SSY's Elender Said Freight Rates Will Remain Structurally High

The freight market has been transformed this year, with dry bulk trade surging and lifting prices, led primarily by iron ore and grain trade, SSY Consultancy and Research director Alexis Ellender said at the Kallanish Europe Steel Markets virtual conference last week. This follows contraction in 2020.

"Overall, we are expecting the strongest annual growth in dry buck trade in percentage terms in eight years," he forecasted.

Freight rates will remain elevated on vessel shortages, increased trade, and the decarbonisation agenda of the International Maritime Organization (IMO).

Freight rates have been hiking significantly following a "vaccine-powered" recovery, Ellender commented. "We've seen industrial recovery in the world outside China with the steel sector restocking and iron ore supply growth … There has also been opportunity for longer haul coal trade from the US, Colombia, Black Sea Russia, the Far East, China and India, in particular, and Pacific activity for geared vessels has been very strong; for example, the Chinese cement trades … and iron ore from India to China."

This fast rebound has combined with fleet inefficiency that, due to bottlenecks and quarantine, has reduced carrying capacity of the fleet. The market has seen congestions at Chinese and Brazilian ports and, at the same time, Covid-19 regulations are forcing vessels to divert, implement crew changes and quarantine. This has significantly extended the length of voyages.

Meanwhile, an exceptionally strong container market and container shortages have also pushed prices up. Capesize ships had the most volatile prices, peaking at $44,817 per day on 5 May and dropping back to $30,000 per day only a month later.

A shortage of 10,000 plus dwt carriers is also expected as current order books remain particularly weak. "Even if everything on order is delivered in 2021, fleet addition will still fall significantly year-on-year", the director explained, adding there is luctance over vessel orders due to uncertainty about the regulatory outlook.

The current green transition agenda for the maritime sector is preparing a "historic transition" where shipbuilders will have to invest heavily in green fuels and technological innovation forzero-emissions carriers. The IMO decarbonization agenda intends to reduce carbon emissions per transport work by 40% by 2030 compared to 2008 and total annual greenhouse gases emissions by 50% by 2050 versus 2008.

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