World Grain - January 2023 - 36

FEATURE: CHINA HOLDS KEY TO SHIPPING COSTS
during 2022, although the numbers still in queues remain
substantial. At least 800 ships have been tied up
at Chinese ports every week during 2022 and, in some
weeks, that number has surpassed 1,000 vessels, according
to Breakwave Advisors. In late November, in
the less-than-capesize fleet segments used for shipping
grains, some 239 panamax, 280 supramax and
171 handysize vessels were caught up in congestion
in China.
Should this congestion ease, as many expect it will
during 2023 - and particularly if China loosens its
zero-COVID policies - then bulk carrier freight rates
could tumble, especially as dry bulk volumes are expected
to grow by just 1.6% in 2023, according to MSI.
Indeed, rates already have dropped significantly
from the highs of 2021. The Baltic Dry Index (BDI)
reached 5,650 points in October 2021, a two-year
high, but had dropped to just 1,323 on Dec. 5, 2022.
The Baltic Panamax Index (BPI) was down to 1,638
on Dec. 5 compared to a two-year peak of 4,328 in
October 2021, while the Baltic Handysize Index
(BHI) hit 732 in the first week of December, down
from a two-year high of 2,062 in October 2021.
Similar declines are apparent in grain shipping costs.
On Nov. 29, the International Grains Council's (IGC)
Grains and Oilseed Freight Index (GOFI) fell to 148
compared to a year-high of 243 points recorded in May.
Year-on-year drops of between -27% and -32% were
apparent across the IGC's sub-indices in the last week
of November.
Vessel demand and supply
There is little on the fleet growth side to prevent a
drop in congestion from delivering lower grain shipping
costs next year. Bimco expects fleet growth of just
2.1% in 2023, but even this will outstrip anticipated
volume expansion.
" Demolition is expected to increase in 2023 as environmental
regulations and an economic downturn
could lead older tonnage to be recycled, " the analyst
said. " Nonetheless, despite an aging fleet, total demolition
should remain under 15 million dwt due to the
small orderbook. "
Ship owners have started to cut sailing speeds to
help reduce overall vessel availability. However, this is
proving insufficient to buoy rates.
" Congestion started to clear in the second half of
2022, " Bimco said. " As of November, it is down 4.8%
year-on-year. In response to a cooling market and a
higher bunker price, average sailing speed closed in on
11 knots and is now down 4.5% for laden ships and
2.4% year-on-year for ballast ships.
" Despite a drop in sailing speed, this has been
insufficient to compensate for the easing of conges36
tion,
and the supply/demand balance has worsened
(for ship owners) as a result. "
In 2023, Bimco expects both sailing speed and congestion
to remain low due to limited cargo demand
growth and new International Maritime Organization
(IMO) Energy Efficiency Existing Ship Index (EEXI)
regulations that enter force Jan. 1, 2023, and are designed
to cut emissions.
" We expect an 8% decline in
grain exports from the US in
2023. US grain exports were
20% down in the first half of
2022 as compared to the
first half of 2021. "
Tanvi Sharma, research analyst, Drewry
Bulk carrier demand growth is due to be slow at
1.6% in 2023 due to the more general global downward
trend in economic indicators across major economies.
This growth is being reinforced by tighter fiscal and
monetary policies as policymakers continue to target
high inflation.
" Importantly for the dry bulk markets, this implies
continuing pressures for the property sector and for durable
goods demand sectors, which are typically sensitive
to financing conditions, " MSI said.
The China question
China is always critical for the dry bulk trades and could
well be the key to any major change in outlook given the
pull-effect that steel and iron demand has on rates for the
smaller, sub-capesize ships used by grain shippers.
After protests in China in late November against
President Xi's strict lockdown policies, there are signs
that his zero-COVID strategy could soon be eased.
Official encouragement was given to regional administrators
to avoid full lockdowns and reduce regular PCR
tests in December, while Xi was reported to have told
visiting European Council President Charles Michel
that the Omicron variant was less lethal than previous
variants and his government was going to ramp up its
vaccination program.
" Over the past couple of days, a number of large cities
- including Beijing, Shanghai, Guangzhou and
Shenzhen - scrapped negative PCR test result requirements
for public transport, " said Nomura in early
December. " Overall, we believe China is discouraging
January 2023 / World Grain / World-Grain.com
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World Grain - January 2023

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