War effect on crude trade: Long-lasting and just beginning

It appears increasingly likely that war-driven changes to global crude flows will persist — and grow — through 2023.

photo of a crude oil tanker

Is the shift in global crude flows due to the Ukraine-Russia war a fleeting event or a more lasting, structural change?

At first, many market watchers and investors viewed it as short-lived. It now seems like something to count on for at least the medium term. More Russian crude will likely head to India and China for a longer period of time, and more Atlantic Basin and Middle East crude will head to Europe to replace Russian barrels.

“Oil supply chain disruptions related to Russia’s invasion of Ukraine are proving to be durable and marked by significantly longer average voyages,” said Steward Andrade, CFO of Teekay Tankers (NYSE: TNK), during Thursday’s quarterly conference call. “These trade pattern changes are likely to be long-lasting.”

Executives of Euronav (NYSE: EURN) highlighted the same point on their quarterly call on Thursday. According to Brian Gallagher, Euronav’s head of investor relations, “This isn’t some event that happens over a few weeks. There’s a longevity to the structural change.”

Only the beginning

The EU ban on crude oil and petroleum product imports doesn’t take effect until Dec. 5 for seaborne shipments and Feb. 5, 2023, for pipeline imports.

As of now, Europe is still importing large quantities of Russian crude. Pre-invasion, volumes were around 4 million barrels per day (b/d). Various estimates put the reduction to date at around 700,000 to 1 million b/d. Tanker effects are already significant despite the transition being just one-quarter complete.

“We are only seeing the beginning of a story that will have a long tail,” said Euronav CEO Hugo De Stoop.

Upside for smaller and midsize tankers

War-driven trade changes have mainly impacted smaller tankers known as Aframaxes (with capacity of 750,000 barrels) and midsize Suezmaxes (1 million barrels). Larger tankers known as very large crude carriers (VLCCs, with capacity of 2 million barrels) are too big to call at Russian terminals.

Andrade explained, “Short-haul exports of Russian crude oil to Europe have fallen by around 700,000 b/d compared to pre-invasion levels, with Russian crude oil increasingly being diverted to destinations east of Suez, particularly to India and China.

“Europe is having to replace short-haul Russian barrels with imports from other regions, most notably from the U.S. Gulf, Latin America, West Africa and the Middle East. These changes are primarily benefiting Aframax and Suezmax tankers due to the load and discharge regions involved.”

Compares average seaborne crude oil flows in three months prior to invasion versus three months after (Chart: Teekay Tankers earnings presentation based on data from Kpler)

“When oil imported into Europe previously came five days from the Baltic and now comes approximately 20 days from the Middle East on a Suezmax or approximately 20 days from the U.S. Gulf on an Aframax, that is obviously helpful for ton-mile demand.”

Tanker demand is measured in ton-miles: volume multiplied by distance. The longer the average distance, the more tankers you need to carry the same volume.

“When China imports oil from the Baltic on Aframaxes — which we’ve seen recently — it’s another example of increased ton-mile demand due to changing trade patterns,” added Andrade.

More ship-to-ship transfers to VLCCs?

Euronav expects the war effect to benefit VLCCs as well, for two reasons: because of ship-to-ship transfers in the Russia-to-Asia trade and because of the strong interconnection between Suezmax and VLCC markets.

“The most efficient way to transport crude oil over long distances is obviously on a VLCC. So ideally, they would do transshipment,” said De Stoop, referring to Aframaxes or Suezmaxes loading in Russia and transferring cargo to VLCCs. 

“We’ve already seen a few of those, largely off Africa. We’ve also seen cargo being discharged in Libya and Egypt for relatively short periods then lifted again on bigger ships. The part of the industry that can do that [carry Russian oil] is trying to find the most efficient way to carry that oil to the Far East.”

Suezmax-VLCC connection

Meanwhile, if Suezmax rates rise too high versus VLCC rates, oil shippers traditionally combine two Suezmax cargoes into one lot and use a VLCC instead.

“There are a lot of markets where two Suezmax cargoes can go into one VLCC, so you have this push-pull effect,” said De Stoop. “When the Suezmax market is doing very well, and is seeing many more cargoes, that would naturally have a knock-on effect on the VLCC market. Those two markets are really, really interconnected.

“When we speak to the chartering desks of our clients, it’s usually the same people [booking Suezmaxes and VLCCs] and they monitor the price of one versus the other. In the last two or three weeks, we have seen a lot of cargoes that were shown to our Suezmax desk and then they disappeared and popped up in the [VLCC] pool. Two cargoes were being combined in order to be carried by a VLCC.

“Normally, it’s the VLCC segment that is doing the heavy lifting for all the other segments. This time around — because the disruption is coming from Russia and Russia is not a VLCC market — the pushing is coming from the smaller sizes.

“The Aframaxes are pushing the Suezmaxes and the Suezmaxes are now pushing the VLCCs. Simply because when you compare rates of Suezmaxes to VLCCs, it’s a lot cheaper to use VLCCs. [According to Clarksons, Suezmax rates are currently 30% higher.] 

“And that’s what we have seen in recent weeks. That’s the main reason why we believe the VLCC market improved after the Suezmax had already improved.”

Tanker earnings roundup

The VLCC market may be improving, but it was extremely weak in the second quarter and the early part of the third quarter.

Euronav, which owns VLCCs and Suezmaxes, reported a net loss of $4.9 million for Q2 2022 compared to a net loss of $89.7 million in Q2 2021. Its adjusted loss of 12 cents per share was just shy of the consensus outlook for a loss of 11 cents.

Euronav’s VLCCs earned an average of $17,000 per day in Q2 2022. So far in the third quarter, the company has 47% of available VLCC days booked at a significantly lower rate: only $12,700 per day. De Stoop attributed this to longer-haul voyages booked during a period of weak rates and VLCCs employed on lower-earning repositioning voyages.

Teekay Tankers — which owns a fleet of Suezmaxes, Aframaxes and product tankers — reported net income of $28.5 million for Q2 2022 versus a net loss of $129.1 million in Q2 2021. Adjusted earnings per share of 76 cents topped the consensus forecast for 61 cents.

Teekay’s spot-trading Suezmaxes earned $25,310 per day in Q2 2022. So far in the third quarter, the company has 43% of its available Suezmax days booked at an even higher average rate: $29,600 per day.

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Coal far from dead: Global trade thrives, war reroutes shipping

Fallout from the Ukraine-Russia war and concerns over power supply in Europe and Asia support demand for seaborne coal.

Photo showing coal exports

“The market has spoken: Coal is dying” declared a September 2019 headline in CNN Business, after China announced it would cease funding overseas coal projects. “Coal is dead. Power to the people!” activist group 350.org triumphantly tweeted.

These predictions have not aged well. Bulk cargo vessels full of coal crisscross the oceans. Storage areas are so full of coal near ports in the Netherlands and Belgium that iron ore storage space is being commandeered.

China’s production in the first half of 2022 rose 10% year on year. The Chinese government approved billions in new domestic mining investments. The Indian government granted its mines the right to expand production by up to 50% without obtaining new permits. Indonesia, the world’s largest exporter, is also hiking production.

Coal mine in Greece (Photo: AP Photo/Thanassis Stavrakis)

Germany is creating a new coal reserve to secure supply and has delayed the closedown of several coal-fired plants. The U.K., Poland, Italy, Greece, Poland, the Czech Republic and Romania have also delayed closures of coal-fired plants.

South Korea has suspended coal-plant load restrictions. France may restart one of its coal-fired plants this winter. Japan will start up one in August. China is building multiple new coal-fired power plants.

Among those that stand to benefit: U.S. mining companies exporting coal and international owners of dry bulk carriers.

Trade flow drivers

Two big variables will affect shipping patterns in the second half.

First, the Ukraine-Russia war: how it impacts supply and pricing of liquefied natural gas, which competes with thermal coal for power production, and how the EU ban on Russian coal starting Aug. 10 changes trade flows.

Second, what happens with China and India, the two largest buyers. Will China offset economic hits from COVID lockdowns and property developer debt by subsidizing projects that boost steel production? Will China’s government remove its unofficial ban on imports of Australian coal?

War and looming EU import ban

Russia is the world’s third-largest supplier, behind Indonesia and Australia.

Shipbroker Braemar said that “several utilities in Europe started avoiding [imports from Russia] almost immediately in March.” Overall, however, EU imports of Russian coal stayed relatively strong through May, then dropped in June.

Soon after the war broke out, EU buyers ramped up purchases from sources outside of Russia: the U.S., Australia, Colombia, South Africa and Indonesia.

According to shipbroker BRS, Europe bought 44 million tons from these five countries in all of 2021. It had already bought 41 million tons from these countries in the first half of 2022, led by 14 million tons from the U.S. and almost 13 million tons from Australia.

The EU “has been sourcing the maximum coal from the U.S,” said BRS.

U.S. exports — including both thermal and metallurgical or “met” coal (used for steel production) — totaled 36.2 million tons in the first half, up 6% year on year, according to data from Kpler.

Note: Untagged cargo is volume that has not been identified as either met or thermal coal. (Chart: American Shipper based on data from Kpler)

India and China step in

The wartime coal trade is following the same pattern as the wartime oil trade. Russian volumes that formerly went to Western buyers are going to China and India instead. Other suppliers are replacing Russian volumes.

“In June, 2.7 million tons of coal was lifted on bulk carriers from Russia to India, by far the largest monthly total on record,” reported Braemar.

“India has shown a clear willingness to buy Russian coal. And given the heavy discounts it will achieve compared to other suppliers, we expect this to continue and likely continue to increase.”

Russia’s shift in sales toward India and China will change demand for different bulker size categories, according to Braemar. Smaller Handysizes (bulkers with capacity of up to 35,000 deadweight tons) saw strong coal shipments in the first half, accounting for 8.8% of total volume. Of that, 49% of Handysize coal loadings were in Russia, for delivery to the EU in the east and Japan in the west.

“The Handysize coal trade will continue at reduced levels,” predicted Braemar. “We believe the majority [of Russian volume] will head east to India and China on the larger vessels.”

Indian and Chinese coal demand

According to BRS statistics, China bought 284.2 million tons of seaborne coal in the first half of the year. India imported 195.1 million tons.

Braemar pointed to a “share rise in Indian coal demand as power stations replenish inventories. India experienced widespread power outages in April and May, when the easing of COVID lockdowns and a severe heat wave led to a surge in power demand.” Power usage pulled back this month as rain during the monsoon season brought “a respite from the heat,” said Braemar. That relief should end in August.

The big unknown on the demand side is China.

Imported coal unloading at Chinese terminal (Photo: Shutterstock/Ivan Kuzkin)

Since high-profile blackouts last year, China has increased consumption of thermal coal but has relied heavily on domestic supplies.

Chinese steel production — which drives demand for imported met coal and iron ore — fell 3.4% in the first half of 2022 versus the year before, according to data from WorldSteel. BRS expects Chinese steel production to continue to slide through the second half as the country undergoes a “painful contraction” of its economy.

Will China resuming buying Australian coal?

China used to be a heavy buyer of Australian coal, until a diplomatic spat led to an unofficial ban on imports from Australia beginning in October 2020. After the ban, China replaced Australian cargo with supplies from Indonesia and Russia; Australia replaced Chinese sales with shipments to Japan, India, South Korea, Taiwan and Europe.

There are now reports that China may soon end the ban on Australian thermal and met coal.

According to Pranay Shukla, associate director at S&P Global Market Intelligence, the impending EU ban on Russian coal has led to “an expectation of strong flows [of Australian coal] into Europe in the second half, which is expected to continue thereafter.”

“If mainland China lifts the Australian coal import restrictions, Europe would need to source more from the U.S., Colombia, Mozambique,” said Shukla.

BRS doesn’t agree. It pointed out that Australian thermal coal prices are now more than double domestic Chinese prices. “Easing the ban doesn’t make much difference unless the imported price of the Aussie coal comes to the competitive level to procure,” it said.

However, the easing of the ban could lead to flows of Australian met coal to China, said Argus Media. It noted that the price of Chinese domestic met coal is over 60% higher than Australian met coal.

As with all ocean commodity markets, what happens in one trade ripples through others. If Australia has less met coal available for European steel producers because it’s selling to China again, met coal exporters in America would have more opportunities to sell to Europe after the EU ban on Russian coal enters force.

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Tankers carrying diesel and gasoline rake in cash amid pain at the pump

Picture of a product tankerThe first half has been phenomenal for product tankers. How much of shipping upside is due to the war?

Picture of a product tanker

As the first half of 2022 draws to a close, shipping fortunes are mixed. Container shipping is the biggest winner from a profit perspective while product tankers are the biggest winners in the stock market.

Pain at the pump is coinciding with a boom for owners of tankers that carry petroleum products. Freight rates and stocks have been fueled by the Ukraine-Russia war as well as the post-COVID scramble for diesel, gasoline and jet fuel.

Despite recent stock market turmoil, shares of Scorpio Tankers (NYSE: STNG) are still up 181% year to date. Product tanker owner Ardmore Shipping (NYSE: ASC) is up 118%, Oslo-listed Hafnia Tankers 95% and Torm (NASDAQ: TRMD) 71%.

In contrast, shares of container shipping stocks are down year to date. Dry bulk stocks shed much of their 2022 gains this month.

ChartL Koyfin

War versus fundamentals

The question for product tanker investors is: How much of this is about the war and how much is fundamentals?

“Some are still skeptical of the sustainability of an upturn under the premise that the recent strength is purely a function of disruption resulting from Russia’s invasion of Ukraine,” said Evercore ISI analyst Jon Chappell in a client note.

“This is not war,” countered executives of Scorpio Tankers during a presentation on Tuesday hosted by Evercore ISI.

Scorpio’s head of chartering, Lars Dencker Nielsen, acknowledged that changing flows due to the war in Ukraine are having an effect. But he argued that “much of the market recovery today was already underway even before the war began and that the true impact of the redrawing of the product trade map [due to the war] is yet to come later this year.”

Scorpio has a long history of talking its book. But Chappell sees evidence of fundamental strength from channel checks elsewhere.

“After meeting with several commodity traders, oil majors and rival shipowners over the last several weeks, [we see] a strong and accelerating demand for long-dated time-charter contracts that imply that many industry players, on both side of the chartering desk, believe current market strength has significant legs,” he said.

Chappell noted that in the product tanker trade, the cost of shipping “has always been a sliver of the cost of the commodity. Today, with product tanker rates nearing all-time highs, the cost of freight still pales in comparison to the arbs [arbitrages] the traders make from moving the cargo, given trade dislocations and regional shortages. Traders have to move cargoes and almost no level of product tanker rates is going to change their profit calculus.”

Spot rates far exceed breakeven rates

“Product tankers continue to be the standout performers,” affirmed Clarksons Platou Securities analyst Frode Mørkedal. 

Clarksons’ rate assessments for Wednesday:

  • Larger product tankers in the long-haul trades known as LR2s (80,000-119,999 deadweight tons or DWT) built in 2015 or later are obtaining spot rate equivalents of $62,900 per day. The average breakeven for this vessel type is $25,000 per day. Crude tankers in this size category are earning around half the LR2 rate.
  • Spot rates for modern LR1s (55,000-79,999 DWT) were $54,600 per day. Breakeven is $19,000.
  • MRs (25,000-54,999 DWT), which mainly operate in regional trades, are the workhorses of the product tanker business. Modern MRs were earning spot rates of $60,300 per day, more than triple the average breakeven of $18,000.

Tanker insurance ban raises questions

Chances have faded for a quick resolution of the war and a snap back to prewar supply relationships between Russia and Europe, the U.S. and the U.K.

Earlier this month, the EU agreed to cease seaborne imports of crude from Russia by Dec. 5 and refined products by Feb. 5, 2023. These measures would be positive for tanker rates. Shipping demand is measured in ton-miles: volume multiplied by distance. The EU import ban would increase the distance traveled by both Russian exports and EU replacement imports.

However, the EU decision also banned EU insurance and reinsurance for Russian crude and product cargoes going to other countries. The U.K. is expected to follow suit. If the insurance ban goes into effect, it could be a negative for product tanker ton-miles, because it may limit cargo volume.

Brokerage BRS believes that an EU/U.K. insurance/reinsurance ban “will see mainstream tanker owners essentially prohibited from carrying Russian oil.” Cargoes would shift to Russia’s sanctioned tanker fleet and the so-called “shadow fleet.” The shadow fleet is composed of older tankers with opaque ownership engaged in sanctioned Iranian and Venezuelan trades.

The problem for Russian exports of clean (finished, refined) exports is that there are not enough Russian-controlled tankers and shadow tankers to handle the load, according to BRS. 

“Russia has a very small clean tanker fleet with its LR vessels almost exclusively trading dirty [transporting fuel oil]. Its smaller tankers are too small to make the shipping of large volumes of Russian clean products over long distances economic. 

“Meanwhile, the shadow fleet is almost exclusively lifting crude or fuel oil, which makes these units unsuitable for clean products. This suggests that Russian clean product exports will slow to a trickle in the event of an insurance ban.”

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How new EU sanctions on Russia will shake up global energy trade

Russian sanctions: Map of Russia and Russian currencyEU sanctions on Russian petroleum exports could have much more serious repercussions than earlier U.S. moves.

Russian sanctions: Map of Russia and Russian currency

The Ukraine-Russia war has already shaken up global energy markets. Sanctions finalized Friday by the EU will shake them up a lot more — not only for the tanker industry but also for American diesel and gasoline consumers.

The EU is a vastly larger buyer of Russian petroleum than the U.S., which banned imports from Russia in early March. The new EU sanctions will end Europe’s imports of Russian seaborne crude by Dec. 5 and refined products by Feb. 3, 2023.

Chart: Frontline Q1 2022 conference call presentation

Perhaps even more importantly, the EU will phase in bans on EU insurance, reinsurance, technical services or any financial services for tankers carrying Russian crude and products to any country, including current buyers in India and China, over the same time frames.

The U.K. is also set to ban insurance and reinsurance for such tankers.

Over 90% of the world’s ships are insured in Europe and the U.K. The insurance ban could have “a dramatic impact on seaborne trade of Russian oil and oil products,” said brokerage and consultancy Poten & Partners. “The potential implications cannot be overstated.”

Russia crude exports

What does the new EU import ban have to do with U.S. fuel buyers? And how could tanker owners be affected?

Since the war began, Russia has been able to keep its crude exports flowing. It is replacing lost sales to the West with sales to India and, to a smaller extent, China.

Even before the ban, the EU has replaced 1 million barrels/day (b/d) in crude purchases from Russia, according to a Morgan Stanley report on Monday. But “there are limitations to the degree this ‘swap’ can extend further,” it said. As a result of those limitations, as well as supply contracts due to expire, it expects Russian crude production to decline by 1 million b/d between now and year-end.

Lower crude production in Russia — to the extent it’s not replaced by OPEC, the U.S. and others — is a tailwind for oil prices.

In tanker trades, the longer distance traveled by post-invasion Russian cargoes has boosted spot freight rates for Aframaxes (tankers with capacity of 750,000 barrels) and Suezmaxes (1-million-barrel capacity). These small and mid-sized tankers can be accommodated at Russian terminals.

To the extent Russian cargoes are eventually replaced by Middle East exports, tanker demand would shift toward higher-capacity VLCCs (very large crude carriers; tankers with 2-million-barrel capacity), according to Evercore ISI analyst Jon Chappell.

Yet there are a lot of moving pieces. Ship brokerage BRS made the counterargument Tuesday that the EU would source more crude from the U.S. — cargoes largely carried on Suezmaxes — leaving less U.S. crude to be exported to Asia, cargoes that move aboard VLCCs.

Russia diesel exports

The Russian export situation is much different in the product sector, particularly for diesel, than for crude, according to Morgan Stanley.

With the EU ban on top of the U.S. ban, Morgan Stanley believes Russian petroleum products will have a much harder time finding sufficient alternate buyers.

“If [Russian] refineries indeed struggle to find alternative buyers, it is likely that their own production would need to decrease. It seems likely that both crude oil production and refinery runs will decline over time, reducing supplies of both crude [and products] — especially diesel — to the rest of the world.”

To the extent lost Russian flows can’t be replaced by new refinery output elsewhere, that’s more bad news for diesel buyers. The average retail price of diesel in the U.S. hit a new record high of $5.703 per gallon this week.

Chart: FreightWaves SONAR (To learn more about FreightWaves SONAR, click here.)

EU restrictions on shipping insurance

Those outside of shipping circles may not yet grasp the significance of the EU (and expected U.K.) ban on insurance for ships with Russian crude and products cargoes bound for non-EU destinations.

“This is a critical measure” that will affect “a significant portion of the global tanker fleet,” emphasized Poten & Partners.

“This will likely prevent many mainstream owners from lifting Russian cargoes,” said BRS.

When the U.S. levied sanctions on tankers carrying Iranian and Venezuelan crude, exports ultimately kept flowing. Cargoes were loaded aboard older tankers with obscured ownership and no Western insurance and finance ties. Transactions were not conducted in U.S. dollars.

Tanker owner Euronav (NYSE: EURN) frequently highlights this issue on conference calls, referring to it as the “illicit trade.” At last count, Euronav estimated that this fleet had stabilized at around 55-60 elderly VLCCs, plus around 30 Suezmaxes.

‘Illicit’ trade to surge?

In order to maintain export flows after EU sanctions kick in, Russia and/or its cargo buyers would have to find enough replacement tankers, either by using already sanctioned Russian vessels or tapping the “illicit” fleet.

According to BRS, “Although [the insurance ban] will discourage mainstream tanker owners from lifting cargoes, it will not likely discourage niche tanker owners whose vessels are already involved in the transport of illicit Iranian and Venezuelan oil.”

The question is: Are there enough crude and product tankers available to enter this legally grey trade by the time EU sanctions kick in, beyond those already serving Venezuela and Iran? Poten estimated that “if the insurance ban takes most of the international fleet out of the equation,” Russia would need to secure services of 20 Aframaxes (for ship-to-ship transfer), 51 Suezmaxes and 43-48 VLCCs.

“Finding these vessels and arranging insurance could be very challenging,” warned Poten. “It may also make it difficult for these vessels to get employed in regular international oil trades.”

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US exports even more oil as domestic gasoline and diesel prices spike

crude tanker shippingTankers are loading up on American crude, diesel and gasoline exports. Can the free market withstand political pressure?

crude tanker shipping

U.S. oil exports are booming at the very time domestic gasoline and diesel prices are at or near their peaks. With America’s fuel prices expected to rise even further, the “resource nationalism” debate — should we be exporting commodities we need? — is heating up.

According to new tanker cargo volume data from Kpler, U.S. crude exports averaged 3.13 million barrels/day (b/d) in January-May. That’s the best first five months of the year ever. Exports of clean petroleum products — including the diesel and gasoline in such high demand domestically — averaged 2.32 million b/d. That’s the best first five months since 2019, pre-COVID.

exports of gasoline diesel crude oil shipping
Chart by American Shipper based on data from Kpler

U.S. gasoline, diesel and jet fuel markets are tight because seaborne exports are now strong whereas U.S. refining capacity is down 860,000 b/d relative to late 2019, Reid I’Anson, senior commodity analyst at Kpler, told American Shipper.

“This is a textbook case of a refinery sector that is running hard and yet does not have the capacity to meet demand,” he said. “This is not a problem easily fixed.”

Where are US exports going?

Given Monday’s EU decision to ban tanker imports of Russian crude and products, U.S. crude and products exports to Europe are expected to rise. A portion of the U.S. Strategic Petroleum Reserve release is already heading to Europe. Crude flows to Europe “have definitely picked up,” said I’Anson.

European imports from the U.S. were 1.27 million b/d in May, “a record high, accounting for 40% of all imported U.S. barrels, with volumes [favoring] the Netherlands, Spain and Italy. This has come at the expense of barrels into India, Canada and South Korea.”

U.S. clean products exports are still overwhelmingly headed to Latin America. According to Kpler data, Latin America accounted for 2.15 million b/d, or 87%, of all U.S. seaborne imports to any destination in May.

“It is still possible that trade flows shift with more U.S. products heading to Europe,” said I’Anson. “I think the reason we haven’t seen more of a shift yet is the fact that Russian clean and dirty [petroleum products] arrivals into the EU-27 have remained consistent — that is, until recently.

“In May, seaborne offtakes [from Russia were] 1.28 million b/d, down 155,000 b/d against January, before the invasion of Ukraine had begun. So, U.S. products could find more attractive bids into Europe, especially as embargoes come into force.”

Resource nationalism grows

Europe’s war-heightened demand for U.S. petroleum combined with America’s COVID-reduced refining capacity might lead some to ask: Why not curb exports and keep the oil in America? 

Resource nationalism is on the rise globally. Most recently, India has introduced export restrictions for wheat, Indonesia for palm oil and Malaysia for chickens. China has reduced export quotas for gasoline, diesel and jet fuel.

Last week, Energy Secretary Jennifer Granholm was asked whether U.S. oil export restrictions were a possibility. She replied, “I can confirm the president is not taking any tools off the table.”

Stifel shipping analyst Ben Nolan said of Granholm’s comment: “Hopefully, this was simple political positioning in a midterm election year. Because if not, we think it represents significant unawareness regarding the very sector being overseen.”

If there is a ban, “the implications for the U.S. oil and gas industry and the global economy would be extremely negative,” Nolan said in a new client note. A ban would cause “a sharp increase in the price of crude internationally, inevitably weakening the global economy.”

A resultant drop in U.S. oil drilling would cause “a sharp fall in natural gas production … very likely leading to limiting LNG [liquefied natural gas] exports at the very time the world needs the gas more than ever.”

Potential fallout

The U.S. banned crude exports to countries other than Canada between 1975 and the end of 2015.

In November 2021, long before the recent price surge, 11 senators asked President Joe Biden to “consider all tools available at your disposal to lower U.S. gasoline prices … [including] a ban on crude oil exports.”

At that time, IHS Markit, now a part of S&P Global (NYS: SPGI), warned what would happen if the export ban was reinstated.

The price of U.S. gasoline is connected to global crude and gasoline prices, not the price of domestically produced crude, argued IHS Markit. Also, most U.S. refinery capacity is not geared to handle light, sweet blends now produced in the U.S. That necessitates exports.

Banning crude exports “would set off a scramble for supply” and “discourage domestic production.”

The net effect would be “upward pressure on U.S. gasoline prices.”

Asked for an update of this position — and what a hypothetical ban on U.S. gasoline or diesel exports would mean — Kurt Barrow of S&P Global Commodity Insights told American Shipper: “Banning crude oil exports from the U.S. remains a poor policy choice with several potential unintended consequences. The market dynamics that lead to higher gasoline prices from a crude oil ban described in our media release of November … would continue to apply but in an amplified way given today’s extraordinarily tight oil markets. 

“Banning refined product exports would also have the real possibility of causing unintended shortages and higher, not lower, gasoline and diesel prices in certain parts of the U.S. market that rely, due to logistical reasons, on product imports from our allies in Europe and Canada.”

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Russia tanker business is alive and well. Oil exports ‘remain strong’

tanker shipping RussiaWithout sanctions, tankers will keep loading Russian oil. ‘We’re not taking a moral high ground,’ says Frontline’s CEO.

tanker shipping Russia

Shipping of containerized cargo into Russia has evaporated. Shipping of tanker cargo out of Russia is booming. It seems the world doesn’t miss selling consumer goods to Russians but can’t stop buying Russia’s oil cold turkey.

Sanctions do not prevent liner companies from calling in Russia with their container ships. Yet they’ve stopped anyway, choking import options. FourKites reported Wednesday that Russian consumer goods imports via all transport modes are down 87% versus pre-invasion. Imports of industrial products are down 91%.

Tanker companies, like the liners, are not prevented by sanctions from calling in Russia. But unlike in container shipping, there are more than enough tanker operators still willing to go.

“We’re not taking a moral high ground,” said Lars Barstad, CEO of tanker company Frontline (NYSE: FRO), during a conference call on Tuesday. “We’re following what the politicians want us to do. What we have decided to do is follow the sanctions. What the EU, U.S. or U.K. decides, we follow.”

He added, “I think one has to keep in mind that ever since this war started, the EU has been importing large amounts of gas and oil from Russia. These are actually molecules that the world needs.”

Russia’s exports still high after invasion

Data provided to American Shipper by Kpler shows that Russia exported 3.77 million barrels per day (b/d) of crude in April, the highest monthly tally since June 2019 (excluding the CPC blend with Kazakh oil).

Preliminary Kpler data for May shows combined crude and products exports of 5.95 million b/d. That’s down only 4% from February, when Russia invaded Ukraine, with the decline due to a drop in products exports. Russia’s combined crude and products exports are actually up 1% this month year on year.

Russia tanker exports
Volumes do not include CPC blend. May 22 volumes are preliminary. Chart: American Shipper based on data from Kpler.

“Russian oil and products exports from the Black Sea and Baltic are not down that much” since the invasion, said Barstad.

According to Reid l’Anson, senior commodity analyst at Kpler, “Russian seaborne oil exports remain strong. For now, India is stepping in to buy most of the Russian oil shunned by EU-27 countries. There is also a bit of evidence that China is picking up purchases.”

Private tanker owners fill the gap

Even though there are no sanctions on Russian oil, the potential risk is still too great for most publicly listed tanker companies.

Barstad said that Frontline has “basically refrained from taking the risk.” International Seaways (NYSE: INSW) CEO Lois Zabrocky said earlier this month, “Since the onset of violence in late February, International Seaways has not booked any Russian cargoes loading in any Russian ports.”

Barstad acknowledged, however, that Frontline had loaded one Russian cargo in the past month. “We have on one occasion, yes. But that was under contract. You are sometimes not in a good legal position if you refrain from calling. It’s a contractual issue.”

As U.S.-listed players pull back, private European tanker owners have filled the gap.

“Russian crude is still allowed to trade. You’re allowed to load and to transport it. So, owners that don’t feel they risk much — and this is the independent owners — they measure the risk they can live with against the premium they can make. And they’ve moved into this trade,” said Barstad.

“I’m obviously not going to criticize how owners decide to conduct their business,” he added.

An investigation by Lloyd’s List using tracking data found that most of the Russian oil is now being moved aboard ships of private Greek owners.

‘A highly inefficient trade’

Russian crude is transported aboard tankers in the Aframax (750,000-barrel-capacity) and Suezmax (1 million-barrel-capacity) segments. 

Because there are no U.S. sanctions targeting the shipping of Russian petroleum — sanctions akin to those targeting Iranian and Venezuelan tanker exports — owners of Aframaxes and Suezmaxes are profiting from the war. Even those abstaining from the Russia cargoes.

Europe has replaced much of its Russia-sourced petroleum with imports from the Middle East, the U.S. and West Africa. Russia has switched export destinations from Europe to Asia. “This is a highly inefficient trade,” Barstad noted.

Tanker demand is measured in ton-miles: volume multiplied by distance. Barstad said that 6% of the world’s crude and products cargoes (i.e., the volumes that are being redirected) “now travel at least 50% longer, if not twice the distance. And some would even argue 2.5 times the old distance.”

The independent owners that switched into the high-paying Russian export trade “are pulling tonnage out of normal bread-and-butter non-Russian trades,” said Barstad. Lower available tanker capacity raises rates in trades that have nothing to do with Russia.

“So, you basically have the same effect on the tanker market [outside Russia] as if you were going to Russia and lifting the barrels yourself.”

Click for more articles by Greg Miller 

Russia’s isolation deepens as shipping lines make final port calls

Russia container shippingFirst came a pause in cargo bookings to Russia. Now, ocean carriers have halted almost all of their Russian port calls.

Russia container shipping

Russia’s ocean container imports continue to collapse as shipping lines wind down the last remnants of their services to the country’s ports.

Russia — now effectively a pariah within Western logistics circles — still has cargo import options. Yet the loss of virtually all of its ocean shipping links makes obtaining consumer goods and components much more difficult.

Elvira Nabiullina, Russia’s Central Bank chairwoman, recently warned that the range of consumer goods available in her country is already shrinking and Russian companies needing foreign components are facing “serious problems.”

Top carriers wind down service

The world’s top container lines paused bookings to Russia in the days after the invasion of Ukraine. However, some service continued, including efforts to evacuate liner-owned empty containers from Russian ports.

In the third week of April, automatic identification system (AIS) vessel-position data showed that at least 10 MSC container ships and five Maersk ships had either recently called or were planning to call in St. Petersburg in the Baltic Sea or Novorossiysk in the Black Sea. MSC and Maersk are the largest and second-largest ocean carriers in the world, respectively.

As of Wednesday, AIS data showed MSC’s calls to Russian ports were down to three ships: the 2,604-twenty-foot equivalent unit MSC Lara, arriving in Novorossiysk on Thursday, and the 2,490-TEU MSC Pamira III and 2,250-TEU MSC Andriana III, which recently departed Novorossiysk.

Maersk has now completely ended its Russian service. It announced the cessation “of all vessel operations” on May 4.

According to Alphaliner, “The 3,596-TEU Voga Maersk made its last call at St. Petersburg on April 29. Earlier that week, four of her sister ships — the Venta Maersk, Vayenga Maersk, Vuoksi Maersk and Vaga Maersk — called to evacuate empty containers to North European ports.”

Maersk’s Rotterdam-to-St. Petersburg service with two 3,596-TEU vessels ceased in March. Maersk made its last call to Novorossiysk with the 2,274-TEU Nele Maersk on April 21, said Alphaliner.

Vessel-position data shows that container-ship calls to St. Petersburg and Novorossiysk are now extremely limited. Remaining service providers are generally small container ships with capacities of under 1,000 TEUs and general cargo ships with container capacities of under 500 TEUs.

Container ship calls to Russia plunge

U.K.-based data provider VesselsValue tracks the weekly frequency of container-ship calls at Russian ports. In the nine weeks since the invasion (through the first week of May), weekly calls were down 38% compared to the nine weeks prior to the invasion.

Chart: American Shipper based on data from VesselsValue

The drop was driven by a 55% plunge in calls to Russia’s European ports. There were just four calls to Novorossiysk during the first week of May, according to VesselsValue. That’s less than a third of the pre-invasion weekly average.

Meanwhile, container-ship calls to Russia’s Pacific container gateway in Vladivostok (located far from main population centers) have been relatively unscathed. They’re only down 9% post-invasion.

Bookings to Russia plunge

Data from FreightWaves’ SONAR Container Atlas, a new ocean data platform released Tuesday, highlights the severity of Russia’s ocean container import crash.

Not only is the number of calls sinking, but the average capacity of remaining vessels is shrinking with the wind down of Maersk and MSC services that deploy larger ships. Using ship-position data, SONAR Container Atlas shows that the capacity of container vessels destined for Russia has fallen to roughly one-sixth of pre-invasion levels.

Russia TEU vessel capacity
Chart: FreightWaves’ SONAR Container Atlas (To learn more about FreightWaves SONAR, click here.)

The volume of bookings (made via the booking data source for SONAR Container Atlas) is likewise around one-sixth of its pre-invasion levels.

Russia ocean booking volume
Chart: FreightWaves’ SONAR Container Atlas

And during the month after the invasion, SONAR Container Atlas data shows huge spikes in booked cargo that was not loaded by ocean carriers. 

Chart: FreightWaves’ Container Atlas

Declined bookings surged to over five times normal levels in the aftermath of the invasion. So, not only did bookings plummet, but a large chunk of Russia’s expected imports never even made it onto the ships. No wonder Nabiullina is concerned about her country’s dwindling consumer goods and components.

Click for more articles by Greg Miller 

How war, shipping boom, China lockdowns impact Panama Canal

Panama Canal shippingContainer-ship transits of the Panama Canal are up as liners favor the East Coast. LNG transits are down as U.S. gas heads to Europe.

Panama Canal shipping

What’s the single most important concentration of infrastructure keeping America supplied with goods? The Los Angeles/Long Beach port complex, which handles around 40% of the country’s containerized imports. What’s the second most important? One could make a strong case for the expanded Panama Canal.

America could never have handled the historic import deluge of the past two years if Panama had not built the third set of locks, the larger “Neopanamax” locks that debuted in 2016 and brought much higher-capacity container ships from Asia to East Coast and Gulf Coast ports.

The Panama Canal has been one of the big winners of the COVID-era shipping boom. But now, the pace of growth is slowing, mirroring a trend seen across much of global trade, and the canal is feeling more effects from the Ukraine-Russia war and China’s COVID lockdowns.

The waterway handled its highest ever shipping flows in fiscal year 2021, which ended in September. Panama Canal Universal Measurement System (PC/UMS) net tonnage rose 8.8% versus FY 2020. In the first half of FY 2022, between October and March, PC/UMS net tonnage rose 0.8% from the same period a year before. Container-ship PC/UMS tonnage rose 8.5% and liquefied petroleum gas tonnage increased 11.1%. Offsetting those gains, liquefied natural gas carrier tonnage plunged 31.1%.

“I’m still confident we’ll do as good as last year [overall], if not better,” Ilya Espino de Marotta, deputy administrator of the Panama Canal Authority (ACP), told American Shipper.

Panama Canal tonnage transits
Chart: American Shipper based on data from ACP

East Coast trend boosts Panama Canal

“In terms of containers, we have continuously seen an increase,” said Silvia Fernandez de Marucci, the ACP’s manager of market analysis. “We had a few months in the beginning [during the U.S. lockdowns] when traffic actually declined slightly. But it rebounded quickly. We have seen increases in traffic since July 2020.”

The old locks restricted container ships to a maximum capacity of about 5,000 twenty-foot equivalent units. The Neopanamax locks allow passage of ships with 15,000-TEU capacity.

According to The McCown Report, East/Gulf Coast ports handled 49% of total U.S. containerized imports in March. Pre-canal expansion, they were handling closer to a third. McCown’s data shows a sustained advantage for East/Gulf Coast ports after the Neopanamax locks opened, a shift back toward West Coast ports in the first half of last year at the height of COVID-era demand, then a reversion toward East/Gulf Coast services since then.

East Coast vs West Coast container shipping
Percentage is three-month trailing average of year-over-year growth. Chart: The McCown Report

Marucci said that last year’s surge in West Coast traffic did not come at the expense of container volumes through the canal. Even as ships piled up off Los Angeles/Long Beach, container-ship transits in Panama rose. And with carriers’ shift toward East/Gulf Coast ports this year, transits are increasing further. “In March our transits for container ships increased 10% [year on year],” she said.

But it’s not all positive for containers.

COVID lockdowns in China will have near-term effects on canal volumes, admitted Marucci. “We don’t know what’s going to happen with the COVID situation in China but we think that we will feel a decline in April and maybe May. Then after China reopens, I think there’s going to be a flood of merchandise arriving to both coasts.

“We are also looking at many factors that are impacting not only traffic through the canal but trade overall. We’re looking at inflation rates and the increase in bunker [marine fuel] prices. It’s very volatile. We are not sure how the consumer is going to react to this inflationary pressure and how demand is going to behave.”

War slashes LNG transits

When Panama decided to go forward with the expansion project in 2006, it was focused on preserving its container shipping business. At that time, America imported LNG, it didn’t export it. Ten years later, when the expanded locks opened, America had switched to an LNG exporter, with Asia as a major buyer. The new locks allowed passage of LNG carriers headed west. The canal had chanced upon a major new business.  

The recent downturn in LNG carrier transits began last fall, when the price of LNG in Europe rose above the price in Asia. LNG shippers could earn more arbitrage profit by selling U.S. gas in Europe.

Then Russia invaded Ukraine, putting Europe’s pipeline natural-gas supply at risk. That is pulling even more U.S. cargoes across the Atlantic and away from the canal. And the U.S. and the EU have committed to pursue supply arrangements that could make trans-Atlantic flows more permanent.

Commodity data provider Kpler compiles data on total U.S. LNG export volumes and the portion of those volumes that transit the Panama Canal. While ACP data only goes through March, the Kpler data shows that the canal had another very bad month for LNG transits in April. Kpler’s data shows that total monthly U.S. LNG exports rose 31% from 5.36 million tons in June 2021 to 7.03 million tons in April, but the share going through the canal fell from 43% last June to just 13% last month.

Chart: American Shipper based on data from Kpler

When will US LNG shift back to Asia?

“We have seen a drop in [LNG] traffic,” said Marucci. “There were 24 transits in March versus 38 in March 2021. There is a lot of uncertainty with what is happening with Ukraine and Russia. And we do believe this may be a more permanent thing favoring Europe because of the support the U.S. is offering to Europe, and the geopolitical situation with Russia, even if prices in Europe [and Asia] get closer to each other and the netback [for U.S. sales to Europe versus Asia] is reduced.

“But we have seen other market segments compensating for the drop in LNG,” she emphasized, pointing to strength in transit demand for container shipping and LPG shipping.

Also, U.S. LNG exports may turn back toward Asian buyers with contracted supply in the second half, meaning more LNG carrier transits via the canal.

Jon McDonald, senior analyst at Poten & Partners, said during a recent online presentation: “Europe imports continue at high levels … [but] there is really not enough supply for Europe to continue all year and still ensure that Asia has the volume it needs. Northeast Asia needs to rebuild inventories ahead of the winter and that should draw more cargoes to the region starting in the summer.” 

Kristin Holmquist, forecasting manager at Poten, affirmed, “Europe has been taking a lot of gas at the expense of some Asian countries and Asia will need to reenter the market.” 

War likely to boost bulker transits

The Ukraine-Russia war may affect transits in another shipping sector as well: dry bulk. Unlike the case of LNG shipping, this one would be positive for transit volume.

Container shipping is the canal’s largest segment in terms of PC/UMS, which measures ships’ volumetric capacity. But dry bulk is by far the largest segment in terms of cargo tons, more than double containerized cargo. Most of the dry bulk cargo crossing the isthmus is agribulk shipped from the U.S. Gulf to Asia: wheat, soybeans, corn and sorghum. (Dry bulk carriers mainly use the old Panamax locks because most grain terminals in the U.S. and Asia can’t load and unload ships larger than traditional Panamax-size bulkers.)

The grain trade has started out slow in FY 2022. In the first half, both dry bulk transits and PC/UMS tonnage are down 7%. But Marucci expects flows to pick up due to the war.

“Ukraine used to provide China with corn and now they’re not able to. We have seen large purchases of corn by China from the U.S.,” she said.

LPG carrier transits stay strong

Meanwhile, LPG shipping continues to play a key role in canal cargo flows — and the COVID-era consumer boom added even more strength. “They are the No. 2 users of the Neopanamax locks in terms of transits,” said Marucci.

As with LNG shipping, LPG shipping became much more important to the canal after the Neopanamax locks debuted.

U.S. exports of LPG — propane and butane — transit the canal en route to Asia in vessels known as VLGCs (very large gas carriers; ships with capacity of around 84,000 cubic meters). As soon as the expanded locks opened, almost all U.S.-Asia VLGC traffic switched from the Cape of Good Hope route to the shorter Panama Canal route.

“VLGCs have been very strong in the past two years. I think this is going to continue because LPG is mainly used in China for petrochemical production,” said Marucci.

U.S. propane cargoes are shipped aboard VLGCs to Asian propane dehydrogenation plants for the creation of propylene, which is used to produce polypropylene, which is in turn used to manufacture plastic.

The more goods Americans consume, the more plastic Asia churns out. “As we see the dehydrogenation plants continue to grow, the LPG trade is going to continue,” said Marucci.

Still at only 70% capacity

Panama Canal traffic has risen amid America’s consumer boom and is up around 60% since the Neopanamax locks opened. Yet the canal is still nowhere near its ceiling. “We are at about 70% of capacity. We still have room to grow,” said Marotta.

The ACP is tweaking operations to add even more capacity. Last June, it increased the maximum allowable ship length from 1,205 to 1,215 feet. Since October 2018, it has been reducing LNG carrier transit restrictions as it becomes more comfortable with operational safety. Now, the canal is looking to expand the maximum allowable ship width.

“We’ve been approached by the industry to allow wider beams,” said Marotta. “We’re analyzing a new fendering system that would allow us to do that.”

Add up all these changes, she said, “and the growth [potential] would even be a little bit higher than 30%.”

More water, then a fourth set of locks?

The ACP continues to invest in infrastructure, said Marotta. It’s buying 10 new hybrid-power tugs with an option for 10 more and investing in electric vehicles, maintenance, digitalization and facilities consolidation.

Canal needs to boost locks’ water supply (Photo: ACP)

But the biggest move by far is a multibillion-dollar project to increase the canal system’s water supply. The canal faced transit constraints due to a drought in 2019 and 2020. Rain has kept water levels high in 2021 and 2022.

Marotta said that the ACP signed a contract with the U.S. Army Corps of Engineers in November to develop the project. “By 2024 we should have the project or projects defined, which will then go out to bid. We’re hoping to secure the quantity of water we need by 2028, or at least from some of the projects if there’s more than one.”

After that mega-project comes the even bigger question: Will the expanded canal need to be expanded yet again with a fourth set of locks?

“When we secure the water, then we will see if there’s enough demand to build a fourth set of locks,” responded Marotta.

“If it’s ever needed, we did leave a footprint area [when building the Neopanamax locks]. But for now, there are other strategies to increase the capacity of the existing infrastructure. The fourth set of locks is not in the short-term pipeline.”

Click for more articles by Greg Miller 

(Photo: ACP)

Shipping stocks in crosshairs as fears mount on China, war, inflation

shipping stocksRetail stock pickers seem increasingly nervous about shipping. Shares of dry bulk, tanker, container and mixed-fleet owners all fell.

shipping stocks

Shipping stocks fell sharply on Monday as Wall Street’s main indexes closed higher. Multiple shipping names sank by double digits, adding to last week’s pullback.

U.S.-listed shipowner shares face simultaneous sentiment pressures on multiple fronts.

The longer China’s COVID lockdowns last and the further they spread, the more concern there is on China’s economy, its demand for tanker and dry bulk import cargoes, and its ability to export containerized cargoes. Russia-Ukraine war fallout is jeopardizing global economic growth. Consumer spending — previously driven by COVID-era changes to purchasing behavior and government stimulus — is under threat as inflation soars. The Fed is hiking interest rates.

Shares of container stocks have been under pressure since late March, mirroring a downturn in domestic freight transport stocks. Dry bulk and tanker stocks (which are still up year to date) didn’t begin falling until last week, coinciding with a economic forecast downgrade by the International Monetary Fund (IMF) and worsening COVID news out of China.

Shares of Nordic American Tankers (NYSE: NAT) closed down 13% Monday. Shares of tanker owner Tsakos Energy (NYSE: TNP) fell 9%.

In dry bulk, shares of EuroDry (NASDAQ: EDRY) plunged 19%, Genco Shipping & Trading (NYSE: GNK) dropped 12%, and Eagle Bulk (NASDAQ: EGLE) and Golden Ocean (NASDAQ: GOGL) 11%.

In container shipping, shares of Danaos (NYSE: DAC) fell 7%, Zim (NYSE: ZIM) and Global Ship Lease (NYSE: GSL) 6%. Zim shares are back down to prices they were trading at last August.

Among mixed-fleet owners, Navios Holdings (NYSE: NM) sank 15% Monday and Costamare (NYSE: CMRE) dropped 10%.

Longer voyages could offset economic decline

Last Tuesday, the IMF reduced its global gross domestic product growth outlook to 3.6% for 2022, citing fallout from the war. That’s down from its previous forecast of 4.4%. The IMF lowered its 2023 growth outlook to 3.6% (from 3.8%) and foresees 3.3% growth in subsequent years. Such growth levels would mark a steep slowdown from last year’s consumer-spending-juiced growth rate of 6.1%.

“For shipping, slower economic growth is not good, all else being equal,” wrote Clarksons Platou Securities analyst Frode Mørkedal on Monday.

He continued, “What is likely to cushion the impact on [dry bulk and tanker] shipping, in our view, is significantly longer trading distances because of the Russia-Ukraine crisis, and low fleet growth.”

“One important factor for shipping demand is the length of voyages. If average nautical miles increase, this could compensate for lower volume. For both dry bulk and tankers, we have seen a lengthening of average trading distances on the back of reduced Russian exports. Low underlying fleet growth also means that slowing economic growth is less worrisome than in prior periods.”

Clarksons estimates that the Russia-Ukraine war could reduce total seaborne trade by 0.9% this year in terms of tons. However, because cargoes are being transported longer distances, it projects that shipping demand measured in ton-miles (volume multiplied by distance) “has remained very similar to previous projects, at a firm 4%, despite the downgrade to volumes,” said Mørkedal.

China lockdowns: Different timing for different segments

Meanwhile, COVID closures in China appeared to be worsening on Monday. With Shanghai still under lockdown, Beijing looks like it may be next.

Chinese lockdowns should affect all shipping segments, but to different degrees with different timing.

Surprisingly, container shipping indicators don’t yet show a major effect. Shanghai export container waiting time has not risen, and carriers have not yet canceled a large number of Asia-U.S. sailings. Port congestion off Shanghai and Ningbo is up but still below levels seen last year. Trans-Pacific spot rates have not fallen significantly since the lockdowns began, nor has the Los Angeles/Long Beach ship queue decreased (in fact, it has slightly increased in recent weeks).

Evercore ISI China analyst Doug Straszheim predicted that container shipping would feel significant lockdown effects starting later next month. “We expect a burst of exports from China after Shanghai gets unlocked. And we expect that unlocking to start around mid-May,” he said in a client note on Saturday.

In contrast to container shipping, China’s lockdowns are having an immediate effect on tanker shipping. “The latest information from China suggests that lockdowns have curbed domestic oil demand by almost one million barrels per day [b/d],” wrote Alphatanker on Monday.

“As Chinese demand has taken a hit, refiners have reduced their activity … [and] in turn, this has seen Chinese seaborne crude imports drop back by around 1.6 million b/d year over year, to 10.1 million b/d in March, the lowest since last October.” 

“Demand is being walloped,” said Alphatanker.

Click for more articles by Greg Miller 

Noose tightens on Russian economy as import options dwindle

Russia economy shipping importsRussian imports via ocean, truck, rail and air are now being simultaneously squeezed. Shipping data shows growing pressure.

Russia economy shipping imports

There’s no global trade embargo on Russia. No sanctions barring shipments of most consumer goods or manufacturing components. But you don’t need to target the cargo itself to throw a monkey wrench into a supply chain.

Russia’s import options are dwindling as it becomes more difficult for ships, trucks, planes and railways to move Russian cargo — and as shippers and carriers “self-sanction.”

Most Russian-flagged cargo ships were banned from calling at EU ports starting this past Saturday. Russian and Belarusian trucks were barred from EU roads as of Sunday.

The new vessel and trucking restrictions follow earlier bans on Russian planes in EU and U.S. airspace, and U.S. and EU sanctions against Russian Railways, whose network links China with the EU. Meanwhile, most ocean carriers have preemptively suspended Russian bookings.

Taken together, it’s still far from a full blockade. But it’s a “death by a thousand cuts” scenario for Russian logistics.

Russian Central Bank Chairwoman Elvira Nabiullina admitted Monday that sanctions had “primarily affected the financial market but now they will begin to increasingly affect the real sectors of the economy. The main problem will be … restrictions on imports, foreign trade logistics, and in the future, possible restrictions on exports.

“This problem is not yet so strongly felt because there are still reserves in the economy, but we see that sanctions are being tightened almost every day. We see restrictions on the transportation of Russian goods and the work of Russian carriers. The period when the economy can live on reserves is finite.”

Shipping data confirms a sharp drop in container services to Russia. It also reveals the extent some services continue, including ongoing port calls by the world’s top two container lines, MSC and Maersk.

Port calls to Western Russia cut in half

Russia’s main container ports are St. Petersburg and Kaliningrad on the Baltic Sea, Novorossiysk on the Black Sea, and Vladivostok on the Pacific side.

According to data from VesselsValue, there were an average 22.5 container calls per week to western Russian ports during the six weeks after the invasion, a 53% plunge versus an average of 48 per week in the six weeks prior to the invasion. The drop in the average number of Pacific Russia calls was only 11%, to 26.8 per week from 30.2 over the same periods.

Russian port calls
Chart by American Shipper based on data from VesselsValue

Peter Williams, trade flow analyst at VesselsValue, told American Shipper, “There has been a drop-off in vessels visiting Russian ports in the Black Sea and the Baltic since the Ukraine invasion, while the number in the Russian Pacific remains fairly constant.”

Data from Windward shows the same trend: a fall in post-invasion container-ship calls to Russia but not a full stoppage. Windward shows an average of 11.4 calls per day in January versus 7.9 in March, a decline of 31%. “It’s clear from the data that the number of port calls did decrease since the invasion, but did not stop completely,” said Windward.

FreightWaves’ SONAR platform features a proprietary index of bookings measured by day of departure and indexed to January 2019. Bookings of Russia-bound cargo (in this particular data set) plunged by 80% from a high of 220 index points on Feb. 28 just after the invasion to only 45 points on Tuesday, and by 91% to just 19 points for bookings scheduled to depart the following Tuesday.

Russian bookings
Index: 100 = January 2019. Chart: FreightWaves SONAR (To learn more about FreightWaves SONAR, click here.)

MSC, Maersk continue port calls

American Shipper used ship-tracking data from MarineTraffic to see which ships still call at Russia’s ports on the Black Sea and the Baltic.

Of container ships that recently departed a western Russia port or will arrive at one as their next port of call, around half were ships of MSC and Maersk. The others were operated by small regional players, not major global carriers, and had much lower per-ship capacities than the MSC and Maersk vessels still serving St. Petersburg and Novorossiysk.

The ship-positioning date showed calls by 10 MSC ships: the 2,604-twenty-foot equivalent unit MSC Lara; 1,733-TEU MSC Lea; 2,680-TEU MSC America; 2,604-TEU MSC Eleonora; 4,112-TEU MSC Anisha R.; 2,668-TEU MSC Jordan; 1,678-TEU MSC Vanquish II; 2,169-TEU MSC Masha 3; 2,250-TEU MSC Andriana III; and 2,024-TEU MSC Rhiannon.

The data showed five Maersk ships still calling in western Russia, half as many as MSC: the 3,596-TEU Vuoksi Maersk; 3,600-TEU Vilnia Maersk; 2,478-TEU Safmarine Nuba; 3,600-TEU Venta Maersk; and 3,600-TEU Vistula Maersk.

Maps: MarineTraffic. Positions as of Tuesday of MSC and Maersk container ships that call in Russian ports.

Booking suspensions still in place

MSC suspended all bookings to and from Russia on March 1, with the exception of food, medicine, medical equipment and humanitarian aid.

Asked about MSC’s continued port calls by so many vessels seven weeks later, MSC spokesperson Giles Broom told American Shipper that the booking suspension remains in place, but “we are also continuing to screen and clear a small pipeline of cargo shipments which were arranged prior to our March 1 policy coming into effect.”

He emphasized that “MSC condemns the ongoing violence in Ukraine” and is supporting Ukrainian refugees as well as Ukrainian office staff and seafarers, and Russian seafarers.

Asked about Maersk’s ongoing calls in Russia, a company spokesperson referred American Shipper to comments made by Maersk CEO Soren Skou at the March 15 annual general meeting.

Skou said that Maersk stopped all new bookings to and from Russia except for food and medicine on Feb. 28. It halted even food and medicine bookings to St. Petersburg and Kaliningrad on March 3. It announced that it would sell all its Russian assets including its terminal business on March 11.

“Practically speaking, though, it’s not that easy to stop doing business in a country like Russia. We have about 50,000 of our containers in Russia today,” said Skou in mid-March. “Many of them are empty. They’re our property. We need them and we would not be happy to leave them in Russia. Therefore, we still have some ships going to Russian ports.

“Before the war broke out, we also had more than 50,000 import bookings in our network en route to Russia. We tried to deliver these containers as quickly as possible. The cargo in the containers does not belong to us, but to our customers. Many of those customers are not Russian. Many of the containers contained perishable foodstuffs. There were also practical issues in storing containers in already crowded ports on the continent. So, we expect it will take us until the end of April to get all of the containers out of the system one way or another.”

In other words, Maersk port calls are just part of a wind-down. Soon, there won’t be any. And Russia will have even fewer import options left.

Click for more articles by Greg Miller