What made the Black Sea a "leader" of freight rates decline? – BPG Shipping

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APK-Inform

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The "grain agreement" was extended for another 120 days, while there are no final decision on its prolongation for one year and its expansion (inclusion of Mykolaiv port). The recovery of the "grain corridor" is slower than both the Ukrainian market and the entire world community expected. How strong is the influence of the uncertainty on the market? What were the expectations and current sentiment? And what to prepare for? We talk to director of BPG Shipping Gennadiy Ivanov about all the nuances.


BPG Shipping is a modern dry bulk shipping company which provides our clients with a reliable and cost-effective transportation service for the carriage of dry bulk and break-bulk cargoes worldwide.

The company was established in Dubai (UAE) in 2017. Until 2022, the main operational office was located in Odesa (Ukraine). In 2022, the company opened an office in Piraeus (Greece) and a representative office in Hong Kong (China).

By opening an office in Greece in partnership with a Greek shipowner who has more than 30 years of experience in the shipping industry, BPG Shipping has the opportunity to provide potential partners and clients with full ship management services (commercial and technical management) and organization of financing processes and purchase turnkey fleet.


- How would you characterize the current functioning of the "corridor" in terms of the reaction of freight rates, delays in inspection by JCC, queues, etc.? How does the operation go under such conditions? For what periods are contracts concluded most often? Is it mostly spot?

- The "grain agreement" was extended, but for the last 2 weeks the rates of daily charter of ships from the Black Sea have fallen almost twice. This is due to the fact that by the time of the “deal” extension a large concentration of vessels (over 100-150) had formed in Turkish waters (in Istanbul) awaiting inspection due to sabotage by Russian inspectors, and it was not clear to market participants whether the extension of the "grain "corridor" will happen or not. For traders, it is vital to have some predictability.

We believe that sales for the December turned out to be very few. The price of fuel also decreased. All these factors led to a temporary decrease in freight rates.

At the moment, the Black Sea is one of the most depressed areas in terms of freight. A certain number of ships are standing in spot. But we hope that the trade will normalize and we will see more cargo orders. In this case, a small increase of freight rates is expected in January, which will also be affected by weather factors.

Russia, as far as we can see, continues to sabotage JCC procedures, so the number of inspections is not increasing. For example, we see that some charterers require ship-owners to include up to 20 days of waiting in Istanbul in the freight rate at the expense of the ship-owner. Someone is asking for freight rate based on a 10-day waiting period. Therefore, it is important to take into account the number of waiting days included.

Potential delays in ports due to weather will lead to an increase in the insurance premium, because it is initially calculated for 7 days of stay in the territorial waters of Ukraine (war risk zone), and then it increases proportionally. The insurance premium per day is about 30,000 USD, it is 210,000 USD for 7 days, and then the price of freight increases by about 1 USD/t (30 thsd tonnes batch) for each extra day of stay in the military zone.

In general, we all understand the absurdity of having inspections in Istanbul as a Russia’s tool to increase the cost price of Ukrainian grain and, accordingly, increase the competitiveness of Russian grain. But I would like to believe that it will still be possible to cancel at least a completely illogical inspection of already loaded vessels, which will allow to radically reduce the total time of inspections.

- In your opinion, do ship-owners expect the port of Mykolaiv to be included in the "grain agreement"? Are they ready to work in it?

- There were talks about the inclusion of Mykolaiv in the "grain corridor". I am not an expert in this field, but until the Kinburn Spit is liberated and there is a danger of shelling from that territory, from the point of view of security, Mykolaiv port cannot be included in the "grain agreement". At the moment, I think it is unknown when it will be included. But I really want to believe that they will either make some kind of additional agreement for Mykolaiv within the current “corridor”, or the issue of Mykolaiv will remain unclear until the next extension of the "grain agreement".

- As far as I can see from the dynamics of shipments, Panamax almost do not enter the Ukrainian ports of the Black Sea… Did this lead to an increase in the price of sea logistics and a decrease in the competitiveness of Ukrainian agricultural products?

Panamax enter, but in small quantities and mainly to China. There are really few of them on the short arm, but this role is played by Supramaxes and Handysizes. 

The question of when it is profitable to use a Supramax, and when a Panamax, should be considered directly on some separate time scope of the market. Sometimes, shipping by Supramax is much more profitable than by Panamax, in terms of a price/ton. This is due to the fact that rates on bulkers of large rammers (Panamax) are more prone to volatility during the next freight rally than on others. And this applies to both growth and decline of freight rate.

- Calendar winter has begun in Ukraine, and the period of the traditional start of the ice campaign is not far off. In the current realities, will this affect the work of the "grain corridor"?

- Given that Mykolaiv is not included in the list of ports for the "grain corridor", the three Odesa ports have nothing to fear in this regard. As a rule, these are non-freezing ports. Let's say that for them to freeze, the air temperature must be at low values for a very long time. It has been a long time since these ports froze or the water area was covered with ice, and tugs had to be used to clear the ice.

At the same time, weather risks are always a negative factor that increases the cost of grain (freight) and, due to seasonality, will affect shipments after the extension of the «grain agreement». Blackouts in Odesa and the region, which did not occur in August-October, were also added to this. One gets the impression that, in addition to sabotaging the work of the SCC, Russia is trying to strike the infrastructure of the Odesa region in order to slow down grain exports in every possible way. I cannot claim that as a result of this there were any force majeure directly at the terminals, but power supply interruptions definitely have a negative impact on logistics. Unfortunately, this situation is likely to persist. Especially considering the recent missile and drone attacks.

- What are your expectations for the near future? What should the market prepare for?

- As for the forecasts for the freight market for 2023, in the first half of the year, provided that the war ends in the near future, there will be no escalation and its transition to other regions, an increase in world sea trade is expected to be 1%. This is about demand. If we talk about the tonnage supply, then the fleet is expected to increase by 2% compared to the previous year, but given the fact that from January 1 there will be additional requirements for greenhouse gas emission control systems, the actual increase in supply may be around 1% as a result, which some time will be a certain balance between supply and demand.

- It is expected that momentary distortions in the supply/demand balance occurring in a certain geographical area will lead to periodic bursts of volatility in the freight market.

- Generally speaking, there are currently no fundamental preconditions that freight will increase sharply. But we should not forget about China, which has long been the gray cardinal of global markets, including freight. As we remember, in 2009, after the market, including freight, fell catastrophically after the financial crisis, China implemented financial packages to stimulate demand and the construction market and, accordingly, real estate, etc. Then it helped the market a lot in terms of quick recovery. This year they also claim such a probability. Also, the Chinese authorities declare that they are ready to reduce the requirements for their "famous" COVID restrictions and, if all this comes true, then with a certain financial infusion, it can move the freight market into a growth phase. But at the moment, the prospects for this are unclear, as well as what will happen to inflation in 2023, since, according to analysts, a recession in the world economy cannot be ruled out, which could sharply collapse the markets, including the freight one. But in general, at the moment, the outlook is that in the first half of the year the market will remain plus/minus the same as it is now, after which there should be a smooth growth and recovery, probably to the levels of March-April 2021.

Interviewed by Anna Tanska

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