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In the last days of September as we entered October, the phrases that dominate the world news are “energy crisis” and “disruptions in supply chain”. The disruption in the supply chain is not new but still strongly affecting the shipping industry. As if this was not enough, the world has now also to face the energy crisis, with major economic players such as China, India, US & Europe having to deal with significant shortages in their reserves, resulting in slashing of outputs of plants & industrial hubs (especially in China).
While the autumn harvest season is underway, power shortages affect both the production and processing of agricultural goods, a development that risks triggering a renewed surge in world agriculture and food prices on top of those which have already been high throughout 2021. At the same time countries, despite being crop producers and in view of their domestic shortages, will need to turn to increased imports in order to cover their requirements (driving prices and global food costs to multiyear highs).
Power shortages in China also stem from the shortage in coal supply, which will lead China to import more coal from a wider range of producers. This will create a bigger competition with European and Indian buyers, already snapping up more of the dirtiest fossil fuel in order to cover their needs, against the back of extremely increased prices of oil & gas. India's federal power ministry, almost a month ago, did point out a significant coal shortage driven by rising electricity demand and, despite the emergency meetings with stakeholders to address these challenges, its coal deficit widened instead of shrinking. As per government data, more than half of India's 135 coal-fired power plants have fuel stocks of less than 3 days, which is far short of federal guidelines recommending supplies of at least 2 weeks.
So, how could this power crisis affect shipping? For importers of containerized goods, negatively as it is another problem in the supply chain. For commodity shipping either dry bulk or oil & gas tankers, it seems to be the right recipe for higher T/C’s and spot rates. Capesize daily freight rates leaped to levels surpassing USD 75,000/day, for the first time since 2014 when the 180k 5T/C was introduced and major players in the segment expect that we may soon see $100k+ figures. Congestion in ports is still tying up ships for longer periods, at a time of rising coal and iron ore exports from both Brazil and Australia. Commodity prices continue to rise & energy commodities have reached decade highs. Is this a Super-cycle? A low orderbook combined with unprecedented global infrastructure spending, is this déjà vu, like the one that begun in the early 2000’s, again fueled by a thin orderbook and Chinese infrastructure development?
The global economic recovery remains strong, helped by government and central bank support and by progress in vaccination. But despite positive signs, we are also facing elevated inflation levels that one questions if they will be transitory or sustained and if so, will rising inflation start creating strong concerns as to the sustainability of the recovery of all world economies.
On the S&P activity, the high rates continue to drive the dry bulk sales to higher levels & increased volumes. We highlight the sale of the New Castlemax “Conrad”–207K/2017 SWS, sold for USD 54mills to clients of JP Morgan. Also, 2x Supramaxes “Stove Tide”–58K/2016 Tsuneishi & “Stove Friend”–58K/2016 Tsuneishi sold for USD 28mills each to clients of Belships. The Japanese owned “Medi Okinawa”- 56K/2011 Mitsui is close to be committed at USD 23.5mills. Last, on the handysize segment, clients of Tufton bought the “New History”- 36K/2013 Shikoku & the “New Inspiration” – 36K/2013 Shikoku for USD 41.2mills enbloc, whilst the 2-year older “Teo”–35K/2011 Daoda fetched USD 16.5mills. On tankers, Ocean Tankers sold the LR2 “Ocean Vela”–108K/2009 SWS for USD 18.5mills (note: this is a distressed sale).