- Charter duration remains critical as participants rush to lock-in period fixtures
- US Gulf/ECSA optionality prioritized amid seasonal congestion, flow disruptions
- EU ETS kickoff approach triggers sprint for industry-wide changes
In Dry bulk quarterly, Atlantic Panamax markets rebalance as participants chase duration, according to a Platts news source.
The Atlantic Panamax and Kamsarmax markets
The Atlantic Panamax and Kamsarmax markets have benefitted from a seasonal uptick in demand in Q3, with rates for key routes returning to yearly highs, but moving into the fourth quarter there are doubts about whether this will continue.
“Duration has been critical in this type of market. Rates have recovered from the mid-year slump, but there is this market feeling that this might not last,” warned a Geneva-based Panamax charterer.
“Just look at the Freight Forward Agreement curve. Traditionally the transition from the fourth to the first quarter has been slower, and many participants would avoid having a vessel opening during this period of the year. Ideally, a reasonable participant would seek to lock in rates in some way or another, and a long fronthaul trip, over 65 days in duration, can be a partial answer,” the charterer added.
Rates for the Southern fronthauls have recovered from 2023 lows, with Platts last assessing freight for the 60,000 mt, Santos-Qingdao Panamax grain route at $44.50/mt on Sept. 29, a 40% rally since the early-June bottom.
“That’s why shorter-duration trips have been commanding a premium recently, and this is evident not just in the very quick trans-Atlantic routes, but the shorter fronthauls such as US East Coast-to-India,” the Geneva-based charterer explained. “We had to book a ship at over $28,000/d for this run, simply because it was a shorter duration voyage. Not to mention the repositioning opportunities, which might not have been bad earlier in the year if the ship was eyeing ECSA cargoes, but now… we are slowly walking in the late season of the year, when seasonal demand tapers for grain fronthauls out of the Atlantic.”
Indeed, Platts assessed freight for the 70,000 mt, Hampton Roads-Rotterdam Kamsarmax coal route at $17.50/mt Sept. 29, the highest since December 2022, and some 67% higher than the July lows.
“Overall, there is a feeling of gloom, and that would justify the nearly 40 period fixtures we’ve seen as of late, mostly concentrated in Kamsarmax vessels, but also in smaller displacements — owners are rushing to lock in rates ahead of a couple of quarters that might see the spot market underperform,” said a Piraeus-based shipbroker source.
Congestion supports rates
Operational disruptions, such as the Panama Canal transit restrictions and resurfacing congestion dynamics in East Coast South America, have kept some participants bullish.
“The market is not that bad, especially with the congestion issues resurfacing in East Coast South America,” said a Dubai-based charterer. “That has the potential to take a lot of supply out of the market so I think we are bracing for a strong Q4 on our side — the recent push in the FFAs has also warmed up interest and boosted expectations, that’s why we stepped in to take some vessels on period, hedge our strategy and avoid any further upward pressure.”
The Panamax and the Kamsarmax segment has indeed benefitted from robust agribulk flows out of ECSA, with S&P Global Commodities at Sea data showing some 49 million mt of agribulk transported during the third quarter, almost14% higher on the year.
“Maybe it’s because I’m an owner’s broker, but I actually see a lot of positive momentum for Q4, trendlines are all bullish if you look at the technical indicators,” said another Panamax shipbroker. “As for fundamentals… China has been absorbing cargoes relentlessly, both grains from the Atlantic and coal from Australia — I don’t see why it would stop.”
“We see charterers book vessels with the optionality to visit either South America or the US Gulf, which means there are stems in both regions, and we can expect an extended season this year too, perhaps,” added the second Panamax shipbroker.
Still, disruptions in the Panama Canal and lower water levels in the Mississippi River threaten the competitiveness of American crops amid higher barge costs and slower downstream flows reflected in volumes so far this year.
EU ETS impact
In addition to demand-side uncertainty, the Panamax market is preparing for the added carbon charges stemming from the EU’s Emissions Trading System (ETS), scheduled to include shipping from 2024.
“The gradual introduction of the EU ETS in the shipping market will have a substantial impact on the ballasting dynamics of the Atlantic basin,” warned the first shipbroking source. “It will have repercussions not only in the trading behaviors of vessels but also in the preferred contractual relation between ship operators and charterers — the latter will strive to secure APS fixtures to avoid any upside risk in the emissions due to bad weather, and the former will likely add the emissions allowance costs to the [requested] ballast bonus.”
“Clearly, if the vessel is being delivered outside the European Union, emissions during the ballast leg should not be accounted for the EU ETS — but what happens after the vessel completes delivery in the EU? The subsequent journey will be a can of snakes,” added the Geneva-based charterer. “It’s increasingly evident that we are heading toward a two-tier market, where all the eco-class vessels will trade within the European Union.”
“In addition, a shipowner would ask for a premium just to contemplate trading to the EU, because, even after finishing the delivery, the ship will be disadvantaged compared to vessels opening in Africa or non-EU Med for example. They will have the added burden of the EU ETS chasing them for the subsequent journey,” the charterer concluded.
“If we assume that the subsequent trip after unloading in the European Union should also be accounted for, owners and operators might be looking to complete a fast trip on their way out of the region as long ballasting could add to the carbon-related expenses,” said a London-based shipbroker. “This could benefit those shorter-duration trips loading in the EU and unloading in, say, North or West Africa with stronger vessel supply.”
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Source-Platts
