Dry bulk shipping rates might remain low in 2022

Freight Rates: The higher the mountain the deeper the valley

As we forecasted, dry bulk shipping rates peaked in early October and dropped rapidly during the remainder of the month.

As of writing (5th November 2021), both forward freight agreement (FFA) and spot rates have plunged further to levels that are supported by fundamentals which represents our low case scenario. We believe ocean freight rates for dry bulk cargoes have decreased mainly driven by reduced congestion and re-pricing in commodities including iron ore, coal, and various industrial resources.

Dry bulk freight rates are usually considered as one of the best leading indicators for global economic conditions since it reflects industrial and energy commodities trade demand and commercial sentiments. On top of that, congestion is a key leading indicator for dry bulk freight rates which peaked last month and has continued to decline rapidly since then. The laden and ballast spread also gave us a realistic view of market balance which showed a negative trend.

The recent correction was expected in line with winter seasonality linked to the Beijing 2022 Winter Olympic games, environment policy and artificial intervention in coal market by authorities. We believe positive factors including limited orderbook in 2022 deliveries and higher container related employment will remain when the market moves into 2022, indicating that fundamental balance would be stable in 2022 and Cal2022 FFA may have fallen more than needed to balance the market.

We have argued that as long as freight rates remain high enough to capture part of general bulkers and open hatch cargo vessels in container sector commercially, geared bulker rates are expected to be supported, specifically backhaul routes. The major assumption for dry bulker rates would be based on container market outlook. With record high backlog and limited fleet orderbook in 2022, many experts believe that freight rates are likely to remain high until at least the first half of 2022 albeit at a lower rate than this year. Our view is slightly different from consensus but shares the view that many of geared bulkers would stay in the container sector which will reduce fleet supply and cause them to outperform other size sectors.

We plan to present annual dry bulk market outlook this month to freight rates forecast (FRF) subscribers and will answer those questions and explain our assumptions.

Posted 10 November 2021 by Daejin Lee, Director, Shipping Analytics and Research, S&P Global Commodity Insights