Significant changes in the dry bulk industry’s trade patterns will result from the war in Ukraine, foresees Eagle Bulk CEO Gary Vogel in an interview with WPO. 2022, however, could become even better than last year, he says.
The dry bulk industry actually got off to really fine start of the year. Or at least concerning a typical beginning of the traditional cycle, where rates decline after New Year’s in January, usually turning around and improving in February.
Although development in 2022 has been far from normal.
After Russia invaded neighboring Ukraine on Feb. 24, several dry bulk carriers have declined to do business with Russia, thus imposing voluntary sanctions against the country. That is in itself unusual for a global industry that has insisted on doing business with anyone insofar as policymakers don’t forbid doing so.
Eagle Bulk Chief Executive Gary Vogel agrees that the war could have big consequences for trade and transportation of goods around the world, especially when looking at the grain market.
Significant changes in trade patterns
”There is no doubt, there will be significant changes in trade patterns, especially as we get into the late Spring and summer months. In terms of the grain, the likely substitute export markets will be the US and Australia, and this will be particularly impactful for cargoes destined for Europe, Africa, and the Middle East,” Vogel tells WPO in an interview, adding:
There is no doubt, there will be significant changes in trade patterns, especially as we get into the late Spring and summer months
Eagle Bulk CEO Gary Vogel
”On coal, I think the likely substitute export markets will be Indonesia, South Africa, and the Americas, and we have already seen the impacts of this with higher volumes and rates in the Pacific market. Assuming there is no change to overall demand, these expected changes to trade flows will lead to an increase in ton miles, as well as bottlenecks, which in turn should drive utilization and rates higher.”
In line with other shipping companies mainly operating fleets of smaller or medium-sized vessels, Eagle Bulk has been sailing in fair winds since the beginning of the year.
Demand for smaller ships has been so big that rates have beat the largest of vessels such as Capesizes, and Vogel says there are fine changes that the positive market can continue.
A typical start of the year
”Notwithstanding some unique factors like a short-term Indonesian coal export ban, I think the market we experienced during the first few months of 2022 was fairly typical, with rates weakening in January and then recovering back starting in February. In recent weeks, though, since the outbreak of the Russian-Ukrainian war, we have seen a significant increase in volatility and radical changes to trade flows, which have been highly disruptive but overall supportive for rates,” Vogel explains and continues:
”Midsize drybulk vessel segment has been outperforming the larger asset classes this year with the BSI averaging roughly USD 25,000, as compared to the BCI with has been averaging approximately USD 15,000. There are a number of reasons for this, but in general it speaks to the diversity of cargoes carried by the midsize segment, and I think this really underscores the resiliency of what we believe are superior fundamentals for the /Ultramax segment.”
That’s also why he – despite uncertainty caused by the war in Ukraine – is quite optimistic about the rest of the year. In fact, he says 2022 could become an even better period for the dry bulk sector and Eagle Bulk than last year.
I can see a scenario where 2023 comes in better than /2022, all else being equal
Eagle Bulk CEO Gary Vogel
The US-based shipping company achieved its best result in a long time, showing full-year net profit of USD 184.4m – a marked turn-around against a deficit of USD 35m in 2020, shows the annual report, published in early March.
Eagle Bulk achieved the improvement with a revenue post more than doubled from USD 275.1m in 2020 to USD 594.5m in 2021, when the dry bulk market seriously started to stir.
No longer sailing to Russia
Eagle Bulk has decided to not sail to Russian ports because of the war in Ukraine. How the market develops will also depend on existing and potential sanctions, the CEO notes:
”Sanctions can, of course, directly impact where countries source commodities from which will impact commodity prices and their landed costs as well. On balance, I think it will lead to greater inefficiencies in terms of ton miles and rates. But, on the negative side, sanctions can increase operating costs in the form of things such as higher costs associated with crewing and insurance.”
Could 2022 become even stronger than last year?
”I think the short answer is yes. 2022 rates are likely to be similar to last year. However, most companies, including Eagle, had a lag effect entering into 2021, where q1 rates averaged just around 15k. As of early March, we indicated that 95 percent were covered for Q1 at a TCE of over 27k per day… a really strong start to the year! Longer term, we believe supply-side dynamics are very supportive, with the order book near all-time lows. As such, I can see a scenario where 2023 comes in better than /2022, all else being equal,” Vogel says.
