During the third quarter of 2024, there was a year-on-year increase in global dry bulk loading volumes driven by increased demand for grains, minor bulks and iron ore. Market freight rates continued to exhibit limited seasonal volatility owing to fleet inefficiencies caused by disruptions in the Suez and Panama Canals. Although there are concerns regarding downside risks associated with global trade and economic growth, elevated interest rates and conflicts in Ukraine and the Middle East, our outlook remains optimistic. This positive perspective is supported by Chinese fiscal stimulus and continued fleet inefficiencies resulting from disruptions in the Suez Canal and conflicts in the Middle East.
CONTINUING TO GENERATE HEALTHY CASH FLOW
In the third quarter of 2024, market spot rates for Handysize (BHSI 38k dwt tonnage-adjusted) and Supramax (BSI 58k dwt) vessels averaged US$11,700 and US$13,820 net per day respectively, representing an increase of 53% and 45% respectively compared to the same period in 2023.
In the third quarter of 2024, our core business generated average Handysize and Supramax daily time-charter equivalent (“TCE”) earnings of US$13,740 and US$12,220 per day respectively. This represents a year-on-year increase of 35% and 6% for Handysize and Supramax respectively.
In the third quarter of 2024, we outperformed the Handysize spot market index by US$2,040 per day, while underperforming the Supramax spot market index by US$1,600 per day. Our Supramax underperformance in the third quarter of 2024 was negatively impacted by the increased cost of chartering short-term core vessels required due to our high near-term cargo coverage in the Pacific, as we were unable to optimise our fleet due to limitations in the movement of vessels from the Atlantic into the Pacific.
Our owned fleet with substantially fixed costs is the main driver of our profitability, with an approximate cash break- even level (excluding general and administrative overheads and drydocking costs) for Handysize and Supramax vessels of US$4,620 and US$5,120 per day respectively in the first half of 2024. We continue to generate healthy cash flows at current freight rate levels.
For the fourth quarter of 2024 we have covered 74% and 84% of our core committed vessel days at US$12,570 and US$12,190 per day for Handysize and Supramax respectively (cargo cover excludes operating activity).
In the fourth quarter of 2024, we anticipate reversing the provisions made in relation to prior-period freight tax. These reversals are expected to positively influence Handysize and Supramax TCE earnings for the fourth quarter of 2024. While the reversal of the provision is subject to certain conditions and adjustments, it is expected to be a lower amount than the reversal made to our Handysize and Supramax TCE earnings for the same period in 2023.
We are currently focusing on optimising short-term earnings while increasing our overall 2025 coverage. For the first quarter of 2025, we have covered 19% and 29% of our core vessel days at US$10,170 and US$12,590 per day for Handysize and Supramax respectively. This period is typically a softer market due to the northern hemisphere winter and the Lunar New Year celebrations.
We currently have a significant percentage of open days for 2025 which we expect will benefit from market spot rates. Additionally, the limited transit of dry bulk vessels through the Suez Canal should support tonne-mile demand and, in turn, freight rates. Furthermore, Chinese fiscal stimulus is expected to support commodity demand, providing an additional boost to the market.
Current Forward Freight Agreement (“FFA”) rates as quoted by the Baltic Exchange for the fourth quarter of 2024 are at US$11,390/US$13,040^ net per day and for the first quarter of 2025 are US$9,510/US$11,080^ net per day for Handysize and Supramax respectively#.
Our operating activity also contributed positively, with margins showing another sequential quarterly improvement. In the third quarter of 2024, we achieved a margin of US$1,300 per day over 6,950 operating days. We currently operate approximately 154 short-term chartered vessels, with a focus to increase operating days and maintain positive margins on a year-on-year basis. Our operating activity complements our core business by matching our customers’ spot cargoes with short-term chartered vessels, making a margin and contributing to our results regardless of whether the market is weak or strong.
#Baltic Exchange as at 11 October 2024
^Excludes 5% commission and Handysize tonnage adjusted
SUPPORTIVE COMMODITY AND TONNE-MILE DEMAND
Global dry bulk loadings in the third quarter of 2024 were an estimated 1% higher compared to the same period last year, primarily due to increased third quarter grain loadings from Argentina, Ukraine and United States, along with year- on-year increases in minor bulk loadings which benefitted from record third quarter bauxite loadings from Guinea.
Global minor bulk loadings were approximately 2% higher in the third quarter of 2024 compared to the same period last year. Loadings of bauxite, agribulk and fertilisers increased by 19%, 11% and 2% respectively while ores & concentrates and aggregates were the largest detractors falling by 8% and 7% respectively.
In the third quarter of 2024, global iron ore loadings saw a year-on-year increase of 1%, driven largely by another record quarter of iron ore loadings from Brazil predominately on long-haul voyages to China. Brazilian iron ore loadings rose by 3% compared to the same period last year, thanks to continuous improvements in operational efficiency, the on-going reopening of previously suspended capacities and new projects coming online. China’s domestic steel consumption remains historically low, given reduced demand from the property sector. The surplus in steel production not consumed domestically in China is being exported in record amounts, predominantly using Supramax vessels, to destinations particularly in Southeast Asia. In the first eight months of 2024, Chinese steel production saw a 3% decline compared to the previous year, while Chinese steel exports increased by 21% in the first nine months of 2024 and by 16% in the third quarter of 2024.
In the third quarter of 2024, global coal loadings were flat compared to the same period last year. Loadings from Indonesia increased 9%, thanks to favourable weather conditions and an expanded government-approved production quota. China’s record coal demand persisted despite high domestic production and improved hydroelectric output. Additionally, coal loadings to India saw an 3% increase on a year-on-year basis, fuelled by the country’s favourable economic growth which maintained persistent high electricity demand.
Global grain loadings in the third quarter of 2024 were 6% higher compared to the same period in 2023 due to increased loadings of grain of 51% and 33% from Argentina and United States respectively, while Brazilian loadings were down 8% partly due to a delay in corn loading because of low water levels in the Amazon River which had delayed the seasonal Atlantic third quarter market recovery.
Ukraine has achieved a 367% increase in grain loading compared to the same period in 2023, thanks to improvements in the ability to load and export grain, as well as other commodities. However, the current volumes of grain loaded were 24% lower compared to the same period in 2021 which was before the military conflict began.
SUEZ AND PANAMA CANALS RESTRICTIONS
We continue to monitor developments in the Red Sea and the Gulf of Aden, which remain complex and a safety concern for shipping. This has added to tonne-mile demand, as vessels are being rerouted on longer voyages when avoiding this key transit route. To minimise the risk to our seafarers and vessels through the Red Sea, we will continue to take the much longer routes around Africa. Meanwhile, the Panama Canal has experienced increased rainfall in recent months which has boosted water levels, leading to an increase in transits and normalised vessel waiting times.
FLEET RENEWAL
In the period, we exercised a purchase option and took delivery of a 2016 Japanese-built Supramax vessel, and in addition took delivery of a long-term chartered 40,000 dwt Handysize newbuilding. We await the arrival of the first of four long-term chartered 64,000 dwt Ultramax newbuildings and the third of four long-term chartered 40,000 dwt Handysize newbuildings in the fourth quarter of 2024. Our fleet is expanding with the addition of larger and more efficient Handysize and Supramax newbuilding vessels.
Each of these timecharters come with an option to extend the charter agreement at a fixed rate, and we have the option to purchase the vessels at a fixed price, which further expands our optionality. In 2025, we have the opportunity to exercise purchase options on four Japanese-built Handysize vessels, allowing us to acquire these vessels at a price below the current market value for these types of second-hand vessels.
In the third quarter of 2024, we sold and delivered two smaller, older Handysize vessels, both built in 2004. Given progressively stricter existing and incoming decarbonisation regulations, such older, less efficient vessels will become increasingly challenging and costly to operate and we therefore consider it appropriate to gradually divest ourselves of our least efficient vessels.
Our long-term strategy focuses on investing in dual-fuel low-emission vessels (“LEV”) to enhance our fleet’s efficiency and strategically positions us as a distinct market leader. We expect these latest design vessels to improve operational efficiency and provide financial benefits while lowering carbon emissions.
Including all currently agreed sales and purchases, our Core fleet consists of 127 Handysize and Supramax vessels and, including short-term chartered vessels in our Operating business, we currently have approximately 282 vessels on the water overall.
US$40 MILLION SHARE BUYBACK PROGRAMME
Since the commencement of our US$40 million share buyback programme in May 2024, we have repurchased approximately 105.8 million shares for a consideration of approximately US$31.7 million. During the third quarter of 2024, we repurchased approximately 54.9 million shares for a consideration of approximately US$14.5 million, capitalising on weakness in our share price over the period. By proactively choosing to repurchase our own shares at a significant discount compared to the intrinsic value of our assets, currently we recognise it as a more advantageous strategy compared to acquiring second-hand vessels. We continue to finance the buyback of our shares through our available cash flow and internal resources, while maintaining sufficient financial resources for the continued growth of our operations. This share buyback programme is intended to continue until 31 December 2024.
CONTINUATION OF MANAGEABLE SUPPLY GROWTH
As per the latest report by Clarksons Research, dry bulk newbuilding ordering from January to September 2024 was down 10% year on year and the total dry bulk newbuilding orderbook is 10.2%. Shipyard open slots remain limited, so a new dry bulk vessel order placed today is unlikely to be delivered before 2028. Additionally, Handysize and Supramax ordering activities are down 61% and 11% respectively. According to the report, it is estimated that new vessel deliveries for Handysize and Supramax vessels in 2024 and 2025 will represent approximately 4.5% and 4.5% respectively of the total minor bulk fleet.
We continue to believe that the prevailing cost of newbuildings, uncertainty over new environmental regulations, and elevated interest rate environment will continue to discourage any significant new dry bulk vessel ordering. Newbuild prices are driven by increased input costs, limited new shipbuilding capacity and high shipyard utilisation from other shipping segments, and we see no signs of prices declining.
According to Clarksons Research, the scrapping of Handysize and Supramax vessels in the third quarter of 2024 was equivalent to 0.2m dwt, or 0.1% of net fleet as at 1 January 2024.
Currently, Handysize and Supramax vessels over 20 years old represent 14% and 11% of the existing fleet respectively. Handysize and Supramax net fleet growth forecasts for 2024 and 2025 are 4.2% and 4.1% respectively, with scrapping of 0.4% in 2024 and 0.5% in 2025.
OPTIMISTIC ON THE FUTURE OF DRY BULK
We are optimistic about the market outlook driven by stable demand for the commodities we carry. Factors such as lower interest rates, China’s recent stimulus and positive forecasts of growth in the United States and Europe enhance this optimism. Global economic growth also increases the demand for essential raw materials like minor bulks, iron ore, coal and grains.
On the supply side, fundamentals are supportive. Measured fleet growth, reduced fleet efficiency due to limited transit of the Suez Canal, seasonal port congestion and strategic retirement of older vessels maintain a favourable market balance. Restrained newbuilding ordering limits new supply and supports freight rates. Over time, new decarbonisation regulations will further enhance supply-side fundamentals by promoting investments in efficient and eco-friendly vessels, thereby phasing out older vessels and controlling fleet expansion.
We maintain discipline in our approach to acquiring high-quality, modern second-hand vessels to renew our fleet. We believe there is financial benefits in investing in dual-fuel LEVs, which will offer market-leading operational efficiency to our fleet while enabling us to gradually decarbonise. In 2024, we will assess our readiness to commit to ordering such a design, ensuring delivery well in advance of our initial 2030 target. This strategic move not only aligns with our sustainability goals but also positions us at the forefront of innovation in the industry, enhancing our competitive edge and demonstrating our commitment to environmental responsibility.
We remain optimistic about the long-term prospects of dry bulk shipping, thanks to the positive demand for the commodities we ship. These are supported by favourable supply-side fundamentals and the ongoing implementation of both existing and new decarbonisation rules.
Source: Pacific Basin Shipping Limited
