Tanker Rates Stand Their Ground ??? Ship Recycling Down 50% Compared To The First Two Months Of 2023 ?? EU ETS Impact on Shipping and Farmers ????
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Russell Thompson , Managing Director of Tradeviews discusses the potential decrease in coal demand from China, and what even a single percentage point decrease will have on the bulk market.
Tanker rates stand their ground against ailing trade demand - Vortexa
Despite weak trade demand, two distinct vessel supply-factors are keeping rates at healthy levels.
Despite the weaker trade fundamentals that have been observed over the past 4 months, tanker freight rates across all segments remain at stubbornly healthy levels. This can be mostly attributed to the weather and geopolitical climate which has fostered two distinct characteristics on the global vessel supply-side: lack of tonnage fluidity and longer voyage mileage.
The most recent fleet behaviour of vessels linked with the Russian trade – detailed in this?blog ?– indicates that vessels with Western links are exiting the Russian trades, wary of sanctions. Naturally, this instigates a rigidity between tiers, creating increasing difficulty for tankers to shift between Russian and non-Russian oil trades. This can be a double-edged sword in the tanker market as tonnage cannot easily move back to the mainstream trade to uplift tonnage availability and vice versa.
Yet a shift might be on the cards. Based on recent sanction activity led by the US and the UK it increasingly seems that the relevant authorities are aiming to force Russia to make use of Western operators under the cap mechanism whilst simultaneously sanctioning “dark” fleet entities (with Sovcomflot as the latest example). In this case, Russian crude would be carried by Western operators below the price cap, benefitting employment of Western-linked fleets and financially weakening Russia by severely constraining alternatives for seaborne transportation. It would also provide for much better insurance coverage and reduced environmental risks. Such a scenario would ultimately tighten the mainstream fleet further, providing support for freight rates.
Key waypoint transits are remaining low, disrupting the fluidity of tonnage and sparking rerouting between markets
Another type of tonnage rigidity – a geographical one – is taking place in the Panama Canal. Transits via the waypoint remain at low levels, effectively restricting tonnage flows between the Atlantic and Pacific Basins. Though this low number of transits was initially driven by a severe drought up until the end of 2023, an uplift has not materialised despite some improvement in weather conditions. This is mainly due to the softer demand environment currently observed in South America West Coast. Furthermore, as the dry season in the region is not over until June/July, there are no guarantees that weather-related logistical issues will not arise once again, sustaining this lack of vessel fluidity in the market.
For completely different reasons, a similar picture is painted with respect to transits in the Bab-el Mandeb strait. There is a slight disconnect between clean and crude tanker transits numbers, as the profile of operators passing via the strait (Russian, Chinese, Middle Eastern-linked entities) are largely involved in the crude trade. Nevertheless, the majority of vessels that choose to do the East to West of Suez (or reverse) trip continue to transit via the Cape of Good Hope.?
Reshuffling patterns from geopolitical and weather events are boosting voyage distances above seasonal norms
As a result, the weather and geopolitical events, which triggered the Russian invasion reshuffling, the Red Sea rerouting, or the Panama Canal congestion, have boosted voyage distances to new highs across both crude and clean tankers.
It is worth noting that these longer voyages occur at a time of lower tonnage fluidity between regions and between tiers, whilst scheduled tonnage deliveries for 2024 are projected to hover around historical low levels. These indications point to a tighter tonnage supply which must fulfil higher supply requirements, hence these drivers are poised to support tanker freight rates in the short to medium term, despite ailing trade dynamics. Any upside in cargo demand momentum, as expected by many in the market, would tighten the picture further.?
Ship recycling recovery not expected until second half of 2024?- Lloyd's List Intelligence
Ship recycling volumes are unlikely to recover until at least the second half of the year, as high charter and freight rates because of Red Sea diversions have reduced the supply of tonnage to the sector.
Lloyd’s List Intelligence ?data shows that 61 ships of a combined 805,000 gross tonnes hit recycling beaches in the first two months of 2024. This is less than half the 1.7m gt, provided by 75 vessels, beached in January and February 2023.
A shortage of tonnage has ensured relatively high prices paid for recycling candidates since 2022 are being maintained, although demand for recycled steel continues to be challenged by foreign exchange restrictions in important ship recycling nations.
Meanwhile, India’s local steel market has been under pricing pressure for several months with recyclers only buying ships to keep their facilities active.
Cash buyer?GMS ?reports that major ship recycling markets were “utterly sleepy and tranquilised” in the past week with Indian subcontinent ship recyclers being provided with a “merciful collection” of smaller vessels of late.
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“Given the near-total lack of market offerings, virtually no deals have been concluded, as evident from the weekly dithering traffic patterns at the various waterfronts of late, and a surprisingly lethargic India that remains puzzlingly peculiar at the bidding tables.”
“The year 2024 certainly has put the squeeze on the global ship-recycling sector,” said GMS.
The New European Union CO? Seaborne Emission Policy: An Additional Cost For Farmers? - AXSMarine
Maritime transport, often seen as a model of efficiency, is also a major contributor to greenhouse gas emissions. With over 1,076 million tons of CO2 emitted annually globally, accounting for 2.9% of the world's annual emissions, its impact is comparable to that of France, Spain, and Italy combined.
Why anticipate CO2 emissions for the years ahead?
As of January 1st, 2024, significant changes have been made to CO2 emission policies in the European Economic Area (EEA). The European Union (EU) has expanded its scope by integrating maritime transport into its Emissions Trading System (ETS). This measure affects all shipments including grains and oilseeds to and from EEA, requiring ETS CO2 credits to cover cargoes related emissions.
Grains and oilseeds, based on AXSMarine data, account for 25% of all CO2 emissions from Dry Bulk goods trades to and from EEA.
Calculating CO2 emissions for Grains and Oilseeds for EEA
Intra-EEA exchanges are assessed at 100% for ship emissions calculation, while exchanges between the EEA and other countries, meaning imports and exports, are only considered at 50%. This approach aims to allow partner countries the freedom to legislate on the remaining 50% of voyages.
Intra-EEA trade for Grains and Oilseeds accounts for 17% of the total, so only for those 17% of emissions, the EU is considering 100% of the emissions. For Trades from EEA (exports) and to EEA (imports), representing together 83% of the emissions, the EU will consider only half of the emissions on those segments. Notably, the ballast legs for picking the cargo in EEA are also taken in consideration.
The EU plans a gradual implementation of the scheme, considering 40% of emissions for the first year (2024), 70% for the second year (2025), and 100% for the third year (2026).
From CO2 emissions to impact on trading houses and cooperatives
In 2023, the average price of EU ETS credits was €85 per ton of CO2, while in February 2024, it was €53 per ton. With an expected variation in 2024, shipping companies will need to prove the purchase of ETS to cover 2024 emissions by summer 2025, some companies have already begun sourcing at the current low rate, while others will source later in 2024 or even in the first half of 2025, meaning that the cost estimation remains a forecast at this stage.
Financial impact on grains and oilseeds, assuming an average ETS credit price of €85 per ton in 2024 (average price of 2023):
The additional cost of exporting grains and oilseeds from EEA to partners countries in 2024, based on 2023 trades and voyages, would range between €37m and €59m, or an additional freight cost between €0.71 ($0.76) and €1.14 ($1.23) per ton.
For 2026, this would represent between €93m and €149m in additional costs for exports from EEA, translating to an additional freight cost between €1.78 ($1.92) and €2.86 ($3.10) per ton.
Impact on the future of EEA agriculture
On one hand, agricultural production costs may increase if inputs, such as fuels or fertilizers, are subject to emission quotas, potentially reducing farmers' profit margins. On the other hand, transportation costs for agricultural products may also rise as maritime shipping companies must purchase emission credits to offset their CO2 emissions, resulting in higher freight rates.
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