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Frightful freight math 2021: Changing grain trading terms

10 January 20224 min reading

Ones upon June 2021 coaster freights went crazy and started developing outside of traditional borders. Dinosaur era of 18 USD coaster freight from Ukrainian shallow ports to Marmara was completely over. Spot freight era took place, taking with itself few changes in trading conditions. Normally, freight to Marmara is a point of reference for freight to other destinations, working like a calculator. Contrary to decrease of handy and panamax size freights in November-December 2021, coaster rates continued keeping at historic highs. And as of start 2022 the coaster freight formula for 6 KMT vessels of wheat/corn looks $45 for Berdyansk - Marmara, +$3 to Izmir, +$10 to East Med, +$12 to Egypt Med, +$15 to East Coast Italy.

Christina Serebryakova
Head of Analytical Department
& Agricultural Commodities Broker


MOST SELLERS SINCE START 2021: ‘FOB ONLY’

The increase of coaster freights is well noted since June 2021. One month before the MY 2021/22 freight to Marmara jumped by $10. More and more sellers, when negotiating deals, started telling, that they are offering “FOB only”. Of course, most buyers were not ready to take freight risk, thus they switched to spot trading.

MOST SPOT BUYERS IN 2021/22: ‘HAS SELLER A VESSEL IN HANDS?’

Such a hike in freights shook the range of sellers and put many to the black lists, as not all escaped the temptation to default. Even the biggest and the strongest were thinking, how to avoid performing some deals. After having bad experience, buyers, when negotiating deals, started to specify, whether seller has vessel in hands. Many market participants could remember, that the last three seasons we lost the seasonality of price movements. There is no more “harvest pressure” periods, no predictability.


 This factor led coaster CIF trading to spot deals. And spot had a meaning of about 5-20 days since the deal was done. Freight spike since 2021/22 made the meaning of spot to be even up to 5-15 days. 

SHARE OF FREIGHT IN CIF PRICE INCREASED TO 13% 

During 2019-2021 years, the share of freight in the price of wheat CIF Marmara was 6-7%. Freight spike 2021/22 made this share to increase to about 13%. As of January 2022, freight for 6 KMT wheat/corn vessel to Marmara is above the level of the same period last year by $28-30/MT. Most other destinations are calculated very quickly based premiums to Marmara. “Our analysis showed that even these premiums to Marmara became wider by $3-5/MT y/y”, said Taras Panasyuk, Head of Freight Brokerage department at Atria Brokers. 


TMO GOES MORE FORWARD

Ukrainian coaster freights to Marmara are historically not as good as from Russia. Combined with Lira depreciation, it keeps Ukrainian wheat trade to Turkey 50% via handy vessels mostly for TMO. The latest December WASDE report put its forecast of wheat import to Turkey in 21/22 MY at 11 MMT, +36% y/y due to worse local harvest. Such a wheat deficit, unpredictable price development, Russian wheat export duty existence + quota introduction since 15 Feb, combined with Lira depreciation switched TMO for two new tendencies: volume of new crop wheat contracted within tenders till 31 Dec increased by 12% y/y to 2.34 MMT; shipment period of the latest contracted cargoes within December tenders widened till end February 2022 (vs. end-January in 2021 and end-December in 2020). According to Novik Shipping Services Agency, during the period from July till end-December shipments of wheat from Ukraine to Turkey increased by 210% or 3 times vs. the same period last year to 1.7 MMT, out of which 820 KMT (48% of shipments) were by handy vessels. This could lead us to assumption, that the share of Ukrainian wheat in TMO purchases, which were done till 31 December, increased to ~35% vs. 14% same time last year.


In December 2021, some market participants noted a slight decrease in coaster freights. Herewith, 21/22 freight jump is like a shocker, which is keeping trade so far stick to “spot”, “FOB only” or “vessel in hands” deals. 




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