The Dry Bulk Weekly Review in Shipfix Data
Soft cargo order volumes and elevated tonnage supply during the year’s first three weeks suggest that supramax freight rates will continue to face headwinds in the coming weeks. A slow start to cargo ordering activities related to the upcoming harvest in South America is among the contributing factors to the weak demand recovery. In addition, market lead times in the major basins suggest that freight rates will remain under pressure in the near term.
Slow Recovery for Supramax Cargo Order Volumes Indicates Continued Headwinds
The headwinds for the supramaxes accelerated over the past week, with the segment’s freight index recording a weekly loss of 8.8 per cent. The decline over the past five sessions was the most significant weekly decline since the segment’s decline started in early December. As a result, the Baltic Exchange’s supramax index ended last week 28 per cent lower than a year ago.
Global cargo order volumes for the supramaxes rebounded the week before last week, following two weeks of limited activities. The weekly aggregate reached its highest level since the middle of November. However, compared to a year ago, volumes were significantly lower. After a relatively soft start, the past week saw demand retreating, with global aggregate volumes declining by around nineteen per cent week-on-week.
The recovery during the week before last saw cargo order volumes in the Indian Ocean and the Atlantic somewhat higher than the average for the six weeks leading up to Christmas. However, in the Pacific basin, demand was 27 per cent higher than the weekly average for the six-week period. However, the positive developments in the major basins lost their positive momentum over the past week, with significant declines in demand across the board.
Different factors in the major basins have driven the year-on-year decline in cargo order volumes for the supramaxes and ultramaxes. In the Atlantic, the cargo ordering activities for the upcoming harvest season in South America have seen a slow start, with volumes significantly lower than last year. Declining activities in the coal trade have fueled the headwinds in the Pacific. For the Indian Ocean, the decline in demand is more broad-based, with volumes for coal, iron ore and minerals loading in the basin under pressure.
Soft demand is not solely responsible for the continued headwinds in the midsized segments. The past two weeks have seen significantly more available vessels across the three principal basins. After a substantial global increase in global tonnage supply the week before last, powered by developments in the Indian Ocean and the Atlantic, vessel availability remained high last week, with additional support from the Pacific.
The short-term outlook for freight rates in the supramax segment depends heavily on how cargo order volumes develop in the coming weeks. So far this year, there has been no indication that demand will surge in a similar way as during January last year. Instead, developments have been more akin to developments in 2023, with a slower and less spectacular recovery. The relatively early Chinese New Year and mounting uncertainty over global trade will likely contribute to continued headwinds for demand.
ECSA Trade Contributes to Pressure on Freight Rates
As highlighted above, soft ordering activities in the grains and oilseeds trade from South America are among the contributing factors to the relatively weak recovery in demand for supramaxes and ultramaxes. While weekly cargo order volumes for agricultural commodities loading on the East Coast of South America have rebounded in recent weeks, the aggregates are only broadly in line with what was recorded in November and the first half of December and significantly lower than during the same period in recent years.
Cargo order volumes for supramaxes loading agricultural commodities on South America’s east coast during the past three weeks were around half of what was observed a year ago. While the decline was broad-based, demand from China was somewhat less affected than the rest of the world. Demand is likely to recover as the harvest approaches. Still, the ordering activities associated with Chinese imports are likely to remain subdued in the short term as the Lunar New Year is less than two weeks away. In addition, the Chinese leadership may want to await developments in the US, keeping grains and oilseeds as a potential bargaining chip in any future trade negotiations with the new occupant of the White House. Hence, any support for supramax freight rates from the South American grains and soybeans trade may remain limited in the short term.
Market Lead Times Are Not Coming to the Rescue
As the demand and supply situation for the supramaxes suggests that a rebound is not imminent, market lead times provide additional insights into the dynamics for freight rates in the coming weeks. The measure captures the market’s demand horizon, which can have a significant impact on freight rates. A decline in market lead times can often be supportive of freight rates as it weighs on the current tonnage supply. Consequently, rising market lead times often signal weaker freight rates ahead.
The average time between the first order date and the first loading date in the Atlantic has remained below the average for the past year for more than a week, which indicates demand shifting towards tonnage for more immediate delivery. At the same time, the measure has been around its long-term average in the Pacific basin. However, the situation looks less promising in the Indian Ocean, where market lead times are above average following a rebound in recent weeks.
If the lower-than-average market lead time in the Atlantic persists, it could weigh on the tonnage supply in the basin in the coming weeks and support freight rates. However, demand has not seen the usual rebound. Hence, the impact of declining lead times is likely to be limited on freight rates in the Atlantic. On the other hand, recent developments for market lead times in the other two basins are unlikely to be beneficial for freight rates.
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