Port Delays and Diversions Contribute to Strength in Dry Bulk Sector

Port delays and diverted voyages are creating bottlenecks and inefficiencies that are contributing to the recent strengths in the dry bulk shipping sector. According to Maritime Strategies International, these factors are having an unusually strong impact on market balances and will play a key role in the short-term outlook for dry bulk shipping.

MSI highlighted the recent strengths in dry bulk noting that July was another positive month with average monthly spot rates rising to their highest level this year for all benchmark vessels, according to its Horizon Monthly report. They pointed to a recent resurgent seaborne iron ore market that provided a boost to earnings in June. However, they noted that the market showed signs of slowing in July with Australian exports declining from record June levels and Brazilian exports falling just over five percent month over month. Stockpiles of iron ore at Chinese ports they noted have recovered partially from long-term lows in early June, up by eight percent in early August.

“Port delays are partly related to robust trade, iron ore in particular, partly due to poor weather and slower operations due to COVID-19,” says MSI Dry Bulk Analyst William Tooth. “COVID has also driven inefficiencies in vessel operation; several vessels bound for China have recently diverted to the Philippines to change crews, lengthening voyage times and reducing the available fleet.”

Analyzing the factors contributing to the recent strengths in the market, MSI reports that delays at ports, particularly those in China, are absorbing tonnage. Citing data from Refinitiv, the highlighted that vessels are waiting on average 61 percent longer at key Chinese ports. Delays are particularly bad at the northern port of Rizhao where vessels waited for an average of 6.2 days last month, compared to 2.1 days in July 2019, MSI said. Their analysis shows that an increase of four days for iron ore discharges in China creates a need for an additional two percent in tonnage capacity.

“With regards to the short-term fundamentals outlook, MSI is positive for the third quarter, with demand underpinned by robust iron ore trade in particular, more than offsetting weaker coal trade, however, we expect a downwards correction from current strong earnings,” adds Tooth. “As we head into the fourth quarter, the downturn will be partly driven by the cumulative effects of strong supply growth this year, and an expectation that fleet efficiencies ease. However, if sustained for a longer period, these fleet inefficiencies would continue to represent upside risk to MSI’s Base Case.”

Inefficiencies at the ports related to COVID-19 should revert closer to normal levels says MSI as restrictions to the movement of people, goods, and business operations are gradually lifted. They also noted that the impact of recent poor weather in China will also be temporary, causing disruptions to ease.