The fall-out from the closure of the Suez Canal has been gradually spreading into the dry bulk market, potentially boosting Panamax and Supramax freight rates amid tightening vessel availability. A rerouting around the Cape of Good Hope will add 10 to 15 days to a voyage and generate additional fuel costs, although saving on the considerable canal fees. As the tonnage supply has already been tightening any incremental inefficiency is likely helpful for the segments.
Total congestion outside both canal entrances has soared, with Lloyd’s List Intelligence showing around 46 bulk carriers awaiting transit through the busy waterway in the wake of the Ever Given grounding. Of the bulkers stuck in the queue to transit through the canal, four are capesizes, five are panamaxes, 20 are supramaxes and 17 handysizes, according to Lloyd’s List Intelligence vessel-tracking data. Braemar ACM pointed out in its latest report that there are at least four vessels turning around and heading back into the Indian Ocean to avoid the congestion.
Although the dry bulk market is not heavily reliant on the Suez Canal, there are certain trades that utilise it. For the Capes, the disruptions will be relatively limited, according to Braemar ACM dry bulk analyst Nick Ristic. But he sees a more significant impact on the cards for the Panamaxes and Supras, with these markets already tight.
The canal is usually critical for Canadian and Black Sea iron ore shippers, which primarily employ Capes. Backhaul shipments, such as coal volumes from Australia to Turkey, use this route heavily too. It provides a significant saving in sailing duration. As the North Atlantic accounts for small cargo volumes compared with Brazil and Australia, and the Tubarao to Rotterdam market is currently tight, he believes any disruption to the trade would be minimal. However, there could be more meaningful deviations on the Black Sea–Far East and backhaul routes, he added.
“If capes are employed on the Ukraine–China trip via the Cape of Good Hope, and assuming normal export volumes remain unchanged, it could have the effect of tying up approximately 2m dwt of capesize capacity per month, given the doubling in sailing duration.” Similarly, backhaul coal trips from eastern Australia can also lengthen if they divert towards the Cape of Good Hope, said Mr Nistic.
Within the Panamax segment, Black Sea grain cargoes grain and coal and grains from the US’ eastern coasts are frequent users of the canal. Here too, the canal is a key source of ballasters and has facilitated about 4.7% of the entire Panamax trade so far this year, Braemar estimates.
For the geared ships meanwhile, Suez transits have accounted for 3.9% of this sector’s total dry bulk trade so far in 2021. In these markets, the canal is a linchpin for fertiliser trades, which run both east to west and west to east, due to the wide range of goods that make up this cargo group. “With Chinese demand for grains still extremely high, prolonged Suez closures could translate to more of these ships taking the long route to the Far East, providing a boost to employment at a time of scarce vessel supply,” he said.
Likewise, steel exports this quarter are on track to reach their highest level in five years. Import demand for these products in some regions is extremely high due to the mismatch between rapidly recovering steel demand and lagging production capacity. Countries such as China and South Korea, which did not see heavy capacity closures during the pandemic, have capitalised on this and have enjoyed a surge in steel sales over the past few months. “A combination of these bumper trade flows and increased diversions due to prolonged Suez Canal issues could also lengthen voyages and tighten the market for geared ships further.”