The Dry Bulk Weekly Review in Shipfix Data
Downward pressure on cargo order volumes points towards a period of seasonal weakness for the freight rates in the mid and small-sized dry bulk segments. Over the past week, Shipfix’s forward-looking data set has recorded a significant drop in demand for seaborne transportation. At the same time, it has indicated that tonnage supply is on the rise across most segments and basins.
Headwinds for Panamax Order Volumes Signal Weaker Freight Rates as the Year Draws to a Close
After gaining nearly seventy per cent over the past month, the Baltic Exchange’s gauge for the Panamaxes dipped into the red last week for the first time since early November. Still, despite last week’s 10.1 per cent decline, the sub-index for the segment was 27 per cent higher on Friday compared to a year ago. The development broadly aligned with the smaller segments but was well behind the Capesizes.
The past week experienced a slow start to ordering activities, and conditions did not improve as it progressed. The development suggested that the headwinds for the segment’s freight rates were not temporary. While demand in the Atlantic stabilised, albeit at a low level, the basin has contributed to much of the recent downward pressure on cargo order volumes. Last week, aggregate volumes in the Atlantic were around 27 per cent below the weekly average for October and November. Demand volumes in the Pacific faced even stiffer headwinds during the past week, with a drop of 36 per cent compared to the average. In comparison, developments in the Indian Ocean were less dramatic, with cargo order volumes for the week some fifteen per cent below average for the past two months.
Tonnage supply has been volatile over the past few weeks, with a downward trend in the Atlantic and Indian Oceans contributing to recent freight rate gains. The pressure on vessel availability in the Indian Ocean, combined with continued healthy demand levels in the basin, could provide some offset for the weakness originating from the Atlantic and the Pacific. However, unless there is a substantial pickup in demand during the remainder of the month, the forward-looking nature of the Shipfix data set suggests that the Panamax freight gauge may continue to retreat from the recent high.
Pressure on Supply in the Atlantic Basin Could Limit the Downside for the Supramaxes
While not in the same range as the Capesizes and Panamaxes, the second half of last week saw the freight rate indicator for the Supramaxes retreating somewhat from its recent thirteen-month high. Still, despite the losses, the gauge remained nearly 40 per cent above the level recorded a month ago and a third higher than at the same time last year.
After peaking in early November, aggregate weekly cargo order volumes for the Supramaxes and Ultramaxes have been trending lower over the past four weeks. The past week saw global aggregate volumes dropping to the lowest levels since late September. While the weaker demand has affected all major basins, the Pacific has seen a particularly significant decline. Cargo order volumes in the Pacific dropped below ten million tonnes last week, almost 50 per cent below the levels seen in early November.
Despite the downward pressure on demand, the Baltic Exchange’s sub-index for the Supramaxes rose for much of the past month, with tonnage supply below the long-term average in the Atlantic supporting the spot freight rates. However, the past week showed signs of global tonnage supply rising above the levels observed over the past weeks. Still, numbers in the Atlantic remain depressed, with increasing availability in the Pacific and Indian Oceans responsible for the signs of growing supply.
The pressure on global demand and an improving global tonnage supply situation could weigh on spot freight rates for the Supramaxes. However, continued pressure on supply in the Atlantic could insulate the segment from the developments seen for the larger vessels and limit the downside in the short term.
Seasonal Patterns Suggest Weakness Ahead for the Handysizes
The Handysizes enjoyed the past week’s best performance among the dry bulk segments. The Baltic Exchange’s indicator for them advanced by 12.8 per cent last week, bringing the gains for the past four weeks to nearly fifty per cent.
While the past week saw global aggregate cargo order volumes retreat from the levels recorded during the preceding one, demand nevertheless remained approximately half a million tonnes above the average for the year. The spot freight rates for the smallest vessels have benefited from an upward trend in demand since the end of October. Initially, the development was powered by rising ordering activities in the Indian and Pacific Oceans. However, during the second half of November, increasing demand in the Atlantic also contributed to the gains.
Over the past few weeks, tonnage supply in the Atlantic and the Pacific has been on the rise. Last week's increase saw vessel availability in the three principal basins rise above the average for the year, but not excessively.
Weaker order volumes and increasing vessel availability as we enter the year's final weeks will likely contribute to a decline in spot freight rates for the Handysizes in the near term. Should last year’s pattern repeat itself, global aggregate cargo volumes could drop by around 50 per cent between now and the end of the year. Hence, the Handysizes look unlikely to repeat recent gains in the coming weeks.
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