The Dry Bulk Weekly Review in Shipfix Data
Demand in the supramax segment has faced seasonal headwinds over the past two months. However, Shipfix’s forward-looking cargo order data sets suggest that the fortunes for the mid-sized vessels are about to change. Requirements for more prompt tonnage deliveries in the Indian Ocean and the Pacific and higher demand from the US agricultural trade provide an early indication of a seasonal rebound.
Cargo Order Volumes Point Towards a Seasonal Recovery for the Supramaxes
After trending higher between the beginning of the year and the middle of May, the Baltic Exchange’s index for the supramaxes has experienced more volatile conditions over the past two months. Following gains during much of the second half of June, the gauge faced headwinds during the final days of June and the current month’s first week. However, there have been signs of a rebound since then, with the index gaining around two per cent over the past week.
Weekly cargo order volumes for the supramaxes have been in recovery mode since the middle of June, with the week before last week delivering the highest reading since the end of May. However, the recovery is not yet on solid footing, with volumes during the past week failing to match the preceding reading amid renewed pressure on demand in the Indian Ocean and the Atlantic.
Seasonal headwinds have fuelled the recent weakness in demand, as the approaching summer holidays in the Northern Hemisphere limited cargo ordering activities. Global aggregate cargo order volumes declined by around 32 per cent in June compared to May. While the reading for June was significantly lower than during the same month last year, it was more a question of timing, as demand in May was elevated compared to the previous year. The total for the past two months was broadly in line with the recorded volumes during the same period a year ago.
The demand recovery over the past month has been primarily driven by rising cargo ordering activities in the Indian Ocean, with the Atlantic basin contributing to a lesser extent. On the other hand, activities in the Pacific basin have remained under pressure, with cargo order volumes continuing to trend lower. Should demand recover broadly in line with developments last year, the major basins should record higher cargo order volumes in the coming months, supporting freight rates. However, the current tonnage supply levels in the basins, which are above the average for the past eighteen months, could temper the initial gains during the seasonal rebound.
Market Lead Times Offer Mixed Messages for Freight Rates
As highlighted above, despite a tentative recovery in weekly demand levels, global cargo order volumes remain well below the readings observed during the year’s first quarter. The weekly average since the beginning of June is nearly 35 per cent below the equivalent for the first three months of the year. Still, the Baltic Exchange’s supramax gauge ended last week less than nine per cent below the high for the year, which was recorded in late April.
While cargo ordering activities were robust during the end of April and the beginning of May, increasing market lead times contributed to the supramax freight index losing its positive momentum. A shift in demand towards tonnage for delivery further into the future weighed on freight rates, exacerbated by a seasonal decline in demand during the second half of May.
In recent weeks, the average time spans between the first circulation of a cargo order and the first loading date have developed somewhat differently across the major basins. The Atlantic saw market lead times decline during the second half of June, while developments were the opposite in the Pacific and the Indian Ocean. The first half of the month has also seen the basins evolve along different paths, with market lead times in the Atlantic picking up while recent developments reversed in the other two basins.
The downward trend for market lead times in the Indian Ocean and the Pacific could lend some support to freight rates in the basins in the near term, as it could contribute to a tighter tonnage supply situation in the coming weeks. On the other hand, the recent increase in the Atlantic signals weaker freight rates in the basin, especially as the current tonnage supply is above average. Still, the reversal in recent days suggests that the upward momentum may have run out of steam with renewed pressure on market lead times supporting Atlantic freight rates during the final stages of the month.
US Agricultural Exports Supportive of Demand in the Atlantic
Global cargo order volumes for the supramaxes and ultramaxes have been under pressure during the past few months. Demand has faced headwinds across all of the major basins. Still, the situation in the Atlantic has stabilised recently, and the month-on-month decline in June was smaller than in the Indian Ocean and the Pacific. Still, the downward trend for demand over the past months appears to have come to an end. As highlighted above, weekly cargo order volumes have been showing tentative signs of recovery since the middle of June.
In the Atlantic basin, the aggregate cargo order volume for the month to date has reached 31 million tonnes, putting it on track to surpass the total for June. Such a development would match last year's pattern when July was the start of a significant recovery for demand that accelerated until November.
A contributing factor to the upward trend for cargo order volumes in the Atlantic basin during last year’s second half was robust demand for seaborne transportation of agricultural commodities from ports in the US Gulf. While it is still early in the season for ordering activities related to the US harvest season, the current levels and recent developments suggest that a repeat of last year’s pattern is highly probable.
An increase in tonnage supply in the US Gulf is likely to offset the recent rise in demand and negate positive effects on freight rates in the short term. However, a recent decline in market lead times for cargoes loading on supramaxes in the US Gulf suggests that demand is shifting towards more immediate deliveries of vessels. Hence, the trade in agricultural commodities from the southern US ports may support higher freight rates in the not-too-distant future.
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