating among Exporters that the quarantine services may soon stop issuing certificates for products intended for export to China, and thereby shipments to the quarantine zone will be suspended. This may have a positive impact on the coaster market, seeing as Exporters will have to reorient their products to open markets; this will increase cargo offer in the region.
The situation with shipments from Black Sea ports is similar. The high market in December was followed by a sharp drop in the number of shipments, and freight rates fell. There are no long-term contracts; vessels are mostly fixed in spot on the verge of profitability. Still Owners hope that the strengthening of the US dollar against the ruble will aid of the new contracts conclusion, despite weak demand from buyers’ side, and freight rates will start to grow again; at least their reduction potential has long been exhausted.
The freight market in the Caspian region continued its decline amid low variability in the choice of possible voyages. Shipments from Astrakhan are still complicated by the problem with cargo delivery to the port, seeing as vehicles are actually blocked at the entrances to the city due to overload, and the first rail cars with grain have not reached the terminal yet. Port Aktau remains congested; at Makhachkala port, shipments are performed in a very low rate. According to market insiders, the port remains highly corrupt, and many major players prefer not to work from there.
A wide response on the Caspian market was caused by the news that “Russian Railways” will provide discounts on railway tariffs for transporting grain up to 400 km starting from March 1. This will allow Exporters, focused on Astrakhan, to resolve the issue of cargo delivery to the port, which will eventually help to stabilize the falling Caspian market.