Upon completion of the 46th week, it’s safe to say that the average level of the Azov freight market has already been formed until the beginning of December. The rate on the basis of the voyage from Rostov to Marmara is USD 24 per ton of wheat. During negotiations, Charterers still insist on further reduction of freight rates; though, it is not clear yet if the market will finally side with Charterers. A significant part of the regional tonnage is delayed due to the unfavorable weather conditions; besides, after the TMO tenders, the business activity of Traders increased. Therefore, in the medium term, stable work from the Azov ports will continue, and there are not expected notable changes in freight rates until December.
Amid the navigation’s end, Owners tried to get the highest possible freight rate for the final voyage from river ports. Freight ideas from Volgograd to Marmara reached USD 50 per ton of wheat, but there was no confirmation from Charterers’ side for such rates: in the current market conditions, the space for discussing goods prices is less than Owners’ expectations. The closing date for navigation remains unchanged: November 27. As practice shows, dates may be adjusted until December 1, also commercial passage through locks shall support belated voyages.
Changes on the Caspian market are worthy of note. In the course of work in 2020, it is clear that volumes shipped and rates in this region have significantly decreased. A notable part of purchased grain is sent by railway. As a result, those Owners, for whom the Caspian Sea is not their home region, have almost completely relocated their fleet for the winter. For Russian-flagged vessels, work in the Azov and Black seas is seen as more promising than in the Caspian Sea, considering the increased volumes for Kavkaz roads transshipment for enhancing supplies under TMO/GASC.
In general, the reporting week was very busy for the commodity market: the announced results of TMO tender, lowering of prices for corn in the Black Sea region, discussion of the introduction of a minimum price for grains in Ukraine, and plans to introduce a new export quota for grain from Russia. For the freight market of deep-water ports in the region, this means that volumes shipped will increase in the near future, and freight rates will also grow accordingly. The current working level for a coaster from Kherson to Marmara is about USD 18-20 per deadweight ton, which may add another USD 2-3 by the beginning of December.
The GASC tender for the purchase of wheat held on the reporting week created a mixed picture on the commodity market both in the Russian Federation and in the exports direction. Throughout the week, the freight rate on the basis of voyage from Rostov to Marmara was traded between USD 25 and 29 per ton of wheat from the side of Charterers and Owners respectively. At the beginning of the week, many Traders have faced the situation when Turkish buyers were trying to demonstrate a decrease in demand for wheat and reduced purchase prices. Producers, in their turn, saw no reason to lower prices, especially in the Central regions. After holding and announcing of the results of the GASC tender, Turkey became more active in negotiations and procurement. Not all Traders though can work in conditions of sharp fluctuations in purchase prices and freight rates. In order to confirm desired by Owners rates, the purchase of goods has had to take place on the 43th-44rd weeks: now producers see the prospect of purchasing large volumes, so they are not in a hurry to reduce prices.
Despite the fact that weather conditions gave extra time for Owners to stand on their ideas, there appeared significantly more opening tonnage on the market by the end of the week. In general, the Azov region remained at the same positions on rates, but a decline, albeit temporary, looks unavoidable in the short-run. The market may be saved from a sharp drop by demand for tonnage for sunflower seeds export on spot dates. On the 46th week, there will be made a decision on measures to restrict the export of sunflower seeds, the main initiator of which is the Oilseed Union. The reason for taking this action is that production on the domestic market is only 70% loaded due to the lack of raw materials. In the period before the decision comes into force, a noticeable demand for the fleet should be expected, as importers steadily show increased interest in purchasing raw materials.
For a few weeks, the freight market in the Southern regions has been in a very unstable state, which prevents participants from responding to changes in a timely manner and from planning long-term work. The main factor is the global issue of export restrictions and their concentration in the hands of key market participants. Since the dynamics of price growth on the domestic market and the desire to “hold” goods to the best prices run counter to the plans of exporters, freight volatility will continue at least until the end of 2020.
The reporting week was as eventful as the previous one. By the end of the week, rates on the basis of the voyage from Rostov to Marmara were at the level of USD 25-26 per ton of wheat on the part of Charterers, while Owners gave USD 28-29 per ton. A large drop in the Chicago stock exchange has pushed FOB prices in the region’s deep-water ports lower; volumes shipped, as well as rates, are rising. The weak ruble against the US dollar also motivates Shippers to sell. The fact that a significant part of grain planned for export has already been shipped from Ukraine suggests that importers will focus on goods of Russian origin: in Russia, the volume of harvested grain is more than 133 million tons, despite the poor harvest of corn and sunflower seeds. It is expected that the increase in rates on the Azov Sea will continue until the last days of November, while the Russian-flagged vessels will still be busy on voyages from the river.
With the end of navigation, the current stable flow of grain cargo at high rates is likely to weaken significantly. This conclusion can be made basing on the plans and mood of producers. Export-aimed regions are located nearer to ports. Those regions located in the Central and Northern regions are more seriously considering the domestic market as an alternative. The current situation on key points (the price from exporters and the logistics component) does not make a foreign trade deal very attractive; this will not change until either new export quotas are introduced, or the ruble exchange rate largely weakens.
In the Azov-Black Sea region, the market of backhaul cargo is on the rise. Despite the abundance of grain offers at relatively high rates, Owners do not lose interest in voyages from Turkey to Rostov or Azov. The flow of such cargo to the Russian Federation remains stable, while the dynamics of shipments to Ukraine has increased significantly over the current year. Shipments are made in parcels from 2 to 10 thousand tons; unlike the Azov market, where the difference in rates between direct and backhaul voyages may be twofold, such voyages in the Black Sea are quoted at the same level.
In general, the coasters market in the Black Sea region is growing. Now Owners are no longer forced to fix any cargo at low rates in order to avoid idleness of their fleet. For a voyage from Kherson to Marmara, the average rate is USD 19. It looks like the most active in the region are Turkish shippers, as well as cargo flow from Ukraine to the Western Mediterranean. Considering the fact that Charterers are ready to pay more than USD 10 for backhaul cargo from Marmara to Odessa, and ballast passage can be avoided, it is safe to say that the current level of the regional freight market is at its peak for the entire 2020 year.
The reporting week created a sense of high season on the Azov market, for the first time in 2020. Freight rates spiked by record USD 4-5 in all directions; the voyage from Rostov to Marmara could be performed for USD 24 per ton of wheat. At the same time, believing that their time had come, Owners started negotiations with significantly higher ideas. Spot tonnage supply is lacking; there are also not much vessels opening in the first or second week of November in comparison with the abundance of cargo offer.
There are several reasons for such revival. One of the key factors was the setting to zero of the customs import duty in Turkey on wheat (previously it was 45%), corn (previously it was 25%) and barley (previously it was 35%) until January 1, 2021. The held GASC and TMO tenders had also motivated Traders to take determined actions. A large percentage was won by Russian grain; since the parcels for suppliers and ports of discharge are relatively small, it is clear that the coasters will be involved in this work.
The Caspian freight market also shows growth dynamics, but in contrast to Azov, it is quite moderate. The major indicator is still a fairly high level of demand for tonnage for voyages from the Volga River ports, while grain from the Southern regions is more shipped via Novorossiysk. Amid a favorable situation on the commodity market and the upcoming end of navigation, Shippers have flexibility in the price issue. Freight rates from river ports to Iran increased by an average of USD 4, and from sea port by USD 2-3 per ton.
The current year’s final voyage with general cargo in transit from the Black Sea to the Caspian Sea will likely be fixed until the end of October. Considering the schedule of the locks closing, it is safe to say that the vessel that performing the voyage in transit will remain for wintering in the Caspian Sea. This season, there are fewer Owners who planned this than in 2019 and 2018, despite the fact that the “remaining” ones are the largest in the region. They are also the main Traders; therefore it is likely that in winter the Caspian Charterers will find themselves amidst a shortage of tonnage, when most of the fleet carries “their own” cargo.
During the reporting week, freight rates have showed the expected, albeit moderate growth. The prospects for further market recovery, which Owners are counting on, are not likely to be clear until 43-44 weeks. The matter is that Traders are waiting for the results of the next Turkish tender with shipment dates for the first half of November, which will be published on October 22. Until then, no cargo offers with laycan at the beginning of November would be expected: on these dates, there will be worked only those parcels of grain, which were already delivered to ports and have not been shipped in October. At the moment, the rate level is about USD 20 on the basis of the voyage from Rostov to Marmara per ton of wheat. At the same time, Charterers are ready to pay USD 1-2 more for spot tonnage.
Wheat from river is still mostly shipped to the Kavkaz roads transshipment. Direct export voyages are performed significantly less compared to last season, despite the fact that freight from the Volga elevators to the Black Sea exceeds the figures for the same period in 2019 by an average of USD 5 per ton. Besides, the work of Traders is complicated by the procedure for the formation of the commodity market: the period of updating prices and rates is on average two to three weeks (in accordance with the TMO tenders, which have recently been held more often and for small parcels); this is comparable to the transit time of a voyage from river ports to Turkey.
Amid news about the drought in Argentina and Australia, grain prices on commodity exchanges of the USA and Europe are showing dynamic growth. The price of 12.5% wheat on FOB basis from the Black Sea ports is also steadily rising. Producers are in no hurry to sell grain remainings in November and December; they hope that the demand will only increase amid dry weather forecasts and disturbing rumors about the food security policy in the face of the pandemic. A high stable demand for goods is already being formed on the Black Sea region’s domestic markets; therefore producers have an alternative to export. For the Azov freight market, this means a smooth growth in rates by USD 1-2 per week.
Despite the expectations of Charterers, the downward trend in freight in the Azov region, which has been going on for more than three weeks, has stopped. During the reporting week, rates still showed a decrease of one US dollar, but this was rather by inertia; it should be expected that the market, if it does not start to grow, will at least remain static. Charterers’ attempts to significantly push the market down with low prices (up to USD 15 on the basis of the voyage from Rostov to Marmara) had no chance of success: the entire spot tonnage was fixed by the end of the week, and the offers were discussed mostly with laycan in the second half of October.
In addition to increasing initiative of Exporters, adverse weather conditions continue to affect the volume of tonnage supply at the moment: break in rhythm of shipments and a rise in the average voyage duration artificially enhances the lack of fleet. Amid the global and domestic grain markets conditions, as well as the weak ruble, there is no reason to expect a decrease in the activity of Traders in the near term. However, if weather factors remain unchanged, there will be an increase in rates instead of growing of the actual volume of shipments; this will be caused more by the desire of Charterers to ship the cargo, rather than by the number of confirmed fixtures.
On the brink of the end of inland waterways navigation, Owners of Russian-flagged vessels, which are working from river ports, are already contracting for the 44th week and making decisions about positioning the fleet for winter, choosing between the Caspian and Azov regions. Now this process is just getting started; it will be possible to draw conclusions about the balance of power for the winter closer to the end of October. Shippers understand that this is their last chance to use inland waterways: otherwise, they will either have to store the cargo all winter, or take it to seaports by land, which is less commercially efficient. Owners will not hesitate to take financial advantage from this situation by raising rates for the “final” voyage.
According to information from agricultural producers, the torrid summer in the Southern Federal District negatively affected the yield of corn (variously estimated, there are expected losses up to 30%). Amid the need to fulfill previously concluded contracts by Exporters, small volumes, compared to the expected harvest, will stimulate price growth in the Caspian region for a long time. By means of it, rates are expected to increase during October; this is a more significant driver for the Caspian Sea than the upcoming end of navigation: there is a chance of a repeat of the last year’s situation, when the Volgograd river port remained unfrozen, which allowed to continue shipments throughout the winter.
On the 40th week, the commodity market situation clearly demonstrated the volatility of demand. Many domestic Traders were unable to respond this in proper time: wheat parcels were accumulated at the Azov ports, which were purchased at a high price, but amid reduced demand from Turkish processing enterprises, these volumes cannot be sold with the desired marginality. The reasons for this are the Shippers’ specific view on pricing, as well as problems in the logistics part. For example, the shortage of the Russian-flagged fleet still does not allow performing a sufficient number of cabotage voyages to the Kavkaz roads transshipment. The recent strengthening of weight checking complicates the delivery of goods by road and increases the already high demand for the cabotage fleet. The usual for this time of year weather situation also hinders the fulfilment of Exporters’ programs. Offshore winds caused a drop in the water level in the Azov Sea; this, in turns, led to a decrease of the permissible draft in the river. Thus, at the Azov and Rostov ports, the current conditions resulted in idleness of vessels in waiting for a suitable water level, which doesn’t allow them to load the cargo up to full capacity.
Low water level also prevents passage through the shipping lock of the Kochetovsky hydraulic complex, where has already formed a congestion. As a result of difficulties caused by weather conditions, the planned volumes of wheat may not be exported in proper time from remote river elevators; this will lead to a shortage of goods at the Azov Sea ports. This is especially true in regard to shipments from the upper Volga, where harvesting of crops such as sunflower seeds is still ongoing.
With the exception of a moderate growth of rates on long-distance legs (from Chistopol and Kazan to Iran), the state of the freight market in the Caspian Sea has been kept at the same level for several weeks. It is worth noting that such stability is not typical for this region, where fluctuations of USD 3-5 per ton per week are usually the norm. The only event that may set the market in motion in the near future is the upcoming end of corn harvesting in the areas adjacent to the Volga River Basin: the formation of the new crop parcels should have a positive impact on the rates growth.
Participants of the grain and freight markets are anxiously discussing the possible introduction of the second export quota in the history of the new Russia. There is no official information about the volume and timing at the moment, but there is reason to fear a repeat of the scenario of last season, when 70% of the quota was fulfilled in just a day and a half, and a decisive role was played by declaring the volume, not export. This forced players to resort to various schemes to circumvent the existing restrictions, primarily related to transit and re-export, as well as to trading quotas, which for Exporters was associated with additional difficulties and costs.
During the reporting week, grain markets in the southern regions, following the global commodity exchanges, felt speculative excitement amid growing rumors about the approaching second wave of the pandemic. This resulted in a spike in wheat prices in the Black Sea region; there, despite forecasts of a good harvest in the Russian Federation, producers were in no hurry to sell the product. Artificially inflated offers from sellers eventually led to a small number of new deals and the beginning of a price retreat. Freight followed the unmet aspirations of producers: reduced demand for grain voyages, the appearance of spot tonnage opening, and the decreasing working level of rates by an average of one US dollar (which was not observed over the past month and a half). The current rate on the basis of the voyage from Rostov to Samsun is about USD 20 per ton.
While wheat could not be quoted for concluding new contracts, many Traders showed increased interest in niche products: soy, sunflower seeds and meal, as evidenced by a number of confirmed deals. The fall in prices for these crops was the only positive driver of the Azov market. It should be noted that the main cargo flow of soy and soybean meal in the Region comes from the deep-water ports of Ukraine; there, unlike in Azov, the coasters market has shown growth. For example, a parcel of 5 thousand tons could be shipped to the Adriatic Sea for the low 20s.
The 39th week was quiet, including because of the International Grain Round, which was held from September 22 to 25 in Gelendzhik; there gathered a significant part of Traders who, while being at the event, did not show any business activity. Usually, the conference was carried out on the brink of the new season, which allowed participants of the grain and freight markets to conclude deals right off the bat. This year, the COVID-19 pandemic has deprived players of this opportunity, and therefore a sharp surge in activity on the 40th week should not be expected.
As of the 39th week, the market conditions of direct voyages from the river to the Black Sea and the Caspian Sea leave much to be desired. Significant volumes of wheat are shipped in cabotage to Rostov, or to the Kavkaz roads transshipment. According to Traders, new contracts are concluded on the same basis. Direct export voyages are performed much less than during the previous navigation, and the main reason for this may be a strong transit cargo flow of urea, which has busied a significant part of the Russian-flagged fleet. Amid this, additional transshipment at Rostov or on the Kavkaz roads looks like a forced alternative for grain Charterers who do not want to compete in freight with highly paid transit voyages.
Events on the Azov region commodity market and its state had an increasing impact on the development of the freight on the 38th week. It has long been noticed that the formation of cargo flows or their restrictions may not only affect, but also bring down the Azov region freight market, which is not as volatile as before. The minimum and maximum thresholds of rates have decreased compared to previous years; this is a very serious challenge for many Owners. Owners of vessels aged more than 30 years are particularly affected. On a low market, they are considered in the last turn, and their ownership cost and operation is higher than that of more modern vessels.
The tender of the Turkish Grain Board (TMO), which was held during the reporting week, formed a sideways vision of the development of the commodity and freight markets for Charterers and Owners. In total, according to the results of the tender, about 440 thousand tons of Russian grain will be delivered. This is quite a large volume; however, the demand for parcels of 3-5 thousand tons with shipment by coasters has declined from Turkey’s side at the moment. It looks as if Turkish Traders decided to try to mark the freight rate, and in a good scenario, to fix it on the growing market. Shipments will be made in a relatively short period of time (from September 23 to October 16) and in large parcels; this should cover the need for goods and reduce the speculative pressure on price formation.
Owners also believe that the number of voyages from the Azov Sea ports will grow, and this will pull the freight market. They have already offered rates at the level of USD 24 on the basis of the voyage from Rostov on Marmara, and at the level of USD 45 and above to Adriatic Sea. At the same time, on the 38th week, the working rate was USD 21 to Samsun and USD 23 to Marmara per ton of wheat from Rostov. However, at the end of September, the market still does not have such amount of cargo, so the rates from the Azov Sea ports cannot continue to grow actively in accordance with Owners’ wish. The situation is different for Russian-flagged vessels, especially those that may perform cabotage voyages. The number of grain transportation from river for roads transshipment is growing significantly; in the meantime, some Charterers may show more flexibility during negotiating rates than for shipments from the Azov Sea ports.
On the 39th week, a standstill in grain shipments is expected, which is primarily resulted by the International Grain Round, which will be held from September 22 to 25 in Gelendzhik. The main part of Exporters and Traders will participate in it, therefore the activity in concluding deals with Turkish Buyers will decrease. This standstill is likely to have a negative impact on the freight market, which may experience a slight drawdown.
In the Azov region, the 37th week can be considered a key one before the market formation at the end of September and the beginning of October. If the freight market was still trying to grow at the beginning of the week, then at its end Owners were already paying attention to voyages with minimal margins in order to wait out the period of falling rates. Thus, on Monday-Tuesday, when discussing shipments of already paid parcels for the middle of the month, it was possible to get from Charterers a rate at the level of USD 22 per ton of wheat on the basis of the voyage from Yeisk to Marmara. However, amid news about the situation on the commodity market, participants assumed that in the second half of September, there will be less volume of grain in the Azov Sea ports than at the beginning of the month. This may be resulted by problems with cargo delivery; almost all market participants have faced this issue. In view of this, at the end of the week, voyages from Azov or Rostov to the Adriatic Sea became quite competitive at rates of just under USD 40. However, there is expected no freight collapse; the market will be supported by upcoming corn crop.
During the 37th week, there was observed a lack of spot tonnage the Azov region, which was completely fixed a week before. As is usually the case on the growing market, short voyages were favored at the beginning of the week. It was needed to add USD 2-3 for the long-distance voyage in order to arouse the Owners’ interest. And only Owners of small vessels with deadweight of up to 2000 tons were eager to compromise on rates: due to the low cost of port call, they made a good profit in the economy of the voyage. They most likely will be in high demand in the near future, since the entire river-sea fleet will be sought on a short leg.
The freight market in the Azov and Black seas regions generally follows in the wake of fluctuations and changes in prices on the global commodity market. At the moment, in the context of growing FOB prices for grains, trading is carried out in small parcels. The Russian ports of the Azov Sea are the most convenient for working with parcels of 3-5 thousand tons. This is one of the reasons why, amid low rates from Ukraine, the Azov market does not fall, despite the problems with the delivery of grain.
Black Sea grain may still be called the most competitive, and the dynamics of price growth for it on the terms of FOB deliveries was also observed in the region. Due to the poor harvest, the offer of grain from the Western ports of the Black Sea and the Danube is quite small this year. Prices for both Russian and Ukrainian grain have increased significantly, and this process continues. In view of the fact that there is not much cargo on the market for the second half of September, working on sales for September is still underway. Thus, it is expected that the 38th week will form the freight market for the rest of September and the first week of October.
In the Caspian region, the Turkmen “Garabogazkarbamid” plant was stopped due to an accident. For this reason, the main part of the Russian-flagged fleet cancelled its voyages. The repairs are expected to last not less than two to three weeks. Thus, as of yet, until the plant starts working again, there will be observed a growing demand for loading grain from river elevators to the Black and Marmara seas, or for any other loading from ports of Turkmenistan or Kazakhstan with work in transit.