MID-SHIP Report: Dry Bulk Freight Market – Dec 19, 2024
December 19, 2024
The dry bulk market typically quiets down at this time of the year. Market participants, having secured their December positions earlier, save a few suppliers looking to move inventory within the final quarter, now shift their focus to holiday activities of entertaining clients and attending holiday parties.
This December is shaping up to be one with the lowest levels we have seen in almost a decade. Ending the year on a slow bell, after what was a good improvement in average daily vessel hire rates when comparing the full year averages year over year across all segments.
Currently, the market is characterized by vessel oversupply and insufficient demand, especially for larger vessels.
New vessels entering the market, a normalized Panama Canal, improved port efficiency and the resulting lower congestion, less front haul corn requirement for Panamax vessels to China and the cumulative impact of this effective fleet growth has driven the supply demand ratio into to the charterers favor in the latter part of 2024.
We anticipate continued soft rates, potentially softening further as the year ends and ahead of and during the Lunar New Year at the end of January.
The U.S. President-Elect’s proposed 2025 tariffs have led some shippers to frontload shipments for the upcoming year. The full impact of these tariffs remains to be seen.
Ongoing conflicts and geopolitical tensions, particularly in regions like the Gulf of Aden and the Red Sea, continue to pose risks to shipping routes and overall market stability.
We enter the next year of the inclusion of the maritime sector in the EU ETS, whose intention is to drive the dry bulk shipping market towards greater environmental accountability and efficiency, bringing financial and operational challenges. The system is being phased in gradually, meaning when trading within the EU, ship owners paid 40% of the costs incurred in 2024, moving to 70% in 2025 and 100% in 2026. For our valued clients, we remind everyone that charter parties need to include specific clauses to address the allocation of costs related to EU ETS compliance. This includes who is responsible for purchasing and surrendering allowances. Time and market conditions in 2025 will tell; under the rules, it is the ship owner that is the ‘responsible entity’ and liable to pay for the emissions. However, the rules also give ship owners rights to claim the cost of compliance from the charterers/operators of their vessels. The additional costs of purchasing EU Allowances (EUAs) to cover CO2 emissions are likely to be passed on to charterers and, ultimately, to cargo interests. This can lead to higher freight rates. Charterers should seek vessels that are more energy-efficient to minimize the impact of EU ETS costs. This could influence the selection of ships and the negotiation of charter terms.
On January 1st, 2025, the “Fuel EU Maritime” regulation will be introduced, adding new requirements for the maritime sector to reduce its carbon footprint. From this date, vessels calling at European Union ports will be required to comply with the regulation’s greenhouse gas (GHG) intensity reduction targets. FuelEU Maritime will make it mandatory for marine fuels to be blended with biofuels. FuelEU Maritime is part of the broader EU strategy to achieve climate neutrality by 2050, alongside other regulations such as the extension of the EU Emissions Trading System (ETS) to the maritime sector.
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