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Stringent COVID-19 port controls weakening dry bulk time charter rates: Platts survey


Dry bulk time charter rates expected to stay under pressure

Ship operators likely to redeliver period contracted ships earlier

  • Author
  • Shriram Sivaramakrishnan    Rason Chen    Carina Li
  • Editor
  • Barbara Lorenzo Caluag
  • Commodity
  • Agriculture Coal Metals Shipping
  • Tags
  • Nickel
  • Topic
  • Coronavirus and Commodities

With the coronavirus pandemic worsening globally, the enforcement of further restrictions across key ports from this week was seen having a detrimental impact on the dry bulk shipping market.

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The sector has taken a beating due to major ports prohibiting crew changes and imposing the 14-day compulsory quarantine requirement, allowing ships to enter port limits only 14 days after departure from the previous port.

S&P Global Platts conducted a straw poll among market participants to gauge the fallout from these mandatory measures that many countries have put on ships calling at their ports from affected areas.

The survey, which polled over 40 respondents including market analysts, charterers, traders, shipbrokers and shipowners or operators, centered on the implications arising from port restrictions on dry bulk shipping.

Platts survey: Dry bulk outlook

Over 80% of the market participants polled, who are involved in hauling commodities like coal, iron ore and grains, said time charter rates for bulkers would fall or stay flat around current levels, despite 56% of respondents noting that supply of ships would be artificially lower given the additional waiting period.

More than half of the respondents said tonnage supply across various trading regions was high despite a supply squeeze loading windows, which would keep time charter rates under check.

Many dry bulk ships have resorted to drifting and slow-steaming due to weak market conditions as well as to bide time to complete the 14-day quarantine since their departure from the last port of call.

This week, China, the Philippines, Indonesia, Australia and South Africa have all banned crew changes and ordered quarantine period for ships coming from ports belonging to "countries at risk."

Yet, under these trying circumstances, charterers are unwilling to pay up if owners were insisting on a premium to call at the restricted ports, market sources told Platts.

The delays accruing from these measures have resulted in time charter rates getting cramped.

"There are lots of restrictions, such as 14 days quarantine period, and so on in the market, so owners' actual earning return is much less than nominal freight given in the market," a Capesize shipowning source said.

"It's going to be a tug of war for the first few days between charterers and owners, but ultimately owners would have to compromise as charterers are the ones with cargoes," a Supramax ship operator said.

Conservative approach

The rapidly changing quarantine requirements around the world is forcing dry bulk market participants to embrace a conservative approach in making commercial decisions.

While the survey showed over 40% respondents anticipating a diminishing trading interest which would limit shipping demand, many freight market participants fretted over the low freight rates and dwindling time charter equivalent returns.

This has resulted in some ship operators redelivering ships early as well as reneging on agreements with owners, according to a shipowning company executive.

"Market participants, especially [ship] operators, are less active due to the uncertainties," a Capesize shipbroker said, adding that there are concerns of coronavirus spreading to major iron ore exporting ports in Brazil, South Africa and Australia.

Quarantine quagmire

Dry bulk ship operators are taking different approaches to minimize waiting period, albeit with little success in halting downward pressure on time charter rates.

For instance, Supramax bulkers heading to the Philippines' port of Surigao to carry nickel ore, which has restricted ships arriving from China, Hong Kong, Macau and South Korea, have to wait for over 10 days, given the ballast days for a ship coming from South China is around three days.

With Surigao accounting for 34.9% of nickel ore exports from the Philippines, the loading disruptions could increase Supramax tonnage supply in Southeast Asia.

Nickel ore exports typically begin in April after monsoon ends in the Philippines.

To escape this situation, many ship operators are gunning for Australia round voyages as this would help them negate the 14-day quarantine period, considering the longer ballast to Australian ports.

However, this could result in an increase in the number of ships performing the longer Pacific voyages and driving time charter rates down on these longer duration trips out of Australia, which otherwise would have paid a premium in a low time charter market as the current one.

Alternatively, if operators opted to wait for some days before taking any cargoes for shorter voyages, this would effectively increase the number of spot ships and drive down time charter rates in the Pacific Ocean.

Charterers and ship operators are also facing a dilemma on shipping coal from Indonesia to the east coast Indian port of Paradip, which, too, has slapped restrictions. Ships move coal from Indonesia's bunker at Singapore before heading to Paradip.

"The number of sea days from Singapore to Paradip is about five days. Who's going to pay for the additional nine more days?" another ship operating source said, adding that five ships had failed recently after the new restrictions took place.

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