One of the main events of the last week was the introduction by Turkey of strict restrictions related to the pandemic until May 17. Judging by the past year’s experience, enterprises are in a state of uncertainty and cannot confidently plan their work in such an environment. Currently, shipment dates of some of the export goods are already being changed to later ones due to difficulties with the delivery organization. Also, the amount of the usual non-food cargo from the Central Mediterranean to Turkey for further processing has noticeable decreased. Because of this, many Owners are either consider voyages from the Azov Sea ports to the Adriatic Sea reluctantly, since the return ballast passage kills the voyage economy, or offer a freight rate that allows not bothering about it.
The cancellation of the Egyptian state tender for the purchase of wheat by reason of too high prices will lead to the fact that supplies to Egypt will proceed within the market. There is quite a big difference between the FOB indicative prices for the 21/22 harvest from the Black Sea, especially considering that the payment was to be made against the cargo documents, without any delay. Further development will depend on how quickly the shippers will continue to “get rid” of old stocks: Russian Traders have few volumes left, while Ukraine and Romania are quite active in exporting.
Scrap market continues to grow. Due to official removal of China’s steel export VAT tax rebate from 1 May, lack of significant scrap commodity stocks of the major exporters and increased demand worldwide shows USD 10 increase and current sales prices even higher than they were in December 2020. Presently due to increased demand from the consumers we do not see the freight market pullback for the following month. In addition to the above, due to the Easter holidays from 1th to 5th of May coincided with the Turkish lockdown till May 17, we see that on 20-21 weeks will be a peak of activity in the industry. Thus, based on our close Owners information, we expecting the freight levels at Med/Cont should pull up.
The freight market went on a long Easter and Ramadan related vacation. Most European countries start work on May 5, but the 19th week for Europe will also be working by half. Muslim countries will celebrate Ramadan on May 11-15. Many market participants tried to close deals before the beginning of May, foreknowing the impossibility of stable work in the first half of the month. Despite this, the freight market continues to grow, even though there are not much fixtures during the holidays. The market will be fully formed by mid-May, and how it will behave is not yet clear.
Most Charterers from the Middle East prefer to reschedule their shipments to June dates or do FOB sales. Due to various religious and national holidays, the market situation in the Persian Gulf remains unchanged. Charterers hope that the market will dip in June, and Owners will be able to provide competitive rates.
In the light of new trends on the commodity market, many Owners are trying to relocate their fleet to work in other regions not to stay in the Azov basin. In general, the number of cargo offers on the market is still not decreasing. Despite the decline in the usual grain volumes, there is work for vessels in the Black and the Mediterranean seas, including quite active exports from Turkey in various directions.
Owners of modern fleet have found unusual opportunity for employment of their vessels: long-distance voyages around Europe. Despite the fact that such vessels of “river-sea” type were initially designed to operate from river ports, currently a voyage from Turkey to the Continent is more lucrative than the struggle for the Azov load on the low market.
Russian-flagged fleet remains in demand even amid the overall calm. Those who avoid calls to European ports have switched to work to the river or to the Caspian Sea. Considering the fact that large shipments of the residues of the old grain harvest from the roads transshipment are planned starting from the second half of May, the Russian-flagged vessels will be involved in the work anyway. However, in the Black Sea, cargo volumes are expected to decrease in the second half of May.
The freight market of the Pacific Basin has grown significantly in recent times, and many Owners prefer to keep their fleet mostly there. Despite the continued growth of regional cargo flow and, as a result, freight rates, the availability of tonnage supply still exceeds the demand for it: a sufficient number of Owners are actively searching for cargo; one of the priorities is coal from Russian ports to China.
Update on Persian Gulf situation: the market is growing in the wake of the Atlantic, and there are plenty of offers and sub sales for Handy-size and Supra tonnage. The Owners of small Handys (abt 18-25k dwt) which open at PG, are facing the situation that their tonnage goes unnoticed. Charterers ship cargoes in favor of classic parcels of 30-32k mts and 50-52k mts as common on the high market. Moreover, numerous Charterers require free use of vessel gears so if you are Ship Owner of a spot small Handy without cranes, it is a sentence for you.
The decline in the freight market has so far stopped in the Azov and Black seas region. There are very few open spot vessels. This situation is explained by the fact that shippers are eager to “pawn off” the remaining goods due to a decrease in the price of raw materials: with the occurrence of the new grain harvest on the market, the price level is unlikely to meet expectations for USD 250 + FOB Black Sea for 12.5% wheat. Shippers of goods not fitting under quota and duty are quite active. Therefore there are expected no rates below USD 15 per ton for voyages from Rostov to the Black Sea in the near future.
Voyages to uncommon destinations are gaining popularity. The fact is that producers and Traders are finding other markets as an alternative to exporting to Turkey in a bid to get rid of expensive old stocks. From the Azov Sea ports, grain parcels are shipped to Ghent, Libya and Tunisia; this makes the tonnage, which is capable of performing such voyages, quite valuable. The rates for these destinations are currently noticeably higher than for comparable, but familiar routes.
Will the freight rate level be the same as before? Today, the Black Sea coasters market is still high. Owners offer rates of around average 10s for backhaul cargo from Turkey to Georgia/Ukraine. Though shippers, who have been forced to pay high freight for quite a long time, are now negotiating more discreetly in a bid to get very low 10s. The current level has not yet been determined, and the pace of shipments has decreased. Nevertheless, the position of Owners looks stronger, as far as there is enough alternative work in the region now.
Continuous congestion at Israel ports is aggravated by lack of the actual berths for different commodities and lack of the manpower to facilitate timely loading/discharging operations, which followed the March’s notable increase of cargo flow. In attempts to mitigate the situation disbursement discount for the extra waiting time was provided by the port authorities. Even so Owners have no willing to call Israel ports without extra freight premium, which in some cases amounted to 20%. The waiting time varies from 13 to 21 days and still a substantial number of vessels awaiting at anchorage. The situation may improve by the end of the May.
According to Middle East Charterers who ship steel products, a dire need for spot Handy-size vessels at Arabian Gulf persists. High demand started at the beginning of the April. Charterers complains that spot vessels supply is very low at the moment and most of the vessel that sailing towards Arabian Gulf already fixed for the next voyages. This situation arises from the fact that Owners prefer to position their fleet in Pacific basin for employment on Far East – ECI route and vice versa, as currently this region offers appealing rates and stable amount of cargo orders. Therefore, Persian Gulf is out of the picture and Charterers face a choice between securing a spot vessel on Owners’ terms and pay extra freight or moving laycan significantly.
It is safe to say that the decline of the Azov freight market has stopped. Almost the entire Russian-flagged fleet has switched to work in transit. Despite this, the rates for the transportation of goods from the Caspian region are growing: during the closed navigation, large volumes of grain for export were formed. Transit voyages with fertilizers from Turkmenistan to the Marmara Sea are offered at the level of the average 60s per ton. “Backhaul cargo” to the Caspian Sea is quoted much lower: the rate for a voyage from the Marmara Sea to Kazakhstan for a 3k river-sea type vessel is kept at the level of USD 110-120k. Sometimes, due to the lack of direct voyages to the Caspian Sea, Owners work with backhaul cargo to Rostov and, if possible, take grain to Iran.
Charterers’ expectations for falling rates are not met. There has become less grain, but due to the rotation of the fleet and unshipped parcels for April, the market of the Black and the Mediterranean seas is kept from falling. Until mid-April, there are expected no significant changes.
The situation with voyages to Israel is not easy. For more than a month, vessels have been standing there for a long time in waiting for discharging. The situation is not expected to improve in the near future. This has led to the fact that most non-grain cargo is offered on Liner Out basis. Neither the receivers nor traders want to undertake risks and responsibility for the long idleness of vessels.
The Azov Sea market was stable last week; there are no reasons for movement in the short term. Rates for the next couple of weeks will be kept at the level of USD 17-18 per ton on the basis of voyages to the Marmara Sea. The market is refrained from a bigger fall only by goods which are not fitted under the duty and quota; though the sentiment in wait for deteriorating situation still remains. Owners of Russian-flagged fleet are trying to find an alternative by working in transit, or by switching to the Caspian Sea, where large Traders may work, even with the duties. With the current high freight level from deep water ports, FOB offers in the Caspian Sea look competitive for Iranian importers.
The market of small tonnage in the Black and the Mediterranean seas remains at a fairly high level. It is worth noting that Owners of coasters, who considered the Azov Sea as a home region, relocated their fleet to work from deep water ports of the Black and Mediterranean seas. It is interesting that grain is not the main factor that forms the freight market at the moment: there is a large number of cargo offers for steel products, coal and fertilizers. In the same period last year, the opposite situation was observed.
The Black and the Mediterranean coasters market of backhaul cargo is still in good spirits. The working level for the voyage from Kherson to Marmara is the average 10s on the basis of 3-5 thousand tons. At the same time, negotiations are more difficult, as far as many Owners are euphoric from the high market and offer rates of about USD 20 per ton. The usual level of low 10s for such cargo is unlikely to be achievable in the near future.
FOB prices for grain are falling; the Azov Sea freight market is keeping at the same level without declining. There is no further drop in rates, as well as the inflow of open spot tonnage. It is safe to say that for a certain time period, agreements have been found on the level of prices and freight rates. Besides, there was unexpected news about pending deregulation of grain prices and exports, which makes it difficult to work on export planning. Producers and Traders are gradually approaching the need to sell off old stocks on the brink of the expected fall in FOB prices starting from July.
The coasters market of the Black and the Mediterranean seas is still high. The rate for the voyage from Kherson to Marmara is offered at the level of more than USD 20 per ton of bran. Importers continue to reduce prices; therefore shippers try to have time to ship on the dates indicated by the contracts, which maintains a high dynamics of shipments. The demand for spot tonnage and for the dates of April beginning is still being kept. A significant part of grain for export has already been shipped; state tenders with April shipment dates have already passed, and, judging by the chronology of their conduct, there will be only one more period of shipments for public procurement before the new harvest. Then buyers will try to “hold out” until the new crop grain, which is already quoted much lower than now on the market.
The situation with the water level in the Kochetovsky lock is very similar to last year: on the dates of the vessels’ movement beginning, the water level is predicted to be 3.1 meters. Despite promises to move water from the Volga River, Owners calculate the economics based on the load on 3 meters. And considering the fact that today’s grain sales are complicated by declining FOB prices from buyers and the low exchange-value of lira, many Owners are looking for alternative work options.
A dark cloud is hovering over the Azov freight market: there is observed a drop in freight rates, a decrease in the volume of cargo for export and an increase in open tonnage. During the reporting week, the rate for voyage from Rostov to Marmara was about USD 20 or less per ton. There is virtually no grain cargo on the market, which is covered by the quota and duty. Those Charterers who considered the rates at the level of the low 20s for the voyage to Marmara at the beginning of the week, offer no more than USD 20 at the end of the week. Large market participants who are still making shipments at roads transshipment are trying to provide work for their own fleet. Owners of Russian-flagged vessels are focusing on transit voyages, while others concentrate on backhaul cargo. However, Owners are trying to play for time in every possible way. By the end of March, rates are expected to fall to the high 10s for the voyage to Marmara.
Based on the results of the Egyptian tender for grain purchase, the question arises about the future prospects of such high coasters market in the Black Sea. Most shipments will be made from Romania and America. The prices of Russia and Ukraine were beyond competition. Of course, Owners will continue to insist on high-market rates. But whether Traders and shippers will be ready to match and pay at such high rates remains to be seen. Two factors play against this: a significant number of imports go through tender purchases, and the sentiment of lower prices and loss of profit will apply pressure. Even if the market level remains high, Traders will by all means try to delay the negotiations and try to get the lower freight rate.
Working in transit via inland waterways is a possible alternative for Owners of Russian-flagged vessels. Even now, large freight forwarders are negotiating with Owners for voyages with general cargo to the Caspian Sea; a number of vessels have already been fixed. The rates for the current period are lower than last year due to the lack of grain on the market not only for export transportation, but also for cabotage voyages at roads transshipment. The average indicative rate for a voyage from Marmara to the Caspian Sea port is USD 120/130k per vessel with a deadweight of 3000 tons with no age restrictions. There are virtually no firm negotiations on export voyages with grain. Until the beginning of July, grain exports are not expected to increase. Though, there is expected a high demand for tonnage for cabotage voyages via inland waterways: the domestic market will try to make grain crop stocks from the 2021 harvest for further export shipments.
Participants of the freight and commodity markets are trying to deal with the consequences of the introduction of quota and export duties. On the Azov market, as expected, shippers are in hurry to ship goods before March 15. Undoubtedly, in the context of the continuing decline in freight rates, long-distance voyages are becoming interesting for Owners. In this regard, bidding on the rates has become fiercer: Charterers are aiming at the level of the average 30s for the voyage to Mersin/Iskenderun; Owners of vessels opening before March 12 are trying to get the low 40s for such a voyage. Judging by experience of working in the conditions of deadline, the demand for tonnage on specific dates does not allow the rates to fall much. It is also worth noting that most Owners of the Russian-flagged fleet already consider work in transit as a priority, so they are actively looking for such cargoes. Therefore, part of vessels will leave the Azov market, which should prevent the formation of tonnage oversupply.
In view of the news about state project of price regulation for fertilizers in Russia for the sowing campaign this spring, rise in the export of this cargo is possible. Grain producers are speaking of increase in fertilizer prices from 20 to 70 percent this year. Considering the growing cost of production, fertilizer producers will likely try to find alternative distribution area.
On the brink of the grain season’s end, it is safe to say that the exporting countries are fighting for buyers. As a result, key grain importers from the Black Sea countries and France, such as Egypt, Algeria, and Saudi Arabia, find it more profitable to purchase North American wheat with shipping dates for April / May. The reason is the increase in FOB prices for shippers and suppliers, who adjust prices with reference to the duty in Russia. Therefore, barley is mainly been exported, as far as the duty for this cargo is lower, and there is more space to negotiate the price. The situation should be clarified after the Algerian tender, which will be held on March 9. But now the rates for tonnage from deep-water ports are high, due to great demand. For voyages from the Black Sea to Egypt, Owners want to get more than USD 20 per ton of corn, for a handy-size vessel.
Buyers in the region are not going to pay an even higher price in procurement of grains. In the context of growing global grain prices and the introduction of export duties in the Russian Federation, the FOB price is rising: shippers and Traders are trying to include new costs in the price in every possible way. In a situation where prices are already at a fairly high level compared to the same period of previous years, and a significant part of the raw materials is supplied through state tenders, importers do not agree with the sellers’ offers, so they announce the purchase price lower. Of course, this this affects the freight market in the Azov region in Russia. If it was be possible to talk about the rates of about USD 30 per ton of corn from Azov to Marmara, then at the beginning of March the working level is already USD 26-27 per ton for a similar voyage. It should be noted that some Owners are still waiting for the next surge of demand for tonnage on the brink of the last deadline on March 15; they offer the rates above USD 30. The spot fleet with opening dates for the first half of March is fixed at the level of the high 20s.
The Black Sea coasters market will have a similar downward trend in rates. Currently the level of freight for voyages from Ukrainian deep-water ports is quite high; the rate from Kherson to Marmara is just above USD 20. Some Charterers see the working rate for the end of March/April at the level of USD 16-17, explaining this by the high purchase prices from the side of shippers, as well as decrease of prices from the side of importers. Much depends on the balance of power on the commodity market: whether importers will keep a high pace of purchases, or try to “hold out” for the new grain season. In case of a decrease in the grain exports volume from Russia by coasters by reason of high duties, then alternative supplier countries will certainly be a priority, and the demand for tonnage from deep-water ports will be kept. On the other hand, a significant part of Russian grain has already been exported: the volume of exports for January-February is much higher than last year, and importers have a certain margin for trying to get a new favorable price. This will undoubtedly affect the freight rates, and the market will face a decrease in the amount of cargo sold and ready for shipment.
On the 7th week, the weather increased the freight rates for river-sea type vessels for voyages from the Russian ports of the Azov Sea. Fleet rotation have been prolonged by often occurrences of weather worsening periods in the Kerch Strait, Marmara Sea, Bosphorus and the Aegean Sea, which sometimes followed each other, increasing the duration of the voyage by 4-7 days. For many vessels that are now fixed to Marmara Sea’s ports or for more distant ones, there is no longer an opportunity to perform a voyage before the end of February. Therefore, the rates of the level of USD 30-32 per ton from Azov/Rostov to Marmara will most likely add a dollar or two at the end of the month for vessels ready loading in February.
Exporters are already showing an interest in rates for March and are trying to form up the sales economy for the next month. When forecasting for March, it is worth considering that at past state tenders for the purchase of grain in Turkey and Egypt, Russian grain did not take such key positions as in the last few months. This is explained the issue of purchasing grains from producers at a price offsetting the export duty, but not everyone is able to do this in such volumes so far. In terms of price development on the domestic market, wheat is already experiencing a decrease from the side of processors, as well as a decline in CPT prices in ports. The pivot point will be in mid-March, when the duty on wheat will be increased; until then, spot/prompt shipments in small parcels will be a higher priority, which will keep the demand for tonnage in the Azov Sea.
It is worth noting that great demand for tonnage is observed in almost all regions; rates for large coasters and handy size vessels have increased. Exporters who are not involved in regular shipments have found themselves in a difficult situation. Grain Charterers in any case have space to discuss the freight level due to the volatility of purchase prices and rising prices from the side of importers. Companies that are engaged in the supply of minerals, lumber, secondary raw materials, etc. do not always have such a margin in the transaction economy in order to offset the difference between the expected freight rates in February/March and the current level. Therefore, a sufficient amount of cargo is open in spot and ready for shipment. It can be assumed that due to these orders, the freight market will be supported in case of a decrease in grain exports from the Russian Federation or similar factors.