The Dry Bulk Weekly Review in Shipfix Data
Weak cargo order volumes globally have weighed on supramax freight rates in recent weeks. The absence of a seasonal recovery and soft demand for seaborne transportation of US exports to the Far East have been among the factors contributing to the segment's headwinds. Still, a recent decline in market lead times across the major basins could herald improving conditions.
Global Cargo Order Volumes for the Suprmaxes Under Pressure
The Baltic Exchange’s supramax index has faced some headwinds recently. Despite edging up marginally over the past week, the gauge was more than four per cent lower than during the final week of August on Friday. While the indicator was around nine per cent higher than a year ago on Friday, the current weakness is at odds with seasonal behaviours in recent years.
The past four weeks have seen global spot cargo order volumes for the supramaxes under renewed pressure, with all major basins feeling the squeeze. While demand in the Atlantic showed some promise during the early stages of last week, the development proved short-lived, and the global aggregate fell to the lowest level since the beginning of last year.
The average weekly volumes for the past six weeks are 42 per cent lower than during the same period last year. At the same time, the average weekly vessel supply is broadly in line with the levels seen a year ago.
The past week saw cargo order volumes in the three principal basins well below the levels observed at the beginning of September last year. In the Indian Ocean, the weekly aggregate was more than 56 per cent lower than a year ago, while the Atlantic and Pacific basins saw volumes around 50 per cent below last year's readings for the same period.
While the demand situation for the supramaxes points towards continued weakness for freight rates in the segment, the tonnage supply provides some glimmers of hope, especially in the Atlantic. While tonnage supply has been volatile over the past month, vessel availability in the Atlantic dropped to the lowest level for the year during the past week. The past week also saw supply slipping below the long-term average in the Pacific basin. On the other hand, in the Indian Ocean, the number of available vessels remained stable, somewhat above the weekly average. Still, despite the developments in vessel availability, the current demand and supply situation suggests that a substantial rebound for the supramaxes is not imminent.
Limited Demand for US Exports on Supramaxes to the Far East Contributes to Global Weakness
Low water levels in the Mississippi River have limited the flow of agricultural commodities towards the US Gulf ports in recent weeks, delaying the exports of grains and oilseeds. In addition, as previously mentioned in a Shipfix research blog, Chinese buyers were more active than usual during the South American harvest season, which could negatively affect demand for seaborne transportation from the US during the remainder of the year.
US exports to China and the Far East onboard vessels in the segment are currently under pressure. In contrast to last year, cargo order volumes for the trade have been trending lower over the past month, following a brief spike in early August. During the same period last year, the demand surge during August was more pronounced, and in the aftermath, volumes remained on a robust upward trajectory. As a result, aggregate volumes in August were 42 per cent lower than a year ago.
The downward trend during the past few weeks suggests that the spot trade's cargo order volumes will remain considerably lower than a year ago this month as well. During the first two weeks of September, the total cargo order volumes were nearly 50 per cent lower than they were a year ago. Hence, unless a seasonal recovery materialises in the near term, the lack of demand for seaborne transportation of US exports to China and the Far East onboard supramaxes will continue to weigh on freight rates in the segment.
A Decline in Market Lead Times Could Signal Improving Conditions for the Supramaxes
While the current demand situation paints a bleak picture for supramax freight rates, another indicator provides support for an improving outlook. Over the past week or so, market lead times have dropped significantly across the three major basins, suggesting that demand is shifting towards tonnage for more immediate delivery. The development is often beneficial for freight rates as it will weigh on tonnage supply.
The decline in market lead times has been particularly pronounced in the Indian Ocean and the Pacific, where any positive effects on freight rates are likely to be strongest. Still, in the Atlantic, the market lead time has declined from high levels and only recently returned to the long-term average for the basin. However, during the final days of last week, the gauge continued to decline and reached lows not seen in a long time.
The falling market lead times are likely to provide additional downward pressure on tonnage supply in the segment, offsetting some of the adverse effects of low demand levels. Still, the impact of short marker lead times is likely to be limited. However, should we see a delayed seasonal rebound in demand, freight rates could surge amid an increasingly tight supply situation. \
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