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Cargo charterers switch to bulk freight as container rates surge

London — Dry cargo exporters are switching from containerized freight to bulk chartering as container rates into the Pacific basin skyrocket due to the coronavirus.

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Widespread inactivity at Chinese container ports due to the outbreak of COVID-19 has meant that Europe and North America have been left short of containers for transporting dry goods, forcing some exporters to look at the depressed dry bulk freight market to meet their requirements.

Not enough boxes

According to research by the Germany-based container repositioning platform Container xChange, there are currently 47% more containers in Shanghai compared with Week 10 of 2019, but 33% fewer in Hamburg, and the S&P Global Platts North Continent to North Asia Container spot rate was assessed up $125 to $625/mt on Wednesday -- its highest rate since December 2018.

The delay in the delivery of containers into the US has been further compounded by a number of void sailings leaving more containers in Chinese ports than previously expected, and a further bottleneck for containers on backhaul routes.

"There are fewer boxes to go back so we are seeing a spike in rates at this point, the backhauls are essentially becoming the fronthauls," a freight forwarder said Wednesday.

In the scrap metal space, this had led to a freight increase for containers from the UK to the Indian subcontinent of $425 per 20-foot container or around $15/mt for the second half of March, as previously reported.

The dearth of available containers, as well as difficulties in booking backhaul slots on March container ships, has left some exporters looking to a dry bulk market struggling against low cargo demand and high operational costs due to the IMO 2020 sulfur emissions cap increasing marine fuel prices.

Switch to bulk freight

In the market, price-sensitive ferrous scrap buyers on the subcontinent were heard making the switch to bulk imports from containerized freight. "Pakistan, which had basically no bulk import of scrap in the past three years -- as all scrap to Pakistan was shipped in containers -- has already bought two cargoes which were shipped in bulkers," said one ferrous scrap charterer source.

"There has been activity in terms of enquiries from customers for bulk in Pakistan. We expect a few more bulk cargoes to be booked soon," one Pakistan-based scrap importer told S&P Global Platts.

Yet selling ferrous scrap in bulk shipments also faces limitations for buyers and sellers. While most merchants in the UK and Europe are unable to fill a whole bulk cargo with their current customer base, the majority of mills also "cannot take those huge quantities" on an import basis, a UK merchant said.

Large bulk shipments, compared to smaller container bookings, into India were also made more difficult by liquidity constraints as well as a volatile currency, one Indian trader said.

However, shipping material on bulk vessels could present an opportunity for the big, globally operating recyclers active in the UK and in Europe to save costs, with one major recycler heard to offer sales to customers on the subcontinent against the option to ship scrap either in containers or bulk that would be subsequently distributed to its network of smaller buyers, sources told Platts.

Mini-bulk levels have fallen dramatically as well, as shipowners and operators have found less business due to the coronavirus affecting overall economy and trade.

"Japanese mini-bulk freight rates have dropped quite a bit, and this is making it more attractive for regional buyers," one Japanese scrap trader said. "Just last quarter, for example, a 5,000 mt cargo vessel would translate to a cost of $42-$45 for a ton of scrap. But it's down to $32-$35/mt this week."

However, in the busy Continent and Baltic scrap freight markets into Turkey, prompt bulk rates have recently peaked due to Storms Ciara and Dennis reducing available spot Supramax and Handysize tonnage. Since the beginning of February, the Platts Rotterdam to Aliaga, 40,000 mt ferrous scrap route has rebounded up $1.50 to $15.75/mt, after collapsing $2.50/mt during the month of January.

India switches on ash, cashews

India, which is also struggling to find containers for its traders, reported switching a variety of its seaborne imports/exports to bulk and mini-bulk ships.

"The African cashew [shipping] season's here too, and we're seeing some of our usual customers shifting their Q2 shipments to smaller bulk vessels to get the cashews to India instead," a source from a containerized shipping liner said. "Fly ash, another commodity that gets shipped in containers too, has been seeing more numbers to small bulk vessels -- these usually move from India to the Middle East to be used in cement making, but India too is seeing a strong shortage of containers."

"SOC [shipper-owned container] sales [from other liners] for repositioning their empty containers have increased drastically now to such deficit regions," the source added. "They're asking us to reserve more and more TEUs for them to do so."