[FAQ] Will Handies Be Handy?

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In recent months all clean tanker segments have enjoyed very healthy rates and earnings, which have been essentially driven by evolving trade flows due to sanctions on Russia. Yet, the star performer has undoubtedly been the Handy sector, with non-eco, non-scrubber earnings averaging so far this year at $47,000/day on a TC6 voyage, reads a report by Gibson shipbrokers.

Handy sector vulnerability

When the war broke, the initial expectations were for Russian clean products exports into Europe to decline significantly, with the Handy sector being most vulnerable as this trade accounts for a large share of Handy employment. However, these expectations have failed to materialise, with Russian clean product trade into Europe edging up modestly this year, averaging between March and July 2022 at around 1 mbd.

More products are also being moving across the UK Continent, Mediterranean and between Northwest Europe and the Mediterranean, with intra-European trade up by around 180 kbd year-on-year since March. Larger product carriers are similarly impacted, with greater volume being moved from the Middle East, India, and the US into Europe.

There is also a clear trend of increased intake of Russian products into a number of storage terminals in Netherlands and Belgium, whilst outflows from these terminals show growing product exports to West Africa and Latin America.

Huge uncertainty

As European exports to Africa and Latin America remain largely unchanged relative to last year, this suggests a growing outflow of Russian-origin products via storage hubs in Northwest Europe, whilst a greater share of European throughput and/or imports from other regions is retained within the European market. However, all of this is bound to change when EU sanctions on Russian products come into effect on February 5th. Many current Handies engaged in Russian trade will be forced to cease, or face breaching sanctions. This could increase the supply of Handies in non-sanctioned trade in Europe, pushing rates lower.

However, Handies may benefit from increased MR demand trading CPP from the USG and East of Suez into Europe to replace Russian barrels, ultimately translating into less competition for Handy stems.

Furthermore, Handies could also benefit from breakbulk demand, as with increased volumes of products being sourced from East of Suez on LRs and newbuild crude carriers, Handies will be required to redistribute regionally to smaller ports. The huge uncertainly, however, surrounds the future of Russian product flows once the door to Europe is shut and insurance ban is in place (although even that seems uncertain now).

Will Russian exports decline and by how much or will Russia be able to redirect its products elsewhere?

It is likely there will be at least some demand for Russian products in Africa and Latin America (and perhaps even East of Suez), as trading patterns of storage terminals in Europe indicate. Media reports also show that countries like Brazil are showing interest in buying Russian products.

If Russia can find a home for most of its clean product exports, Handy tankers could benefit from demand trading directly from the Russian Baltic and Black Seas to longer haul markets. Although this is not the ideal size for these longer haul shipments, a similar pattern is already happening in the crude tanker market, where Russian crude from the Baltic is being shipped to Turkey, India, and China primarily on Aframax tonnage due to logistical issues and regardless of the economies of scale.

Nevertheless, with an insurance ban in mind, it is likely that for this trade to materialize some of the existing Handy fleet, as any other tanker size group, will have to be sold to buyers based outside advanced western economies. Although earnings in the Handy market are robust, for Owners higher asset prices, the loss of Russian trade, reduced ice class opportunities, an ageing fleet and new IMO regulations could provide a sufficient incentive to sell.

Read the full report here.

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Source: Gibson shipbrokers

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