According to shipping industry executives, the extraordinary highs of dry freight rates in 2021 is unlikely to repeat in 2022.
Easing port restrictions, COVID-19 protocols
Rising inflation may hit raw material demand
Decarbonization moves to hit freight levels
While dry bulk freight rates periodically hit multi-year highs in 2021 on the back of an improving global economy after the COVID-19-induced market collapse, a repeat of this extraordinary feat is unlikely in 2022, according to shipping industry executives.
In fact, the time charter equivalents, which measures a ship's daily income, had hit near historic levels. The Platts Cape T4 Index -- a trade flow based weighted average of four key Capesize routes -- peaked at $78,917/d Oct. 6.
Similarly, the KMAX 9 and APSI 5 indexes -- a trade flow based weighted average of nine Kamsarmax routes and five key Supramax routes within the Asia Pacific, respectively -- peaked at $37,857/d Oct. 15 and $38,722/d Aug. 30, correspondingly.
A major factor that had impacted the supply of vessels -- the COVID-19-related protocols followed at various ports across the world -- which drove up tonnage utilization rates is expected to ease as more economies become better equipped to manage local outbreaks of the virus.
Australia's Queensland is doing away with the requirement of a mandatory 14-day gap since the last port of call before a ship can berth at its ports, according to a notification published Dec. 17.
An easing of COVID-19-related restrictions is expected to dampen the huge volatility seen in the freight rates during 2021 as the supply and demand dynamic starts to look more balanced.
The main predicament for shipping markets in 2022 would be the much-discussed issue of decarbonization. The ordering of dry bulk vessels has been curtailed as shipowners continue to assess the upcoming environmental regulations and its commercial impacts. According to analysts' estimates, the dry bulk fleet growth in 2022 is expected to average around 2%, compared to about 4% in 2021.
Many challenges loom for the freight market as shipping gets added into the European Unions' Emission Trading System (ETS) from January 2023. The International Maritime Organization (IMO) has also adopted new CO2 regulations -- Energy Efficiency Existing Ship Index, or EEXI, and Carbon Intensity Indicator, or CII -- that would be applicable to existing ships from 2023. Shipping accounts for around 2.2% of all global greenhouse gas emissions, according to the IMO.
While EEXI is for addressing the technical efficiency of ships, the CII rating scheme will measure the operational efficiency and the enhanced Ship Energy Efficiency Management Plan (SEEMP) is a tool to control greenhouse gas emissions. Ships are given a specific rating on a sliding scale of A to E, where the latter is inferior. A ship rated D for three consecutive years, or E, would have to submit a corrective action plan to show how the required index, C or above, would be achieved.
To attain EEXI and CII compliance, most market participants expect vessels to limit engine power and reduce their cruising speeds, which in effect would reduce tonnage availability leading to higher time charter rates.
Meanwhile, rising inflation could prove an obstacle for the dry bulk freight segment next year with the increase in price of raw commodities likely to hit demand. "Inflation has not peaked yet and is still moving up," a Singapore-based ship-operating source said.
"Demand growth forecast is severely cut for [2022]," a Hong Kong based ship-operator source said. "Supply chain issues might linger for a while. But pent-up demand that was seen in 2021 is easing to more normal demand.
The consensus in the market is that demand for major dry bulk commodities like iron ore and coal is close to the peak or may have gone past it. While bigger dry bulk ships such as Capesize is very much reliant on mining companies' production and export volumes for their employment potential, going forward in 2021, the new growth centers for these ships would be the burgeoning export of iron ore and bauxite from West Africa, which would add to the ton-mile demand in this segment.
Looking ahead, while demand growth for major dry bulk commodities is limited, products such as grains, bauxite and other minor bulks are expected to grow as the world moves towards reducing carbon intensity. This move, market watchers said, could support the sub-Capesize sectors.
Also lending support to the dry bulk market is the trend of containerized cargoes and containers being moved on bulkers, which is expected continue at least till the middle of 2022, according to freight marker sources.
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