Can Freight Boffins Ever Reform?

I was remarking with my buddies from a leading UK based shipping publication about whether freight boffins could actually move into the category of “reformed freight boffin”. I say “yes”- having “been there, done that” (and had tremendous fun doing so), but my UK friends say “no”. I guess we’ll have to agree to disagree on that one.

As I wrote, months ago, decarbonization of shipping is a trip to heaven (and maybe to the bank- no Poseidon memberships required) for boffins, analysts, and really for anyone who can concoct and embellish a spreadsheet that computes time charter equivalents for vessels. For those savvy analysts who can add a layer of carbon costs to the fuel, effectively overlaying carbon credit transactions on top of the bunker price, and possibly transact these aforesaid credits for principals in shipping deals, that’s truly a state of nirvana. I was amused to read that one shipbroker (sort of tied in with a big shipping company that has dabbled in decarbonization, big data and all of the good stuff) is now working with a world class consultancy on some digital kit to measure impacts of decarbonization on ships (and presumably to mitigate these revealed jolts through transactions that generate commissions). Gotta’ love it, as we say in New York. The best part is the revelation that the shipbroker and consultancy (which has been no friend of commoditized shipping, historically) are working up a platform that includes 130 variables as inputs. Harkening back to my boffin days, when Levelseas (which saw investment from a competing consultancy back then) was going to hook up 43 modules, I can see that we’ve advanced quite a bit. More on this in the coming weeks.

While my boffin-hood did not extend to liner shipping very much (well, maybe just a little), containerships and general cargo have been extremely newsworthy throughout 2021. Ship spotters at San Pedro Bay (where ships anchor while awaiting berths at Los Angeles and Long Beach) are now counting more than four dozen vessels waiting- up from a mere one dozen or so at the beginning of June. Some of the big carriers have now announced that they will hold the line on rate increases for the balance of 2021. My initial reaction was that some of the pressure from the Federal Maritime Commission, and from U.S. legislators representing agricultural exporters, was actually having an impact on carrier behavior- an outcome that, quite honestly, would have surprised me.

But then all those analytics and forward curves started to kick in. Observers have pointed out that the liners are now going to big customers and seeking to lock in longer term contracts. While the “spot” market has garnered a lot of the attention, the costs for longer tenor deals have also likely moved up- though I have no visibility into “forward” curves for such things. But presumably there is a term structure. So what a cool move by the liner guys. I don’t know whether the ceiling on 2021 rates is predicated on the cargo shippers signing a forward booking with the carrier (or whether the ceiling applies to all the extras). But, no doubt, the salesmen have their innuendos all rehearsed and have practiced the art of making an arm-twist feel like a gentle massage. Put some carbon surcharges into the bunker escalations, and the boffins will be jumping for joy! Speaking of jumping, maybe it’s time to jump back in.