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Dry bulk: USGC Supramax freight rates hit 2017 high on rush to fix before Christmas

Supramax freight rates from the US Gulf Coast reached year-to-date highs on Wednesday, buoyed by a rush of activity as participants with December cargoes and vessels sought to fix ahead of the Christmas period.

While fixing will continue over the holidays, activity traditionally slows to a trickle, leaving many participants looking to fix well in advance to avoid getting squeezed.

For charterers and shipowners the choice to fix in advance was strategic, but ship operators were the main force in the market, with nomination clauses for cargoes with December dates driving much of the activity.

Nomination clauses require ship operators to name the vessels on which they will transport cargoes they have booked ahead of their laycans, typically 10 days before.

The Houston to Aliaga petcoke route, basis 50,000 mt, was assessed at $21/mt, the highest level since late 2016, while the Houston to Krishnapatnam petcoke route, same basis, was assessed at $42/mt, also a year-to-date high.

Fixing from the US Gulf Coast was concentrated in the trans-Atlantic trips, with large coal and petcoke volumes moving to the East Mediterranean, and only a smattering of requirements seen for the Far East.

Soft fundamentals in the Black Sea and East Mediterranean have played a key role in driving the trans-Atlantic freight increases, with owners requiring compensation for redelivery/discharging in the region due to its bloated tonnage count, which has weighed heavily on rates in recent weeks.

This was evident through fixtures such as the SBI Phoebe, 62,000 dwt, heard fixed at $23,500/d basis delivery US East Coast to Ultrabulk for a trip to the UK-Continent, with a charterer’s option to the East Mediterranean $1,500/d higher at $25,000/d.

With 10-12 vessels opening in the Black Sea in the next 15 days this trend is likely to continue, a shipowner source said Wednesday, reporting bearish expectations for freight in the region.

The strength of the US market also manifested itself in a narrowing of pegs by participants on front-haul routes, with indications for petcoke trips from Houston to Krishnapatnam via the Cape of Good Hope tightly grouped around the $41-$42/mt mark Wednesday, compared with a spread of $36-$42/mt the previous week.

Several participants also observed that the differential between the time-charter trips fixed and their corresponding voyage rates had reduced sharply.

“It is the first time [this year] that it feels like people aren’t willing to discount voyages to secure business,” one shipowner source said, noting that it was another indicator of market strength.

While these changes were primarily attributed to stronger fundamentals in the US Gulf Coast, the shift can partly be attributed to rising bunker prices on the back of crude strength, with voyage levels ticking up to compensate for the higher operating costs.

Looking forward, participants expect a slowdown in activity over the Christmas holiday period and the start of 2018, but sentiment remains firm for Q1 as a whole, with Japan and China expected to resume imports as their corn stockpiles deplete.

Front-haul grain trips to the Far East have been sorely lacking for vessels in the US Gulf Coast this year, as grains were mainly flowing from the Pacific Northwest and South America, but the US Gulf may see a window of opportunity ahead of the South American 2018 harvest, which is expected to kick into gear in March.
Source: Platts

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