Forthcoming closure of river navigation highlights the question of ice campaign introduction in Azov’s sea for many Ship Owners. According to local port agents, Authorities of Volgo-Don basin are yet to announce the exact dates of campaign. Nevertheless, Owners of fleet w/o RMRS permission to work under ice conditions have already been advised not to complete with ‘back’ cargoes to Azov ports after second half of November. We expect soonest rates growth for such voyages.
Market decline in Azov area has provoked freight decrease for back hauls ex Adriatic and West Med. Few weeks ago Owners of sea-river tonnage were not willing to start negotiating cargo orders without prior confirmation of their desirable freight level, as it was more preferable to revert rapidly to Azov ports for main cargo. Currently the situation has changed so that back hauls are getting more sought-after to such extent that Owners are readily idle their vessels for couple of days only to meet the laycan.
Direct participants of Kavkaz roads’ lighterage consider that with good chances cargo throughput may shrink dramatically even from the start of December. A number of Ship Owners have already decided to work their tonnage on the market as their contract employment is at the end. This gives ground to expect conservation or even decrease of freight rates during December despite the introduction of ice restrictions and reduction of tonnage supply.
The ongoing rates decline on Azov’s sea is a result of weak demand for Russian wheat, which is not positive for some time now. Wheat prices FOB Azov ports have started to drop, following the inner market, where during the previous week prices shown gradual reduction with RUR 200-300 pmt steps. Still, freight decline is not so sharp, owing to several factors. Major part of tonnage shall open in mid-November and, in case till those dates, there will remain a substantial number of spot positions, market will go down. Otherwise, if fleet shall be fixed prior to spot dates, rates downfall is unlikely to happen.
Amount of sales contracts concluding on Black Sea commodity market has reduced notably, mirrored by according change of firm cargo orders. Turkish direction, in the absence of decent wheat flow, mainly retained by feedstuff. Lira continues to weaken and Exporters are looking towards further directions, such as Lebanon, Egypt, Greece, and Italy. Those who are able to execute sale to Turkey are now embracing ‘wait-and-see’ approach, as they expect rates to decline so that not the best sale may be compensated by winning of better freight.
Noted by several Traders, tonnage demand reduction in Azov’s region has been impacted by receivers, based in east Europe, which traditionally transship goods on river barges to further deliver it inland via Danube River. Latest sharp decrease of water level in Danube prevents normal work on such route. Currently warehouses at Constanta port are full which leaves no other option to the buyers but to decline any new shipments.
As it has been announced earlier by Authorities of Azov-Don basin, the Kochetovskiy waterworks shall be locked starting from 28 of November due to repair jobs. Therefore in order to pass Kochetovka, vessels must enter 1-st water lock from Volgograd side not later than 24 of November. Owners are planning their fleet positions accordingly. Another meeting of Authorities shall be held on 15 of November, where they decide final dates of navigation closure.
A grain forum in France, a severe storm in the Black Sea and a low business activity of Turkish buyers resulted in the freight market in the Azov region continuing to decline, as expected week 42. Thus, workable rates maintain USD 29 per ton basis voyage ex Rostov to Marmara with wheat.
The leading grain Traders met at the EUROPEAN COMMODITY EXCHANGE 2018 conference in Strasbourg on October 24-26. During the symposium, a lot of Exporters suspended their commercial activity until the end of the 43ed week. Thus, forum participants had no opportunities to negotiate firmly and refused to accept the proposed contracts at the last moment. Being in an uncertain position, some Ship Owners were ready to discuss voyages at rates below the market by USD 1-2, provided that the contract is signed immediately.
Owing to the prolonged storm in the Black Sea (wind speed reached 20 m/s), which was ongoing until week 43, there formed a queue of ships on the approach and exit from the Kerch Strait. Due to imposition of the state of emergency in the coastal zone, the ships were forced to wait for the end of the foul weather and could not start or end their voyage. In this context, some Charterers canceled the ships. But by the time when a large amount of tonnage had been opened in the Azov Basin, Traders had the opportunity to conclude new contracts at rates lower than last time. This factor also contributed to the reduction of freight in the region.
This situation demonstrated that the market almost completely swung to the side of the Charterers. Ship Owners understand that future growth of freight is unlikely, as a result they try to make deals as soon as their vessels discharge previous cargo. Also in the light of a falling market the demand for long-distance hauls has increased among Ship Owners, in this way, they can get maximum profit from voyages at yet high freight. Ship Owners, who work ex Azov Sea ports, have recently shown an increased interest for the back-haul voyages.
During the high freight market season it was not profitable to lose time on additional port call and loading operations, fleet tried to return as quickly as possible for the main cargo – the grains. Today the intensity of shipments is reducing; therefore Ship Owners are more enthusiastic to consider the back-haul, trying to provide their fleet with any work.
Long-distance routes are growing in popularity due to the poor financial situation of Turkish buyers. In recent weeks, the number of requests for shipments of grain from Greece and Italy has significantly increased, more contracts for medium and long-term destinations are being signed. The rates for such hauls are declining, but at much slower pace.
The freight from the river has grown significantly at week 43. This is due to the approaching end of the navigation period and a high demand for tonnage in this segment of shipments. Currently, considering the schedule for closing the locks, lots of Ship Owners are already refusing to work in mid-November from the ports of the Middle Volga. According to the forecasts, temperatures are expected to fall below zero at week 46 (November 12-18) there. Exporters who don’t have time to carry out the cargo from river elevators are ready to raise the rate just to find suitable vessels. Nowadays the average rate basis voyage of the Samara – Iran amounts USD 63 pmt, which is USD 3 more than the last week. Market participants predict that freight rates for shipments from the river will decrease as the closing dates of the Volga locks are coming.
Today there is a conception of the deployment of the fleet during the winter. Apparently, the number of fleet in the Caspian region for the next few months will be fewer compared with last year, but a quantity of cargo is expected to be less. Taking into account the current state of the market, Traders rely on the stability of freight during the winter or even a small increase. At the same time, market environment will depend on the imposition of US sanctions against Iran and their consequences for regional Ship Owners and Exporters.
Despite the tendency to decreasing, market participants predict a revival of freight growth in the near future. According to information from the Charterers, there is a high demand for feed stuff in Turkey. A large amount of shipments with such sort of grain can result in to increase the volume of exports to Republic, in spite of the tough economic situation in the country.
Another reason that may lead to increase of freight is the appearance of grain on the market from the intervention fund of the Russian Federation. The Government released for sale 1.5 million of wheat for further export. Thereby the authorities intend to reduce wheat prices in order to step up pace of exports through injection of grain into the domestic market. The demand for Russian-flagged tonnage is rising even more as Traders need to carry out the grain before river navigation will be closed.
For the same reason, nowadays the Owners of vessels without ice class are the most active on the market. As soon as ice restrictions come into force in the Azov basin (the end of November), the water area will become closed, which means that the number of available routes for voyages will be unapproachable for them. Thus, now they are trying to make more short-hauls and avoid long-distance voyages in order to ensure fleet turnover at current rates.
In consequence of water level fluctuation in the Azov basin (ports Azov, Rostov, Yeisk), some vessels weren’t able to depart the port owing to offshore water. Tonnage was forced to stand idle before water-level recovery (up to 3.8 – 4 meters), considering that the drafts of majority laden vessels more than 3 meters. As a result of this, delays of shipments and change of fleet schedule in the region were starting.
However offshore winds in the area of the Volga-Caspian Sea channel led to an increase in rates. Due to the water-level decline, the approach of ships to the port of Astrakhan was problematic. And moreover, the dry-cargo vessel with Iranian flag took the ground. Thus, tonnage couldn’t operate with full load, and a substantial part of the Owners reoriented to the deep-water ports of Caspian Sea (Aktau, Baku, Turkmenbashi). Even in spite of the fact that Astrakhan Charterers were willing to pay above the market in order to keep the contracts. This situation exacerbated a problem of the fleet shortage in the region, and pushed the freight up. Therefore, rates reached USD 60 pmt of barley basis Samara – Iran. This is 2 USD more than week 41.
In addition, Shipowners continue to move their tonnage from the Caspian basin. Also, strain on the market is created by USA sanctions against Iran, which will come into force on 5 November and will be directed to the shipping industry. Anticipating the difficulties on the freight market in the near future, caused by sanctions, many Charterers are trying to contract available fleet on consecutive voyages from Aktau and Astrakhan for a long time before restrictions begin to take effect.
Nowadays there is a period of freight rise in the Caspian Sea. First of all, this is caused by the shortage of Russian-flagged tonnage in the region for shipments of new corn harvest from Volga ports. The demand for such a fleet is increasing, as a large amount of grain is stored in river elevators, where the Owners of vessels with the Russian flag work from. A part of Charterers has already signed contracts for the winter period at a growing market in the hope that these deals will turn out the most profitable. The other part considers that the freight market will grow in the nearest future, and contracts would be concluded at more advantageous rates. In the context of fleet deficit, some Traders consider other options for grain transportation. Last week the demand for hauls by cabotage voyages from Samara, Tolyatti and Kazan to the Astrakhan port increased; from there the corn is carried out to Iran by non-Russian-flagged vessels. Therefore, in lights of the higher demand for shipments from the river, rates reached USD 58 pmt of barley basis Samara – Iran. This is 2 USD more than 40 weeks.
In the Azov region, on the contrary, freight has dropped over the past period. Market participants connect it with the time of uncertainty. As expected earlier, the export pace of wheat to Turkey continues to decline. Due to the fact that a lot of Turkish millers forfeited credit support of banks requests from the Turkish partners for buying Russian grain significantly decreased. The requirement for wheat in the domestic market is satisfied with purchases of the Turkish Grain Agency (TMO). Thus, the reduction in cargo traffic to Turkey led to freight rates in Azov basin started to go down.
Now a bacteriological analysis of grain is still up-to-date. At the same time, Charterers note that if tests were conducted in 7 days last week and led to substantial delays in shipments, now situation has changed. Today phytosanitary researches takes less time, and the dispatching of vessels is much faster. Despite this, many Charterers prefer to wait for the total cancellation of inspections in order to protect themselves from possible losses due to bureaucratic delays. As a result freight reached USD 31 pmt of wheat basis Rostov – Marmara. This is 1 USD less than previous period.
The Azov region is experiencing a period of freight increasing. Over the past week, rates from the Azov basin and Russian river had risen by USD 2 for all destinations of Black and Mediterranean Sea. Nowadays workable freight rate for voyage ex Rostov to Marmara reached USD 32 pmt of wheat on week 39.
Market participants find the reason of such a dynamic in expansion of demand for Russian grain on the Turkish market. The Turkish Grain Board had bought 252 thousands of tons of Russian wheat last week as a result of the tender. Requirements for tonnage, which will transport the declared volumes of grain, are standardized. Thus, according to the tender, the carrying capacity of dry-cargo ships should be 6 000 tons, and the grain should be exported in the same extent. The Owners of tonnage, which has different specifications, began to raise the freight in the hope that during the grain transportation to Turkey (wheat must be carried out before the end of October) the deficit of vessels will develop in the region and the Charterers will have to agree on the conditions of the Shipowners.
Moreover market participants note a slowdown of export pace. First of all, Traders connect it with the growth of the ruble and the drop in grain prices on week 39. For a short time, the Russian currency has risen against the dollar by 5%. In the context of the strengthening of ruble and the growing freight in the region, many Charterers avoid new contracts. Therefore, nowadays it is quite difficult to seek the high quality grain with sharp price on the market due to substantial reduction in supply of cargo in the Azov region.
There is a period of stability in the Caspian basin. Traders are expecting the corn of new harvest. Although the corn parcels has already arrived at elevators, this volume is not enough to make the difference. Thus, the balance of the freight market is supported by a small supply of fleet and cargo in the region. The rates kept the level of previous week and amounted USD 55 pmt of barley basis Samara – Iran.
It is expected that the freight rates for transit hauls from the Black Sea to the Caspian Sea will grow at close of river navigation (end of November). This is largely due to the increased demand for Russian-flagged fleet, which is occupied in shipments from the river to the roads of Kavkaz port, and will also be contracted for the realizing of Turkish grain program. In this connection, Charterers of general cargoes are trying to conclude the contracts with Ship Owners in order to guarantee the vessels for work at the end of October – the beginning of November.
The Azov region is experiencing a period of freight increasing. Over the past week, rates from the Azov basin and Russian river had risen by USD 3 for all destinations of Black and Mediterranean Sea. Nowadays workable freight rate for voyage ex Rostov to Marmara reached USD 30 pmt of wheat on week 38. This is 3 USD more than level of previous time.
Market participants find the reason of such a dynamic in fleet deficit as nowadays essential number of vessels is not able to carry grain cargo from ports of the Azov Sea. In the context of frequent complaints about unsatisfactory grain quality on the part of top importing countries (Egypt, Indonesia, Sudan and Israel), the Federal Service for Veterinary and Phytosanitary Surveillance tightened requirements for wheat exported from Russia. The additional researches for excluding infected grain and procedure of complete (not prophylactic) fumigation were introduced last week. The analysis of wheat take from 5 to 14 days, and the vessels will not be dispatched without such documents.
The complex fumigation, in contrast with prophylactic, involves the processing of the whole ship, not only a hold with grain. Not all ships have relevant technical features for complex fumigation of grain with crew aboard. And members of crew have to leave the ship for several days, resulting in extra costs. Therefore, the number of suitable tonnage that can export the grain according new rules has significantly reduced. This procedure led to increasing rates on voyages with convenient vessels. And, on the contrary, the freight has considerably fallen on hauls by vessels which are not adapted for full fumigation.
Owners of the tonnage, who are unable to transport grain due to new requirements, focused on coal and scrap shipments. The Charterers consider that a growth in fleet supply can provoke a fall in rates for transportation of these commodities in the near future.
There is a period of stability in the Caspian basin. The corn of new harvest has not yet arrived at elevators, and the Traders keep the barley in anticipation of rising export prices, which is forecasted due to a poor yield. Thus, the balance of the freight market is supported by a small supply of fleet and cargo in the region. Therefore, the rates amounted USD 55 pmt of barley basis Samara – Iran, which is equivalent of level week 37.
There was an increase in demand for grain shipments from the Azov region on week 36, the Charterers has been realizing their export program ambitiously. Over the past week, rates from the Azov basin and Russian river risen by USD 2-6 for all destinations of Black and Mediterranean Sea. Nowadays workable freight level for voyage ex Rostov to Marmara reached USD 25 pmt on week 35. This is 3 USD more than level of previous week. Ship Owners rely on the market will provide great opportunities for next few weeks, for this reason most of the contracts are concluded on spot dates. The rates on remote destinations are rising faster than short-distance hauls, as Ship Owners try to work on a short leg within the Black Sea. Thus, they will be able to catch the moment at the market’s peak.
A prolonged severe storm in the Azov basin last week led to the accumulation of ships in the Kerch Strait and on the approaches to the Azov-Don Sea channel. Tonnage is forced to stand idle due to hazardous weather conditions and lowering of the water level in the channel (up to 3.1 meters) owing to offshore winds. As a result of this, charging of ships and a corrective of the fleet schedule in the region are starting. In these conditions, the Charterers incur additional expenses for storage of cargo in elevators. Considering that the drafts of majority vessels in full load more than 3 meters, the ships are waiting for optimum level water recovery (3.8 meters) in order to leave Azov.
In mid-September, market participants predict an increase in rates immediately after the tonnage almost simultaneously leave the Azov Sea. The number of vessels in the region will be significantly reduced, and Owners of free tonnage will raise the freight rates.
The main business activity on the river moved from the Volgograd region to the Balakovo, where one of the top Russian Exporters is currently currying out substantial volumes of grains, for this reason rates from there grow faster. There are more shipments to the Black Sea directions than to the Caspian. Market participants explain this by the fact that the corn harvesting is at a slow pace, and parcels of new yield is poor. Therefore, there are no other goods except barley for shipments to Iran. In this context the demand for Russian-flagged tonnage is going up, the rates reached USD 54 pmt of barley basis Samara – Iran, while the freight in Astrakhan remained at the level of last week – 28 USD due to poor supply of cargo. It is expected that the corn parcels of a new yield, which slowly come to the port of Astrakhan and river terminals, may change current situation. At the same time, Caspian Traders consider that economic sanctions against Iran hamper international trade and also keep the growth of freight down.
There was a fleet deficit in the Azov region on week 37. During prolonged period of rate reduction over the past few weeks Ship Owners preferred to conclude contracts on remote destinations due to these conventions are more profitable for them. For that reason a significant part of the tonnage hasn’t yet returned to the Azov basin. Thus, owing to high demand for shipments to Turkey and the lack of spot vessels, rates for voyages to the Turkish Black Sea cost began to grow. Nowadays workable freight level for voyage ex Rostov to Marmara reached USD 27 pmt on week 36. This is 2 USD more than previous week.
On September 13, the Captain of the Yeisk port released a directive on changing the depths and drafts on the approach channel and the water area of the seaport. Now the maximum allowable ships draft for passing in the channel shouldn’t exceed 4 meters (earlier 4.8 m). Charterers, who dispatch the grain from this port, have already noticed a growth of rates due to a declining number of vessels. The reason is that Owners of sea-going tonnage, working from Yeisk under incomplete loading, will not be able to put into the Yeisk water area as a new depth is small for them. Thus, actual adjustments led to an increase in freight level.
In the context of frequent complaints about unsatisfactory grain quality on the part of Importers, the Federal Service for Veterinary and Phytosanitary Surveillance tightened requirements for wheat exported from Russia. Today it’s necessary to provide additional quality certificates confirming the inspections were passed for countries such as Egypt, Indonesia, Sudan and Israel. The researches of wheat take from 5 to 14 days, and the vessels will not be dispatched without such documents. Due to prolonged phytosanitary inspections, the deadlines of contracts will be missed resulting in extra costs. A jump in rates is expected for hauls to the road of the Kavkaz port in the near future. A sharp increase of fleet supply in the segment of direct shipments from the Azov Sea and the Volga river ports will push freight on such hauls downward, and to the Kavkaz port from the river, conversely, upward. The toughening requirements will become a serious problem for both top Russian Traders, cooperating with difficult countries, and for other market participants.
Despite the fact that the farmers have already started harvesting corn in the Krasnodar territory, the Saratov region and Tatarstan, the parcels of new yield don’t yet carry to the warehouses. The barley is still dominating commodity in the Caspian region. All elevators beside Volgograd have already discharged the grain of last year and now are waiting for the new corn. In this regard, the Charterers from Middle Volga region such as Samara, Kazan, Ulyanovsk and Chistopol were the most active last week. Therefore, the expansion of demand for shipments from the river, the rates reached USD 55 pmt of barley basis Samara – Iran.
Due to poor economic situation in Turkey and small demand for Russian grain in the Republic, the grain shipments from Russia have been reoriented to other countries. So, according to the Ministry of Agriculture, since the beginning of the year Vietnam has displaced Turkey to the third place in the rating of import countries of Russian wheat.
Nowadays the shipments to the Turkey are irregular and, for this reason, Ship Owners avoid to conclude the contracts are connected with Turkish side. Market participants note, in recent time, voyages from river elevator to Kavkaz port has become the most-coveted among the Owners of the Russian-flagged tonnage. A large quantity of grain is transported from Kavkaz port to Egypt, Saudi Arabia, Europe and the countries of Asia (Vietnam, Bangladesh).
At the last meeting of the Ministry of Agriculture with the Russian lead Exporters, the Government brought to the table an initiative to sell 1.5 million of wheat for further export from the interventional fund. The authorities intend to reduce wheat prices in order to increase the pace and volumes of exports through injection of grain into the domestic market. It can be said with confidence that the top Russian Traders will outcompete the state auctions. Therefore, future trade routes are known. Grain parcels are carried out by ‘river-sea’ fleet from the river to the road of the Kavkaz port, and from there to the import countries. It is expected that with the beginning of the sales of announced volumes, more vessels will be required, and rates will rise. At the same time, it is paradoxical, but the freight for shipments from the river ports to Turkey also increases as to find an available fleet for such hauls is difficult. The rates ex Kamyshin to Marmara reached USD 45 pmt of wheat. This is USD 1 more than the level of week 34.
In addition, the crisis in Turkey has led to the fact that Charterers, who usually struggle with finding available vessels for shipments of niche goods (high cubic capacity, inability to provide full loading of ship, dangerous recipient country of the goods) and high transportation costs, nowadays charter the tonnage at favorable rates with no trouble.
The agrarians started corn harvesting in the Krasnodar territory, Saratov region and Tatarstan. Consequently, parcels with new crop will occur in the Caspian and Azov region soon. Ship Owners trust that as soon as the harvest arrives in the region, business activity will begin to grow and rates will rise.
After the holidays, the business activity of Turkish Importers is still at a low level. The number of concluded deals with the Turkish side has significantly decreased, and this situation probably will not change in the near future. Recently, the Turkish Grain Board announsed the grain intervention in the domestic market in order to stop the price inflation on food.
According to the resolution, 2 million tons of wheat should be sold from the goverment reserves, including 100 thousand tons of imported grain this year. It means that Turkish buyers are unneedful of Russian wheat, while declared volume of domestic wheat will not be realized.
Russian Traders have reoriented sales to Europe, North Africa, Lebanon and Israel due grain resolution of Turkish government. In addition, there is a decrease in demand for scrap on the Turkish market, consequently rates at such hauls are dropping. Thus, freight market in Azov showed a tendency to falling on week 34. The rates reached USD 23 pmt of wheat basis Rostov – Marmara. This is USD 2 less than the level of previous week.
There are a lot of requests from Charterers of sunflower seed meal and sweet beet pulp in the market of the Azov and Black Sea regions. Traders are looking for available tonnage for shipments of cargo to Morocco, Italy and Spain, Greece and Cyprus. Traditionally, the export season for these goods starts in the beginning of September.
The situation develops differently on the Caspian freight market. In the mid-August the United States has launched a program to limit Iran’s foreign economic relations, which should be completed before November 2018. The main impact was inflicted on the Central Bank of the Islamic Republic; as a result, money transactions involving the US dollars either are blocked or need more time due to additional checks. Market participants have already noted the faulty operations of bank and some troubles in making of payments. In this context, some Traders discontinued their activities in the region pending economic problems in the Republic. However, despite of this, freight rates stay at the same level on the Caspian basin. There is still a balance between the quantity of available fleet and the cargo supply on the market. Thus, the freight rates amounted USD 28 pmt of barley basis Astrakhan – Iran.
According to information of Agriculture Ministry, the farmers started corn harvesting in the Krasnodar territory, Saratov region and Tatarstan. The equilibrium of freight market may be disrupted when the parcels with new crop will occur in the region. This circumstance can lead to revival of the market and growth of freight rates in the Caspian area, where corn is the main exported grain.