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Supramax freight rate for trans-Atlantic corrects amid tonnage oversupply

The trans-Atlantic Supramax spot freight rates edged lower in April amid a tonnage oversupply in East Coast South America while disruptions to grains supply in the wake of the Russia-Ukraine conflict diverted buyers from the Black Sea to ECSA market.

The trans-Atlantic grains route — Recalada-to-Bejaia 40,000 mt — dropped to $61/mt on April 11 from the year-to-date high of $74/mt on March 31, according to Platts assessment by S&P Global Commodity Insights.

The $13/mt drop in spot freight rate can be translated to a decline of over 20% of freight price.

Russia’s military invasion of Ukraine on Feb. 24 threatened grains supplies, with trading activity hurt significantly as cargoes loading to Ukraine were cancelled.

The escalating conflict in the Black Sea region raised concerns over trade flows, resulting in grains buyers looking for alternative suppliers in the ECSA market.

There was more inquiries from ECSA to the Continent for grains, with bigger vessels seeing more trading activity followed by Ultramax and Supramax vessels, according to a shipbroker source.

The disruption to grains cargoes in the Black Sea has supported the ton-mile demand for Continent imports, which were being sourced from greater distances such as ECSA.

Firmer fixture and trading activity supported demand for grains cargoes, with time charter rates moving up for a Supramax vessel in the ECSA region in March.

The trans-Atlantic grains route, Recalada-to-Bejaia 40,000 mt, displayed fierce trading activity last month after the invasion, with the tensions in the Black Sea region leading to uncertainties over trade flows.

According to Platts assessment by S&P Global, the trans-Atlantic grains route — Recalada-to-Bejaia 40,000 mt — reached an year-to-date high of $74/mt on March 31, up more than 44% since Russia’s invasion of Ukraine on Feb. 24.

In the meantime, the trans-Atlantic grains route was up more than 65% from its year-to-date low of $38.75/mt on Feb. 3, according to S&P Global data.

Trading in East Coast South America

Argentina is a major global supplier of agricultural products and Russia’s invasion of Ukraine has inevitably affected the global supply chain of vital agricultural products, particularly wheat, corn, and sunflower oil.

Together, Ukraine and Russia account for approximately 28% of global wheat trade.

Typically, Argentina exports between 11 million and 13 million mt of wheat in a marketing year, with almost half of the exports shipped to Brazil.

However, Argentina’s wheat production estimates for the marketing year 2022-2023 is at an all-time high of 25 million mt while for 2021-2022, the production was at 20.5 million mt, according to S&P Global data.

The record output in 2022-23 would mean higher shipment volumes than previous years, along with new export destinations.

“The buyers in the Middle East may look for other suppliers like the US, Argentina and India to meet their needs,” a trader source said.

The Ukraine conflict has led trading companies to distance themselves from Russia while the risks to shipping have raised costs of insurance, a market source said.

Solaris Commodities, one of the largest exporters of Russian wheat, has stopped new trading activities from Russia as its focus shifts to countries such as Argentina and Australia, according to the company’s announcement March 15.

Normalization of freight rates after higher tonnage

Supramax markets have shown their volatile nature. The East Coast South America market attracted tonnage and many vessels ballasted there amid improvement in grains trading activity, a shipbroker said.

“That led to higher tonnage in the region and weakened freight rates,” the shipbroker added.

Softer spot freight rates started to correct between end-March and beginning of April.

The Recalada-Bejaia time charter grains route dropped to around $40,000/d from $52,000/d between March 31 and April 5, according to S&P Global data.

“While ECSA dragged tonnage with many vessels ballasting there, the market in the Continent picked up and showed better numbers,” the shipbroker added.

Bearish clouds formed over the trans-Atlantic business as grains demand was covered by the over-tonnage capacity in the region, with market participants fixing bigger dry bulk vessels to carry cargoes.

“Grain exports from ECSA is done mainly from bigger dry bulk vessels and not so much from Supramaxes at the moment,” a shipowner source said.

Source: Platts

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