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15 week: Russian River, Azov Sea, Caspian Sea; Coaster shipments

Freight market in the Azov region remains low.


According to figures provided by the Federal Service for Veterinary and Phytosanitary Surveillance, the total quantity of transshipped grain in the ports of Azov Sea decreased by about 36 percent in the first quarter of 2019 in comparison with the same period of 2018. In absolute terms, this is 5,33 million tons in 2019 against 8,33 million in 2018.

It is noteworthy that according to our statistics, freight rates also dropped in direct proportion and lost about 30 percent. If on the 15th week of 2018 freight rates were on average USD 26 per ton of wheat on the voyages Rostov – Marmara, then on the 15th week of 2019 rates are being kept at USD 18.

From the perspective of Traders, up to date there is a high demand for grain in the domestic market, especially in the Central Federal region, which significantly holds back export sales and makes domestic grain uncompetitive in the world markets due to its high price. Many Exporters admit that they have already closed the current grain season, and plan to return to activity only in July. Yet the closer to the new crop, the faster will become cheaper grain harvest of 2018. The falling grain market will force producers to sell cheaper products, which can allow Traders to make new deals. In its turn, this should assert positive influence over freight rates, owing to the emerging of new volumes on the market.

Despite the opening of navigation on inland water-ways on the Volga and on the Don, now rates are aiming for two-year minimum. Many Charterers admit that it is extremely difficult to sell wheat to Marmara from Rostov in light of rates above USD 17 per ton. Moreover, Turkish buyers began to refuse purchases more often due to the high volatility of their national currency.

Currently the flow of general transit cargo to the Caspian Sea and to the Volga is on the rise. Today the tonnage supply significantly exceeds the amount of cargo orders, which allows Charterers to employ vessels at favorable rates for them with the ability to take the appropriate tonnage and on wide dates. Owners working in transit and having the need to return their fleet to the Caspian Sea, have to be more flexible in negotiations to avoid ballast passages.
Most of the requested indications in the Caspian region fall on summer dates. This means that the peak of demand in Russian vessels for general cargo may be coincident with the peak of the grain season, which this year is expected to be higher than last year, as judged by the planned harvest. This abundance of offers will give a nudge Owners to even more inflated expectations and rates respectively.

Unlike the Azov market, the Caspian market is still holding its position. The reasons for this are the high demand for grain from Iran after the local holidays, as well as the high demand for tonnage from Charterers planning to send fertilizers from Turkmenistan to the Black Sea. Freight in the Caspian region attracts more and more tonnage from the Azov Sea, which in the near future may lead to overabundance and subsequent reduction of rates.

Many market insiders are wary of the news about the inclusion by the US of Islamic revolutionary guard corps, which is actually the Iranian regular army, as terrorist organizations. Traders are afraid of further possible complications in settlement payments with Iranian importers, whose payments have been delayed lately as it is.

14 week: Russian River, Azov Sea, Caspian Sea; Coaster shipments

After the official opening of the navigation on the 1st of April 2019, most of the vessels with the Russian flag began to work in transit to Iran from Azov ports and elevators of the Volga-don Canal to Iran in the absence of a fair number of general project cargo. Due to the increase in the number of tonnage in the region many market insiders predict the reduction of rates for Astrakhan and from river to Iran, so Charterers are in no hurry to fix the fleet on long-term dates.

At the same time Russian Exporters note a significant revival of the Iranian market upon completion of the holidays. Most in demand is barley, which is not much left in the Caspian region, and Traders are inventing new schemes for the transit of cargoes from ports of the Black Sea. The low season allows many of them to achieve favorable cargo offers, as well as favorable freight rates, therefore the demand for the transit fleet is high. However, many Owners remain wary of such voyages in view of the risk of getting on sanction lists, so they prefer to transit cargo to Kazakhstan, Azerbaijan and Turkmenistan, even at low rates.

Owners interested in voyages from river to the Black Sea, have difficulty with search of the cargoes: many of the elevators still have not begun operations; some of them are only starting to accumulate volumes. The highest activity is shown by Charterers that are planning shipments from the outermost river ports, such as Togliatti and Samara, but according to reports from local exporters, ice is still present partially on the river, so shipments from over there are planned only for the beginning of May. As a result, Owners of the Russian fleet, who don’t call Iranian ports, are continuing to make voyages from Azov ports amid hopes to find a profitable transit cargo from the Black Sea.

There were no significant changes in the Azov market in comparison with the last week. The workable rate for wheat from Rostov to Samsun is currently at USD 15 per ton for spot shipments. As a rule on falling market, most in demand are long-haul voyages: to make such deal is more easily at the present moment. Customary for the region, Owners are slow to react to the market decline, therefore they are trying to collect best offers and postpone firm negotiations and fixing till spot dates.

The difficult economic and political situation in Turkey has led to a decrease in the business activity of local Importers. It is expected that the firm interest for delivery of grain from the Turkish side will strengthen closer to the beginning of May. In view of this, during the stabilization of the situation in the Republic (March – early April 2019), shipments to Turkey fell almost by one half in comparison with the same period last year. Nevertheless currently the main reason for holding back of number of sales contracts is the growth of grain prices in the domestic market of the Russian Federation.

13 week: Russian River, Azov Sea, Caspian Sea; Coaster shipments

As anticipated, the freight market in the Azov region sank under pressure of large amount of spot tonnage during the 13th week. Freight rates for Turkish destinations decreased by $ 2-3 per ton.

The lack of cargo stems from the high volatility of the Turkish lira and the local elections to the city’s parliaments in the largest Turkish cities. Under conditions of uncertainty importers chose to suspend procurement programs, which significantly affected the supply of cargoes on the market. As a consequence, Owners had to accept lower rates in order to keep fleet turnaround and to avoid downtime.

Owners interested in voyages from river to the Black Sea faced the number of problems. First of all, ice is still standing partially in the regions located above Volgograd, therefore river elevators are planning the launch only in mid-April. In the Samara region navigation may be delayed until the end of April or the beginning of May. Secondly, according to unofficial information, fleet will not be allowed to pass through the area from Rostov to Volgodonsk due to ongoing repair of the Bagaevskiy hydroelectric complex on and from the 1st of April. Official prospects are expected by the middle of the 14th week.

In the Caspian region there has been some rebound associated with renewed activity of Iranian buyers. The average market rates of river ports began to be determined, where there was almost no firm work over the past few weeks, and Charterers only made plans because of the lack of importers in the market. In addition to it, many Charterers, who sold their lots during the Iranian holidays, have not received payment from the receivers yet, which doesn’t allow them to purchase new lots for export. On the whole the increase in demand for fleet in the region remains steady, such that some Owners will relocate their fleet to the Caspian region, using the “transit” grain voyages from Don to Iran. Due to the high demand for such voyages, their rates are growing more slowly compared to shipments from the ports on the Volga River.

12 week: Russian River, Azov Sea, Caspian Sea; Coaster shipments

During the previous week freight improvement on the Azov’s region has stopped, owing to weakening fleet demand, especially with prompt opening dates. As market participants advise, currently French and Canadian wheat is market’s favorite and latest Turkish tender shall be covered by foreign wheat and corn, which is more preferable than Russian price-wise. All this made a heavy impact on Azov’s market, being highly dependent on Turkish Buyers. Rates are not crumbling though, due to Owners, still high from recent freight growth, are trying to push market up, leaving only few successful fixtures actually done. Week 13-th may see spot tonnage numbers at large.

According to current fleet demand for shipments ex River it seems that now supply is overpowered. Most of river cargoes with Black Sea destination have already been covered well before the laycan dates, which bar any rates growth. Price on goods at river elevators is too high, compared to Sea ports, and it will take some time before Sellers make themselves comfortable with market conditions and start making deals in line with realistic prices.

As major analytic agencies declare, potential harvest in Russia may yield 9 000 000 mts of grains more than previous season.  Favorable weather conditions along with improving infrastructure of major producing regions being the main cause. Therefore, April-May perhaps shall provide us with increased trading activity, as Producers will try to sell-off as much carry-overs as possible prior to high season.

 

Tonnage demand for transit cargoes ex Med and Black Seas towards Caspian area is almost nill. Major players are still developing their programmes. Single shipments were done though, with small parcels waiting at transit ports even from year 2018, which due to some reasons were late to pass the early closure of locks on Don River. Several Owners of sea-river vessels are partly repositioning their fleet to ARAG region, foreshadowing the excessive fleet demand for general cargoes destined to Russian inland and Kazakhstan.

Lack of transit parcels also lead to freight decline on Iranian destination. In the absence of competition Charterers of grains are trying to force their vision of workable rates on Ship Owners, which consider Caspian direction.  As we’ve heard, there were few fixtures ex Rostov and Azov’s port to Caspian Sea with rates only 3-4$ more than Astrakhan rates. Those Owners, who contracted urea transportation ex Turkmenistan, are now compelled to dump rates in order to escape ballast leg, which have a negative impact on the market.

Traders consider corn to become ‘number one’ commodity on Caspian market before high season starts, as barley stocks are thinned-out. Most lucrative corn offers are currently done basis FOB-Astrakhan and FOB-Makhachkala, sourcing ex Krasnodar region. This may decimate fleet demand ex River ports, wherein ship parcels are ready only on few elevators.

Nowruz influences Iranian market participants – it dramatically slows the local trade. A substantial part of fleet is idle awaiting discharge at Iran, while new contracts are not concluding.

11 week: Russian River, Azov Sea, Caspian Sea; Coaster shipments

On the previous week Azov’s area has been highlighted by appearance of spot tonnage in quite substantial amount. Main reason for it is recent fulfilment of Kavkaz lighterage contracts by several regional Owners. The fact that fleet supply strengthens mislead Traders into attempts to pull the rates downwards, wherein freight growth has been only slowed, as tonnage demand still has the upper hand.

FOB Russian ports grain prices have continued to decline, to which market participants have already accustomed. Deep Sea ports suffer more, as prices drop faster there (approximately  5 usd per week, compared to shallow ports). Nevertheless, Shippers hope for soonest recovery in the light of new tenders by Tunisia, Algeria and Bangladesh, who traditionally buy Russian grains via bigger tonnage. Sea-river fleet Owners are also positive regarding short-term market conditions, considering the latest Turkish tender, which largely won by Charterers, working ex Azov’s ports.

 

 

According to market participants, current low grain trading activity caused by low carryover stocks of wheat. Officially, they’ve hit 5-years low numbers, therefore a lot of producers are holding their remaining volumes, troubled by uncertainty of quality and quantity of forthcoming crop.

Caspian trade activity has lowered, owing to Nowruz. Due to lack of cargo orders ex Astrakhan, Owners consider fixing voyages from River ports, which are not in abundance either. Pre-carriage to River elevators is being complicated by usual for this time of the year road drying, so it is expected that leaders in terms of fleet demand upon the beginning of navigation shall be Charterers who failed to ship their full volumes within previous navigation. We expect Dubovka, Volgograd elevator and new elevator in Tatyanka to perform the most river shipments as navigation starts.

9 week: Russian River, Azov Sea, Caspian Sea; Coaster shipments

During the 9-th week an ongoing sharp decline of Azov’s freight market has stopped. Many vessels have suffered severe delays on passing Bosporus due to unfavorable weather conditions. So, in some cases time lost summed up to 5 days. Major part of this fleet had faced Charterers’ refuse to grant extension, in favor of spot and thus cheaper tonnage. Owners of cancelled vessels do not exercise any hurried attempts to fix new voyages, as FOB prices are dropping followed by seemingly increased variety of cargo orders, which in turn holds market at previous week level. Shall the region settle in today’s balance or not, the next week will tell: Traders consider commodities prices to be far from the bottom and expect fall to continue.
Ice campaign has been officially cancelled on 28 of February on the Azov Sea. Theoretically this should pull the freight market down, owing to inflow of vessels employed ex Black Sea ports during the wintering. But considering the current freight-wise rivalry of both basins, there is no point expecting any notable fleet supply increase on the Azov. With the abolishment of ice restrictions ADSC shall again become the waiting place for idle tonnage instead of Kerch. Therefore, Charterers working ex Temryuk are compelled to be thorough in their search of spot vessels, as upon north-bound Kerch passing Owners are reluctant to return to Temryuk for loading.


Mild weather gives ground to expect earlier than usual start of navigation. River may become accessible even in mid-late March, which shall make positive impact on current market owing to following main reasons:
1. A new season for river ports shall begin. With ingress of additional volumes into both lichterage program and direct voyages to Azov and Caspian destinations will grow in terms of fleet demand.
2. Transit cargoflow will return to the market. As we see, demand on general cargo shipments ex Black Sea to Caspian area increases year-by-year and even now Charterers are actively planning their programmes. Those Owners who are interested have already adjusted trade of their fleet in order to provide openings at most convenient places to pick up well-paid project cargoes.
New nitrogen fertilizers-producing plant is expected to reach full power in Turkmenistan during this year, which shall dramatically increase throughput of transit cargo ex Caspian region. Ship Owners consider this new cargoflow to achieve likewise potency as ‘common’ grain voyages ex Volga ports to NIP or to Turkey, all the more so as substantial part of local Owners have decided to completely avoid calling Iran out of fear of potential sanctions from USA.
Caspian market has seen improved fleet demand during the previous week. Charterers are actively trying to close the deals for each of their open positions before the coming of Novruz, in order to avoid additional storage costs and also to lower the risks of prices drop after the Iranian New Year. Therefore, freight rates are basically keeping the same level. It is expected, that in the light of holidays any Traders activity will be kept at minimum and in the mid of March, right before the start of navigation, tonnage demand along with rates may decline, albeit not for long, to current years’ all time low numbers.

7-8 week: Russian River, Azov Sea, Caspian Sea; Coaster shipments

Freight rates decline continues on the Azov Sea, while the main driver is still unfavorable situation on the commodities market. Turkish buyers are cutting the prices, following the declining lira. Concluding of new contracts becomes trickier as spread between buying and selling prices narrows. In the light of outstanding price on goods of Russian origin several buyers were compelled to develop other sources. Traders say, technically they are comfortable working with Russia, furthermore quality of goods is out of question, but current price level renders other aspects irrelevant as commercial part fails. So, nowadays major part of grains destined to Turkey is sourced ex West Black Sea: Ukraine, Romania, and Hungary, wherein Ukrainian producers shown most notable flexibility price-wise.

Aside from grave stillness of Russian inner grain market, export paces were halted by increased tariffs on pre-carriage of goods. Therefore most of the shipments performed now are ‘odds and ends’ of previously concluded contracts. Positive news regarding FOB-Azov grains price decline (about 7$ during 8-th week) surprisingly had no beneficial impact on the market. Importers are waiting for continuation of decrease and are not in a hurry to purchase. Considering the recent price surge, market participants expect this started decline shall proceed with similar haste.

Ice conditions in the Azov region are quite favorable for this calendar period. Almost no problems were reported in connection with berthing or with delays awaiting ice-breaker support. Nevertheless only a few Ship Owners are willing to employ their fleet on voyages ex Rostov ‘after the bridge’ terminals, except those bound for discharge there. So, the Charterers who decided to save on transshipment (‘after the bridge’ terminals generally charge less) may face difficulties finding suitable tonnage even on current oversupplied market.

Rates decline goes on within Black Sea as much as in the Azov area. According to local Traders, freight for Handy-size segment had already hit the bottom, leaving only improvement as an option, which is anticipated. Main reason for it is greater mobility of bigger tonnage, allowing them to change regions more easily, compared to coasters and especially to sea-river vessels. Therefore, deflux of unwanted fleet may alone improve the rates level.

6 week: Russian River, Azov Sea, Caspian Sea; Coaster shipments

Azov’s area has yet to find bottom freight-wise after week 6. 20 USD mark has been breached for voyages ex Rostov to Black Sea, following the still-weakening demand for local tonnage. Wheat prices FOB-Rostov, obviously the trendsetter, are growing, supported by, aside from other reasons, increasing costs of pre-carriage to port. Truckers have succeeded in their recent strike against low tariffs on grains transportation, which outpoured in improving prices on goods.

Spot tonnage’ situation becomes dramatic with more ‘newcomers’ adding every day. According to rules of caravan forming, vessel is not allowed to proceed with ice-breaker support until port or loading terminal provide their confirmation, therefore idle tonnage is gathering near Kerch. This makes easier for Ship Owners to consider cargo orders also ex Black Sea ports, despite the fact, that freight on such voyages has also been severely reduced during the last week. Lack of demand for grains on behalf of key importer states of Mediterranean market has impacted not Russia alone.

Caspian freight market looks well-balanced, as rates for voyages from Astrakhan are keeping mid-high 30-s USD. Grievous ice conditions at Volgo-Caspian Channel continue to narrow the available fleet, thus supporting the rates from falling. Freight ex Aktau or Makhachkala declines faster, the more Owners decide to avoid calling Astrakhan in favor of ice-free ports. Thereby, roads of these ports have become congested by 5-8 vessels, awaiting (and willing to) their turn for loading, despite approximately 10 USD higher rate for voyage ex Astrakhan.

Domestic agrarians are already preparing to next grain season. Owing to lack of strong frosts during this winter and also to abundant autumn rainfalls, winter wheat crops are found in favorable condition. According to different forecasts, total yield of wheat may sum up to 67-72 000 kmts, which is roughly equal to previous year’ crop.

Market participants agree that current, utterly disappointing situation with dull commodity market and Traders unable to make deals, shall in mid-term run (March-April) change for the better. Producers will be compelled to sell the remained goods prior to new crop if only to bolster sowing campaign. Demand for over-priced grains on the inner market shall not hold.

5 week: Russian River, Azov Sea, Caspian Sea; Coaster shipments

Azov’s market yet retains its declining trend. During the previous week workable level has been reduced on another 1-2 usd pmt. At any given time there is a substantial number of spot vessels idle at ADSC. Owners are ready to consider all cargo orders without preferences, albeit firm offers are few, as Charterers have completed their 2018’s programmes.

Nowadays it is hard to find any firm cargo bids. Aside from utter dullness of ‘traditional’ Turkish destination, also volumes’ throughput of Kavkaz lighterage have been reduced, which connected to introduction of new requirements of Russian Federal Service for Veterinary and Phytosanitary Surveillance. As a result, more and more ships find themselves free from contract jobs and add to oversupply of tonnage looking for direct voyages.
Despite the Charterers current ability to impose their desirable freight level, actual amount of contracts concluded do not grow. There is a vast gap between buying and selling prices on grains, which cannot be leveled via cheaper freight alone. The nearest perspective is bleak, continuous rates decline and even less shipments is expected.

Considering the utterly low Azov’s market, Owners are trying to reposition their tonnage elsewhere. Sea-types vessels with low draft, which traditionally performed voyages ex Temryuk, are now escaping from dropping rates to jobs w/I Med Sea. Sea-river fleet, on the other hand, has few options for alternative employment other than hauls from Black Sea ports of Ukraine. Even though in 2018 same to be considered as last resort and only by vessels w/o ice class, nowadays rates ex Azov are almost on par with Black Sea ports. In general, withdrawal of superfluous tonnage should support the freight level in the area, but this time fleet excess could hardly be neutralized, therefore overall picture shall not change.

Business activity in both Azov-Black Sea and Caspian regions has been heavily impacted by prolonged decline of USD/RUR ratio, which coupled with high inner market prices on grains, leads to lack of contracts signed. Several companies, which were contracted for grains delivery to Iran during whole winter period with fixed rate, are facing difficulties now due to currency fluctuations. Nevertheless, Traders expect market stabilizing, if not recovery, soon, owing to Iranian grains stock depletion, therefore Iranian buyers may reconsider their offers price-wise.

4 week: Russian River, Azov Sea, Caspian Sea; Coaster shipments

Azov freight market shows a significant decline. Rates for voyage from Russian ports continue its fall. The operating level on the route Yeisk-Samsun is at the level of the low 20s per ton of wheat / corn.
The price of wheat basis fob Azov ports still growths in the reporting week and reached its maximum values in the season. This led to a decrease in the number of export contracts concluded. As explained by market participants, the price is rising with the increased demand within the country. Many Charterers, in order to avoid signing contract, which potentially may occur unprofitable, they try to fix the vessels beforehand. But often, after failing on subs, the ship is cancelled due to absence of purchase.
As usual, long voyages are mostly demanded on the low market. In addition, back hauls from the Adriatic and the East Mediterranean have become much sought after. At such freight level, the fleet doesn’t hurry to return to the home region and may wait few days to meet laycan of back cargo.
Some terminals, located in Rostov after the bridge, arrange the commercial passage that reduces voyage costs for Shipowners and increases the attractiveness of loading after the bridge. Meanwhile, the long delays associated with the repair are not seen. The costs of the commercial passage is around 80 000 rubles and when divided among several ships, does not effect on the economy of the voyage.
The severe ice situation continues in Astrakhan and Volga-Caspian Channel. Normally, ships pass the channel within 1.5-2 days, while Shipowners try to avoid the most distant terminals, where the costs of tugs services and the risks of long waiting increase significantly. Due to this reason, the reduction of rates stopped, and even increased for loading on berths in the “deep rear”.
According to information from market participants, the Ministry of Agriculture plans to introduce regulation of the domestic grain market in the nearest future by resumption of state grain interventions. Previously, the transportation subsidy program of grain from remote regions of Russia was not as large-scale as expected, and had a little impact on the market.
Many Shipowners who did not hurry to fix their tonnage until the last moment, are forced to stand in Azov in the dead spot. The situation with “almost-firm” cargoes only worsen the owners’ distress. They are losing time to negotiate, getting failed on subs, and the vessel returns to the market. Some ships already idle for 5-7 days and the situation is not expected to be improved in the near future.
As practice shows, the waiting period for the passage of Kerch canal for ships proceeding for loading to Ukrainian ports of Azov sea does not exceed the standard waiting time for fleet, going to ports of Russian Federation. In spite of this, just to be sure, many Ship-owners continue to insist on incorporating “the Kerch clause” into fixture recap.
At the moment, ice restrictions have not been introduced in any of the sea ports of Ukraine. But, starting from 01.02.2019, disregarding the actual ice situation, ice dues will be introduced in Mariupol. This may slightly push up the freight rates for voyages from this port.