INTERVIEW: Golden Ocean sees longer distances persisting for commodities on Russia fallout

Longer distances for coal and grains could be here to stay as consumers look for permanent alternatives to Russian commodities, the CEO of dry bulk company Golden Ocean said in an interview April 21.

Dry bulk charterers looking to carry wheat and other crops have already started switching their attention to areas including the EU, Argentina and Australia to replace Black Sea cargoes, following Russia's invasion of Ukraine Feb. 24.

Likewise, in coal markets, the US, South Africa, Australia, Colombia and Indonesia could replace Russian coal in Europe, while Russian coal could in turn go to India, market sources said.

Market dislocation such as more coal heading from Australia to Europe are "highly unusual and inefficient," Golden Ocean CEO Ulrik Uhrenfeldt Andersen told S&P Global Commodity Insights.

Nonetheless, they could be here to stay, in some shape or form. "We see a general movement away from dependency on Russian commodities. Therefore, we expect the changes in today's trade patterns to be long lasting," he said.

Even if the war were to end immediately that diversification away from Russian goods would continue and this would support ton-miles, Andersen said.

Trans-Atlantic coal shipments have picked up pace – the Hampton Roads-Rotterdam 70,000 mt coal route was last assessed by S&P Global at $26.25/mt April 21. It reached its year-to-date high of $28.50/mt March 24, up 104% from its year-to-date low of $14/mt Feb. 3.

For grains, more spot activity has been reported out of the East Coast South America region as buyers look for alternatives to Black Sea supplies. The Santos to Qingdao 60,000 mt grains route reached a year-to-date high of $75/mt March 28, up more than 57% from its year-to-date low of $47.75/mt Feb. 4, according to S&P Global data. It was last assessed at $70.75/mt April 21.

Significant volumes

Around a quarter of all Russian coal exports in 2021 was shipped to Europe, according to S&P Global, with Panamaxes the predominant carriers.

Russia exported more than half of the coal it produced in 2021, with exports at 262 million short tons, according to data from the US Energy Information Administration.

The war has also affected global access to the Black Sea, with naval activity deterring exports of grains from both Ukraine and Russia.

Black Sea ports are especially critical to grains shipments out of Ukraine and Russia; the two countries account for around 26% of global wheat exports. Russia has exported 26 million mt of wheat to date in the 2021-22 marketing year (July-June), accounting for 80% of the US Department of Agriculture's estimate for the year, and Ukraine 18 million mt, accounting for 90% of the USDA's estimate.

Chinese lockdowns

Prolonged lockdowns in China following coronavirus outbreaks have stoked concerns of escalating port congestion and supply chain backlogs.

China is crucial for dry bulk demand and more volatility is expected for dry bulk freight rates amid China's recent COVID-19 restrictions and lockdowns.

"The lockdowns are a two-edged sword," Andersen said. "On the one hand, they cause congestion and delays, obviously firming rates. But, on the other hand, if the lockdowns continue for a long time, it may impact the economic growth in China, which is negative for demand," he said.

For now, the company is enjoying the support to freight rates but hopes China will open up soon, Andersen said.

The build and design of dry bulk vessels can make them particularly hard to decarbonize, a marine engineering source said.

However, before complex sustainable fuel solutions are reached there are a number of more straightforward things shipping companies can do to reduce emissions and fuel costs.

"There are plenty of low-hanging fruits to reduce emissions," Andersen said. The company is looking into digitalization and improving data quality to make better decisions on speed and hull cleaning. "We are also focusing on upgrading the vessels with energy-saving devices such as low-friction paint, Mewis Ducts, propeller boss cap fins and so on. We believe these initiatives alone can save 10% or more on bunker consumption," he said.

This reduction in bunker costs and emissions also helps prepare the company for the upcoming inclusion of shipping in the EU's Emissions Trading System.

The European Commission's current legislative proposal would bring CO2 emissions from shipping into the EU ETS from 2023 but with companies only having to surrender 20% of their obligation that year, rising to 45% in 2024, 70% in 2025 and 100% in 2026.

EU proposals seek to cover 50% of emissions into and out of EEA ports to third countries, in addition to 100% for all intra-EEA routes.

"Having an efficient fleet will tackle the EU ETS, any future carbon levies and generally make us the preferred choice by our customers," Andersen said.

The company has taken the first steps on carbon trading; it recently applied for carbon offsets on the back of investments in emission-reducing technology.