Source: Tradewinds
December 1st 2016
The dry bulk market is enjoying a strong fourth quarter as spot voyage rates remain near highs rarely seen this year. But bulker owners are showing caution over the upcoming seasonal downturn by fixing more ships on short-term period charters instead of spot voyages.
Average rates for capsize voyage charters were $15,000 per day, according to the Baltic Exchange’s broker assessments, down from a mid-November peak of $19,000 per day, but still up substantially from the $8,000 per day average in the third quarter. Similarly, panamax voyage rates of $11,000 per day are the best seen since early 2014, according to Baltic data.
In contrast, six-month charters on capsizes were running at about $11,750 per day at the end of November, according to Clarksons. Six-month charter rates on panamaxes were $10,450 per day. Despite the strength in rates for voyage charters, bulker owners are showing more interest in period charters.
Star Bulk Carriers says it has 15 of its 68 ships on period charters with an average duration of just over seven months. That level would be the most on period charters since the first quarter of 2014.
During an earnings conference call, Star Bulk chief executive Petros Pappas said the company’s spot market exposure was 20% of vessel operating days in the fourth quarter.
Despite the typical January slowdown in the freight market, Pappas said China’s winter coal demand and low stockpiles mean that the first quarter “might not be as bad as people think”. Nonetheless, Star Bulk expects to have 40% of vessel operating days under period charters by the first quarter.
He said the current rates offered on period charters are “not hugely profitable” but the company is able to cover most operating and financing costs on its ships. And the next wave of newbuilding deliveries in 2017 will probably keep a lid on the voyage rates.
“It’s not that we fix because we are afraid but because we kind of like these levels for now and during a year that we think is not going to be really that busy,” Pappas said.
Similarly, Scorpio Bulkers tied up three bulkers at the end of November for period charters lasting five months at rates between $9,000 and $11,000 per day. Chief executive Emanuele Lauro says the move was to mitigate the inevitable weakness in first-quarter dry bulk demand.
‘Weaker rates’ in 2017
Indeed, futures markets are pricing weaker rates for next year. The Baltic’s forward assessment for rates on panamaxes currently sits at less than $7,000 per day for most of 2017. Capesize rates for next year are indicated at $8,200 per day.
“We think this first quarter has the most risk of the move to downside below breakeven,” Lauro told analysts during a conference call. “So, let’s just take the charters now.”
Deutsche Bank analyst Amit Mehrotra says these companies appear to be taking a longer-term view of the market rather than just relying on volatile spot markets to drive results.
“The industry is moving in the right direction as far as risk management [goes],” Mehrotra said. “The problem is that shipowners have traditionally been scared of leaving money on the table.”