Back haul in shipping

The best chartering strategy for shipowners: fix backhaul cargoes

A successful chartering strategy is the one which increases the fleet optimization and ensures that the vessels are continuously employed and generate money. Some of the most experienced shipping professionals use to say that the idle days and the ballast voyages are two major threats which can easily spoil the profits from a very profitable fixture. For this reason, a vessel’s performance is never evaluated on a voyage by voyage basis but always over a longer period of time. Then, what if you would like to develop a great career in ship chartering?

Every time you fix a cargo for your ship, you need to take into account not only how much is going to be the profit for this trip but also what are the options for the next voyage at the expected opening port of your vessel. Since the vessels are used to load from exporting countries and discharge in importing countries, finding a cargo from an importing area is usually a challenging task since the supply of ships is much higher than the demand for same. Let’s take an example: Your handysize ship is opening at a port of Indonesia and you decide to load coal ex Samarinda, Indonesia to India since you are offered a rate of USD 7,000/day which is higher than today’s average market rates and covers the vessel’s operating expenses. However, when the vessel discharges in India, which is mainly an importing country, she may need to ballast back to Singapore/ Indonesian range which is a loading area in order to find her new cargo. The ballast leg of 5-7 days will drop the average rate from $7,000/day down to about $4,000/day or even lower depending on the vessel’s consumption and bunker prices. And how can you manage this? By fixing a backhaul cargo from India to Malaysia or Indonesia. In this case, the hire rate will definitely be less than $7,000/day but overall the average rate of the two trips will be higher than taking the ballast trip to Indonesia.

But how easy is this to evaluate the market conditions at the next opening port, even before you fix the current cargo? This is a very challenging task, though, OpenSea can help shipowners solve this problem by opening their ship’s position not in particular port, but in a wider region. So they can browse all available cargoes and choose the most interesting freight/direction. Furthermore, Charterer’s freight ideas on the available cargoes may guide you to understand how much is going to be the average rate (total earnings) for a round voyage, taking into consideration of course that the market dynamics will not materially change within this period, which is not always the case!

Main Backhaul Trade: From Pacific to Atlantic

Historically, the Atlantic market is stronger than the Pacific market and the hire rates are higher. This may happen since there is more balanced activity between the exporting (e.g. East Coast South America, USA, Canada, Black Sea) and importing countries (e.g. North Africa, West Africa, North Europe, Turkey). On the other hand, Pacific market is mainly lead by the importing countries (e.g. China, South Korea, Japan, India) while except of Australia and Indonesia, the exporting activity of the other countries is quite limited nowadays. That said a trip from Pacific port to Atlantic usually pays much less than the average and much less than a rate from a trip coming from Atlantic to Pacific. According to Baltic Exchange indices of 13 October a capesize to trade from Pacific to Atlantic would earn USD 7,291/day while the hire rate for a route from Atlantic to Pacific was at USD 19,886/day. Same for panamax bulkers, a backhaul trade via a pacific port to Skaw/Passero range in Atlantic would earn USD 1,124/day, according to Baltic Exchange while the hire rate for a trip via Atlantic ports to Pacific would be USD 11,273/day. Same story happens with supramax bulkers where the backhaul trade from a Chinese port to West Africa is evaluated at USD 4,830/day while the front-haul from an Atlantic port to Far East is evaluated at USD 11,891/day. Such long lasting trips between Atlantic and Pacific are not very usual with smaller vessels like handysizes since they are mainly utilized in shorter trips, however when this happens the trend is quite similar with other sizes

The main backhaul routes from Pacific to Atlantic are usually the following:

  • — Grains from Australia to North Europe which is mainly taking place with panamax bulkers while capesize are rarely utilized.

  • — Coal from Australia to North Europe which is mainly utilized with panamax and capesize bulkers.

  • — Panamax or Capesize bulkers opening in India or Persian Gulf may take a short ballast trip to South Africa where they will load coal to North Europe or Mediterranean countries.

  • — Steel products from South Korea to Mediterranean, North Europe or USA. This trade takes place mainly with Handysize and Supramax bulkers.

  • — General cargoes which are loaded from China to West Africa, Mediterranean and North Europe and in less extend in USA. These cargoes are mainly utilized via geared handysize or supramax bulkers since they are loaded with ship’s cranes.

  • — Bagged rice from Thailand or East Coast India to West Africa which is mainly shipped via geared handysize or supramax vessels. The vessels’ cranes are necessary due to the lack of facilities in those countries.

  • — Steel products from Persian Gulf countries to Mediterranean or North Europe which is mainly shipped in handysize or supramax bulk carriers.

Main Backhaul Trades within Pacific

The best paying fixtures in the pacific market, especially for handysize and supramax bulkers, are those with discharge in India, Persian Gulf, Red Sea and East Africa since there is very limited exporting activity out of these regions. The main backhaul trades within the Pacific region are the following:

  • — Iron Ore from Iran to China which is usually utilized in handysize and supramax bulkers while in some cases panamax bulk carriers are also used.

  • — Iron ore from India to China which is shipped in handysize, supramax and panamax bulk carriers. This trade was much higher in the past however iron ore exports out of India have been lowered during the last couple of years due to various limitations

  • — Sulphur via Persian Gulf (e.g. Kuwait) to India or China. Usually smaller vessels, like handysize or supramax are utilized in this trade.

  • — Granite Blocks from East Coast India to China which is mainly shipped in geared handysize bulkers.

  • — Fertilisers from Red Sea (Aqaba port) to India or China with handysize and supramax while sometimes panamax is also utilized. In case of discharge in China it is not considered as a full backhaul route since the vessel is again opening in a discharge region; however she is now much closer to the loading region of Singapore.

  • — PKE (Palm Kernel Extract) from South East Asia to New Zealand which is shipped mainly in handysize bulkers and sometimes in supramaxes. Since New Zealand is exporting logs, PKE is mainly used as a backhaul cargo for the logger vessels which load out of New Zealand. It can also be a backhaul cargo for vessels willing to load in Australia.

Main Backhaul Trades in Atlantic

The best paying fixtures in atlantic market are those coming out of USG and East Coast South America, while in case of handysize bulkers North Europe is also usually very strong. Since it is not easy for the capesize and panamaxes to find backhaul cargoes to East Coast South America or USG/USEC, most of the times these vessels take the ballast back to USA or ECSA. However, a capesize or panamax, which is already positioned in the Atlantic, is considered as a good positioned vessel as compared with their competitors, which are trading in Pacific.

Therefore, when we speak for backhaul trades within Atlantic we have to mainly focus on the smaller sizes of handysize and supramax. According to Baltic Exchange, the route from USG to Skaw/Passero range is evaluated at USD 9,088/day while the return route from Skaw/Passero to USG is evaluated at USD 5,900/day. On the other hand, for handysize bulk carriers the route from ECSA and USG to Skaw/Passero is evaluated at USD 6,111/day and USD 5,364/day accordingly, while the return trip from Skaw/Passero range is evaluated at USD 5,450/day.

Therefore, the main backhaul cargoes within Atlantic are the following:

  • — Grains and Steel products from Black Sea countries (Russia, Ukraine) to West Med, North Europe and USG.

  • — Sulphur from Black Sea countries to Mediterranean Sea.

  • — Steel products from Turkey to USG which mainly takes place with handysize or supramax bulk carriers.

  • — Cement and Clinker from Turkey and Greece to USA. Handysize and handymax vessels are used in this trade.

  • — Fertilisers from North Europe and Baltic Sea (e.g. Russia and Norway) to USA and ECSA with handysize and supramax bulkers.

  • — Steel products and cement is also loaded ex North Europe and Baltic Sea mainly to USA usually by using handysize or supramax bulkers.

The Ballast Bonus

This is something which is mainly met in the time charter industry and not the voyage/freight market. During the good market days that demand for vessels is higher than supply when the vessel is fixed on time charter trip or period time charter, it is also usual the Charterers to pay a bonus to the Owners for repositioning the vessel to the loading port. This is more common in panamax and capesize bulk carriers which may need to take longer ballast legs in order to reach the loading port, but not unusual in smaller sizes as well. For example, nowadays, a panamax bulker is fixed for delivery APS Argentina or Brazil to load grains with discharge/redelivery in China at a hire rate of about USD 7,000/day plus a ballast bonus of about USD 340,000 lumpsum. The ballast bonus covers the bunker expenses and maybe some additional costs which happened during the ballast voyage. This strategy is mainly used from shipowners or operators who expect a market improvement within the next couple of days/weeks and instead of fixing a backhaul cargo – which will take time – or instead of fixing their vessel basis delivery Singapore at a much lower hire rate, they take the market risk and start ballasting to East Coast South America (or any other loading port) while they fix their vessel before vessel’s arrival at the loading area.
Stay tuned and subscribe to our blog posts. Next time we will dive deep into main backhaul routes of Mediterranean and Baltic Seas.

OpenSea strives to give additional value to its users by offering more options in order to cover their backhaul cargoes so as to improve the economical efficiency of each voyage, the overall fleet utilization and the long-term market performance.

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