By Ulf Bergman
“Red sky at night, sailors delight”, the old saying suggests that a beautiful red sky at the sunset would bring good weather conditions at sea the following day and make the day a bit easier for the seafarers. However, adverse meteorological conditions are on the other hand, albeit within reason, good news for the shipowners, as they can disrupt the tonnage supply in a short space of time and fuel higher freight rates. Difficult weather conditions, such as storms, may force vessels to take a longer route or to slow down to avoid the worst impact. Bad weather conditions can also impair the cargo operations in ports and cause delays and congestions, which will also contribute to a reduction of available tonnage.
In Brazil, drought and heavy rains took turns to disrupt the soybean growing season, with the harvest ending up being delayed by around two weeks. In the meantime, Chinese demand remained very strong and the buyers were forced to shift their focus to American supplies. This led to congestion in many US export ports for grains, with many panamaxes facing extended waiting times in the Gulf of Mexico to load their China-bound cargoes. This bottleneck has contributed to the strong performance of the dry bulk shipping market. The Brazilian soybean harvest has since commenced, and the data suggest that it is also getting close to completion. Hence, much of the focus of the grains trade has shifted south to the Brazilian ports as a result. The persistent strong appetite from the Chinese buyers for soybeans and an ever-increasing Brazilian crop size have seen an increased number of vessels employed on the Brazil-to-China trade route compared to the same period in previous years.
On the other side of the world, in Australian New South Wales, storms that local meteorologists are describing as "once-in-50-year" are causing considerable disruptions with heavy downpours and flooding. Operations in the Port of Newcastle are being affected both directly by the strong winds and heavy rains and indirectly by rail services in the Huter Valley being suspended due to severe flooding. All coal deliveries from the Hunter Valley and Gunnedah basins have to pass through the flooded section of the railway to reach the port in Newcastle. The railway closure adds to the woes of already decimated inventories in the port, following two days of maintenance a week ago affecting the flow of coal into the port. Additionally, damaged shiploaders in the Newcastle Coal Infrastructure terminal have slowed down cargo operations considerably. Hence, a backlog of vessels have built up outside the port and there are currently more than 40 dry bulk vessels waiting to take on board their cargoes.
The Australian Bureau of Meteorology does expect the storms to ease during the middle of the week, but more rain can be expected to follow suit. Hence, the situation with extensive flooding can be anticipated to remain for some time, with continued supply problems for the Port of Newcastle as a result. The storms are also moving south and have the potential to disrupt deliveries and coal shipments from Port Kembla at Wollongong, which could contribute to additional tonnage being tied up in port congestion. The extended waiting times in and around some Australian ports are likely to provide support for freight rates until the backlog has cleared, which may not be imminent depending on the extent of any damages to the infrastructure.
Adverse weather conditions may not affect the aggregate levels of demand for commodities, but it adds to the inefficiencies in the supply-chains. Port delays and re-routing due to adverse meteorological conditions reduce the supply of available tonnage, while finding alternative sources of commodities may increase the tonne-mile demand. Severe weather conditions are also contributing to the freight rate volatility, as fleet dislocation becomes more of an issue and shortages in import ports making the demand for transportation unelastic and reducing the price sensitivity.