in Dry Bulk Market,International Shipping News 09/09/2022

Dry bulker and container freight rates have continued to fall over the past three months. Due to the seasonality of the market, dry bulk freight rates would typically peak in the third quarter; however, according to S&P Global Market Intelligence’s latest dry bulk freight market outlook, the second quarter would likely be the peak of 2022.

Key highlights from the analysis include:

· S&P Global Market Intelligence Freight Rate Forecast models predicts that the Baltic Dry Index (BDI) is expected to fall about 20–30% on the year to average about 1,300–1,400 points in 2023 before recovering to average about 1,400–1,500 points in 2024.

· Much reduced port congestion level, along with weaker cargo arrivals, was one of the major reasons behind significant decrease in freight rates. Based on expectation of weaker trade volume, we do not expect extremely high congestion again in the coming quarters.

· The carbon intensity indicator (CII)—one of the International Maritime Organization’s new regulations scheduled to be implemented in 2023—would result in higher demurrage to reduce idling time and prevent further upside risk in congestion in coming years. Significant drops in freight rates will likely discourage potential sailing speed increase with lower bunker prices in the short term.

· In the medium and long term, the engine power limitation (EPL) impact of energy efficiency existing ship index (EEXI)—IMO’s another new regulation—will be limited on commercial speed, while CII will start to impact from 2024 onwards on the operational speed as well as scrap activities. However, with the on-going uncertainty of penalty and reduced earnings, the potential recovery in demolition activities and slippage will remain a major downside risk to 2023–2024 fleet supply growth outlook.

· Earlier-than-expected change in mainland China’s ‘zero-COVID’ policy and ceasefire agreements in Russia-Ukraine war would remain major upside risks to dry bulker -freight rates. On the other hand, strong domestic coal production in mainland China and fast-declining container demand with global recession remain major downside risks in the medium and long term.

Quote from Daejin Lee, Lead Shipping Analyst at S&P Global Market Intelligence:

“Although we expect some seasonal improvements in the dry bulk market in coming months, volatile path to lower rates is expected in the near term due to slower-than-expected economic growth with continued weakness in mainland China’s real estate sector as well as the absence of high congestion. Eventually, overall dry bulk freight rates may return to the level we have seen in pre-pandemic period in coming months.

“However, limited growth in supply driven by new IMO regulations and lack of new building orders will help the dry bulk freight rates to recover in the second half of 2023 and 2024.

“Container freight rates have declined significantly in the third quarter with slower growth in container trade demand in response to high inflation rate and endemic consumer pattern. After the third-quarter peak trade season is over, de-containerized trend is expected to be reversed and some of container spillover-related minor bulk cargo demand will gradually return to container box which would put backhaul geared dry bulk freight rates under further pressure.” Source: S&P Global Market Intelligenc