Toepfer: Shortsea shipping remains strong through holiday season

Toepfer: Shortsea shipping remains strong through holiday season

Photo source: Rhenus Logistics

The shortsea shipping market seems to be unfazed by the correction going on in the the larger bulk market which is experiencing a downward trend since it peaked in October last year, according to Toepfer Transport’s Shortsea Shipping Report.

To remind, Toepfer reported average rate for 3,200-3,800 dwt vessels at €6,077, while 4,800-5,600 dwt vessels were chartered for an average day rate of €8,336, during November 2021. This was a new record high for the Toepfer Transport Shortsea index (TSI).

The bulk markets which had reached a peak in October have fallen back and after only a short breather in early December continued their downward trend. It can be expected that the weaker market environment in the large bulk segment will last until the first half of January in line with the usual seasonal slowdown and rate volatility.

Shortsea shipping rates climb to ease off

The Shortsea vessels however, remain untouched by the correction that their larger peers are experiencing
now as the year ends. Usually, chartering activities come to a halt around mid December, as coaster owners
endeavor to have their ships fixed well before the holidays to avoid being stuck without cargo when shippers
close their books and chartering desks before Christmas.

This time around, it was possible to fix spot or prompt vessels shortly before and after Christmas holidays with a big choice of cargoes available to be fixed to any preferred direction – and still achieve excellent results. Shippers’ requests for freight quotations reached as far as February or March dates but it appears many charterers held back after all, cancelled or postponed shipments as the freight was just beyond the level they were able or willing to pay. Owners had in turn no reason to offer freight cheaper than necessary. Sentiments among coaster owners are highly optimistic also for the first weeks of the New Year however Toepfer Transport expects the growth rate of time charter averages not to remain as high as in recent months.

In the Baltic Sea, the winter season has started with the first ice build-up in the northern Bay of Bothnia which is adding to the potential to keep freight rates on high levels due to weather uncertainties and restricted ship supply. Ice classed vessels are the necessary choice in the upper Baltic region offering their owners premiums over more ordinary southern European trades.

Owners prefer the spot market

The delta between spot freight and time charter levels is big so owners still prefer to keep their ships trading in the spot market on voyage basis, with the result that time charter fixing activity is limited.

With regard to annual contracts of affreightment, renewals can turn out to be a costly affair for shippers these days. They will have tried to accommodate all shipments under their lower contract rates over the last months whenever possible. So upon extension of COAs, owners will be eager to recoup the difference between contract and spot market rates they missed when they performed a contract, while shippers will seek to ensure reliable transport schedules for a longer period of time. It could be a scenario where attractive deals for both sides can be made.

Vessel shortage similar to MPP sector

Similar to the MPP sector, the shortsea segment has become short of ships offered for sale on the second hand market amid continued high demand for vessels, Toepfer’s report reads.

Owners tend to keep the vessels trading on their own to bag profits in a buoyant market which provides nice cashflow and keeps their business running successfully with no signs of a market turnaround.

The second hand prices have been rising steadily over a period of ten years so even if fund raising has become easier in a favourite market, the replacement of tonnage, be it second hand or newbuilding, comes at a high cost, if good opportunities are available at all. We expect the second hand market to stay firm in 2022.

Author: Adnan Bajic

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