2017 has been a year of records for AESA Chartering with a significant increase on number of fixtures concluded and cargoes shipped having reached almost 900 000 tons! We are truly thankful to our Clients for their continuous support!
Looking back to 2017; (previous report still available on our website), last year this time we predicted that Owners had good reasons to hope for slowly increasing freight rates. Indeed, after running from crisis to crisis since 2008 and having suffered the worst years in 2015 & 2016, Owners finally began a small recovery during 2017. Starting from July and accelerating in August, freight rates increased by 10-15% on all short-sea trades, though part of the increase has been absorbed immediately by higher bunker prices. Still, there were hardly any spot positions on the market during the last quarter and Owners were routinely achieving better rates. But in overall, 2017 remained as a manageable year for Charterers.
One cannot simply explain the reasons of increasing freight rates with the growing world economy or increasing trade volumes. They certainly are important and been positive in 2017 but still too modest and fragile. Neither this can be directly related to the rebalancing of fleet against demand which will still take some years to realize. In our opinion, Short-Sea trade is changing and the faith of freight rates are closely linked to the regional demand. New type of cargoes with huge volumes, such as wood pellets/chips (just to name here a few) being carried by coastal fleet which is absorbing tonnage availability in Baltic Sea as most of the power stations in Europe are being converted to allow biomass fueling. We feel however more troubled about Mediterranean freight markets as the fleet serving these waters may not be sufficient in the near-future. Anti-damping sanctions imposed by EU on CIS countries boosted demand for Egyptian and Turkish steels and fertilizers. It is already an undeniable fact that growing backlog cargoes from Egypt & Morocco and neighborhood countries (previously considered as regional and/or niche markets) are leading to a tight tonnage supply. Freight rates achieved in these trades during the last quarter of 2017 almost placed them in equality with what we so used to call as ‘paying legs’ from Black Sea or Baltic Sea. Cargoes to/from Libya continue to increase at a fast pace. When/If Syria stabilizes, some part of the fleet will be attracted by the Syrian trade, carrying constructions steels, cement and timber to wipe out the desolation of the war and rebuilt the ruined country. As such, each resurge in demand for spot shipments combined with shortness of immediate tonnage supply will swiftly push freights rates upward.
However there yet remain other clouds on the horizon for Owners; colder and longer winter may bring less grain activity in the summer. Would Black Sea market achieve such a brilliant last quarter had it not been for the record-setting Russia’s grain exports? Algeria is close to reach self-sufficiency in terms of both cement and steels and we already saw decreased import volumes during 2017. Egypt may stop or slow down importing Russian and Turkish steels. We can continue the list with other geopolitical worries, such as political uncertainties in Algeria, aggravation of the dispute between Ukraine & Russia, further sanctions on Russia, increasing problems concerning Libya, Syria & Egypt. Déjà vu… Improving freight market sentiment have already stimulated an important activity on the Sale & Purchase market for second hand ships and decline in scrapping of the older ships. Next to come is a new wave of excessive new-building orders? Owners may face yet another crisis sooner than expected to realize the folly of such decisions.
It’s time to do our fair share and give our predictions for the year ahead concerning the highly volatile short-sea markets.
2nd half of 2017 has proved that we must prepare ourselves to face ‘monthly fluctuations of freight rates’ instead of usual seasonal changes mostly depending on the grain shipments. The conditions are set for expecting a firm 2018 with marginally higher freight rates. But instead of accepting the benefit of less volatility, some Owners with wishful thinking for continuously increasing freight levels shall provoke constant clash with Charterers. We can only hope for them to have an alternative plan as on many routes the recovery anticipated might be fragile and this yet may turn out to be another short-lived trend… During the first months of 2018 we shall all sail at sight to see if it is Owners or Charterers are occupying the driving seat from spring to autumn.
One special warning to our clients: The freight operators are back in force, offering to every single cargo and/or tender with very tight margins as they always think “there are fortunes ahead to be made”. Never forget that this market is anything but a sure bet! We wish you all the very best in this new year!
Eren Bektas