12-05-2021 Charterers eye rally in dry bulk, but they are not sold on it yet, By Joe Brady, TradeWinds
The dry bulk market is heating up. Period. That is period as in “period cover”. It is the buzz term as a raft of listed dry bulk owners report first-quarter earnings and guides to bookings in the current quarter. Owner after owner either talked up charter fixtures already done or in the works, or at least faced questions from equity analysts about locking away tonnage at increasingly strong rates. As dry bulk’s unusually strong first quarter stretched into a robust start to the second, charterers are beginning to believe that the upcycle will not be short-lived this time, they said.
Perhaps the most bullish message came from Safe Bulkers chief executive Polys Hajioannou, who said charters of at least three years could be seen as early as the third quarter. Meanwhile, Greek competitor Diana Shipping was concluding the latest of five medium-term fixtures over the past two months at rates averaging 70% better than the previous employment. And New York owner Genco Shipping & Trading announced three new medium-term charters on bulkers ranging from capesize to supramax in support of its new strategy to pay dividends from transparent revenue streams.
As Hajioannou told it, the multi-year deals are not here yet because forward freight agreements (FFAs) have not yet budged much off of low levels — although they will. “So we have to be patient and have the ships in the spot market to be able to reach that point, when charterers will decide that they believe in this market and start investing into the forward part of the FFA curve,” he told analysts.
Genco chief executive John Wobensmith was another who noticed that longer charters are not quite there — yet. Wobensmith said he could have fixed out the 180,400-dwt capesize Genco Liberty (built 2016) for two years, but only if he was willing to accept roughly $20,000 per day. Instead, Genco booked the bulker for one year at $31,000 per day. “We have higher expectations for 2022 than even this year, so we felt that just from a technical and financial standpoint, it was better to do the one-year rate,” he said. “We were just not getting paid for taking the second year. But I do think that as rates continue to firm, you’ll see more two-year deals being done.” Genco put away a supramax and an ultramax for five to seven months, which Wobensmith said was the common term in that market. “I haven’t really seen two-year supramax deals being done yet,” he said. “There’s been a lot of focus on five to seven months and there have been 12-month deals done, but not much liquidity in the two-year market.” He added that Genco will be looking for more period cover in capesizes as it pursues the new strategy.
Even owners who do not like a lot of charter cover say the opportunities are improving. Take Gary Vogel, chief executive of Connecticut-based Eagle Bulk Shipping. In January, he advised a financial conference that tonnage end users were remaining on the sidelines despite the start of a firming market. Four months later, the picture is better, Vogel told TradeWinds this week. “There is definitely more period activity in the market in recent weeks, as charterers and operators are becoming more willing to pay closer to spot for longer period fixtures,” he said. “The forward curve on the derivatives market for 2022 has improved materially over the past month, which mirrors that development.”
Eagle Bulk still prefers to operate its own tonnage and hedge using derivatives and physical cargo. “But we opportunistically take advantage of fixing ships out on time charter when we deem the value proposition compelling,” he said. The charters have been in a “short duration” sweet spot in the range of five to seven months.