Commodity shipping rates sink to new 2024 lows in ‘winter of discontent’
Tankers, bulkers and LNG carriers simultaneously and counter-seasonally slump
Different sectors are down for different reasons, but when so much of the bulk commodity shipping universe is having a worse winter than usual, it raises the question: Do lower spot rates signal a broader deceleration of the global economy?
TIS the season for bulk commodity shipping rates to rise on winter demand and weather delays, and yet, rates across multiple vessel segments are now hitting new lows for the year. Very large crude carrier, dry bulk and LNG carrier spot rates are simultaneously slumping.
Rates in most bulk commodity segments are still profitable, but they’re not where they should be at this time of year. “Winter is coming” is a common bullish refrain on listed-owner conference calls. This year it’s a “winter of discontent”.
Different segments have different headwinds, but bulk commodity shipping, in general, is highly dependent on global economic growth and Chinese growth in particular. That growth is slowing.
The International Monetary Fund projects global GDP growth of 3.2% in 2024 and 2025, down from 3.3% in 2023. It projects Chinese GDP growth of 4.8% this year and 4.5% next year, down from 5.2% in 2023. The IMF forecasts a continued deceleration over the next half-decade, with global and Chinese GDP growth predicted to be 3.1% and 3.3%, respectively, by 2029.
Aristides Alafouzos, chief executive of VLCC owner Okeanis Eco Tankers, said during a Capital Link online forum on Thursday, “China has unfortunately been the big issue for us. And I think you can see it across all sectors. Anything energy-related that’s floating is having a really weak Q4, whether it’s capesizes, LNG carriers or tankers. It’s quite obvious that it’s weakness in China, which is such an important market for our business.”
Kenneth Hvid, chief executive of Teekay Tankers, said during the Capital Link forum, “In the middle of the summer, the expectation from everybody for Q3 and Q4 was that we’d see a much stronger winter than we are currently experiencing. Expectations were quite high — and that was across all asset classes.
“But as the analysts returned from vacation, they started waking up and realising that Q3 was not turning out exactly as people were hoping for. So, we saw a lot of the estimates coming down. Then, as we were looking at Q4, we looked to October, which was a big trigger point in 2023…and we didn’t see the levels we saw a year ago.” Estimates came down further.
Deutsche Bank analyst Chris Robertson said in a client note on Monday, “Spot tanker and bulker TCE [time-charter equivalent] rates continue to decline into year-end.”
Tanker rates
The Baltic Exchange spot index measuring TCE rates for VLCCs hit a new low for the year on Monday of $24,786 per day, down 71% from October 7.
Jefferies analyst Omar Nokta estimated that non-eco VLCC spot rates are down to around $17,000 per day. Clarksons Securities analyst Frode Mørkedal put non-eco VLCC rates at $19,000 per day and eco VLCC rates at $26,000 per day.
“Weaker-than-expected crude import demand from China has put downward pressure on VLCC rates in recent weeks,” said Robertson.
According to Nokta, “Despite increased Middle East exports over the past few weeks and higher carried volumes on VLCCs since mid-November, the segment continues to face pressure.” Mørkedal blamed this on “charterers pacing December cargo bookings while tonnage availability grows”.
During the Breakwave Day tankers panel on December 5, analysts attributed the unusually weak Q4 VLCC rates to a combination of lower Chinese demand and higher Chinese consumption of crude in sanctioned trades, the latter driver leading to more shorter-haul voyages for non-sanctioned VLCCs.
Rates for suezmax and aframax tankers are higher than for VLCCs and not currently at year-to-date (YTD) lows. However, they are below where they normally are in December. Clarksons data put current suezmax spot rates at $34,700 per day, down 34% year on year, and aframax rates at $34,300 per day, down 22%.
“I think it’s really a matter of VLCCs underperforming as opposed to the aframaxes and suezmaxes outperforming,” said Hvid during the Capital Link forum.
Product tanker rates are not at YTD lows but annual declines for long range product carriers have been much steeper than for crude tankers. LR2 product tanker spot rates currently average $24,600 per day, down 51% year on year, according to Clarksons data, with LR1 rates at $16,600 per day, down 62%, and medium-range product tanker rates at $27,800 per day, down 33%.
Dry bulk rates
“Bulk carrier rates are notably weak for this time of year as an expected Q4 turnaround in spot rates fizzled out after mid-November,” said Robertson.
According to Ulf Bergman, senior economist at ShipFix, “Dry bulk freight rates faced continued headwinds over the past week, with the Baltic Dry Index recording a fourth consecutive weekly loss. While all segments were in the red, the capesizes, in line with recent weeks, provided much of the downward momentum.”
Xclusive Shipbrokers said, “As 2024 draws to a close with just two weeks remaining, a review of the dry bulk market reveals a volatile year marked by significant declines across all segments. The Baltic Exchange averages tell a story of substantial deterioration.”
Analysts speaking during a BreakWave Day dry bulk panel blamed sector weakness on panamax overcapacity that is infecting other segments as panamaxes cannibalise coal cargoes from larger capesizes and minor bulk cargoes from geared handymaxes.
Baltic Exchange indexes for panamaxes and supramaxes hit new YTD lows on Monday, with capesizes only slightly above the YTD nadir reached on Thursday.
The Baltic P5TC panamax index was at only $8,796 per day on Monday, approaching opex breakeven levels. Clarksons estimates average panamax opex levels at $6,000 per day.
The Baltic S10TC supramax index was at $10,040 per day and the capesize C5TC index was at $11,116 per day. Capesize rates are half levels seen just two weeks ago.
LNG shipping rates
As disappointing as rates are for tankers and dry bulk, their decline pales in comparison to the historic rate collapse in LNG shipping. The saving grace for LNG carrier owners is that most tonnage is under long-term charter at significantly higher rates than those in the spot market or for recently concluded period deals.
LNG spot rates are at all-time lows. The sector has suffered from a large influx of newbuildings at a time when LNG shipping transport demand has been hit by delays in liquefaction projects and the absence of winter floating storage in Europe.
Clarksons Securities said on Monday that spot rates for steam-turbine LNG carriers are a mere $5,500 per day. Tri-fuel diesel engine carrier rates are at only $14,000 per day, with two-stroke engine (MEGI and XDF) carrier rates at $23,000 per day. Clarksons puts average LNG carrier opex at $15,000 per day.
Baltic Exchange period rate indexes (which assess two-stroke-engine LNG carriers) have likewise collapsed. Indexes for three-year and one-year periods were at YTD lows in the latest reported week (the week of December 11) and the six-month period index was just a few dollars up from the YTD low hit the prior week.
The Baltic index rate for three-year periods has fallen to $53,850 per day, down 44% YTD. The index for one-year periods is at $36,750 per day, down 60% YTD, and the six-month period index is at $27,400 per day, down 60% YTD.