Carbon Neutral Cargo: How Shipping Markets Are Approaching the EU's Emissions Trading Scheme

The UAE's Abu Dhabi National Oil Co. will supply German companies with LNG and diesel cargoes in 2022 and 2023 as Europe's biggest oil consumer seeks to diversify energy sources amid reduced supply of Russian gas and upcoming European Union sanctions on crude and oil product imports from Moscow. As part of a new Energy Security and Industry Accelerator agreement signed between the UAE and Germany, ADNOC will supply RWE with an LNG cargo in late 2022 to be used in the country's floating LNG import terminal in Brunsbuttel, state-run WAM news agency reported Sept. 25. ADNOC has also earmarked several other LNG cargoes for German customers for delivery in 2023, the agency said, without disclosing further details. The agreements were signed during a state visit by German Chancellor Olaf Scholz to the UAE, the second stop on a three-country trip that started in Saudi Arabia and will take him next to Qatar, where other energy deals are expected to be signed. ADNOC, which completed its first ever direct diesel delivery to Germany in September, has agreed to the terms with Wilhelm Hoyer GmbH & Co. on the supply of up to 250,000 mt of diesel per month in 2023, WAM said. German LNG demand As Russian gas deliveries dwindle from Nord stream, German utilities are working to diversify gas import portfolios and build up the limited import capacity for LNG. Uniper, RWE and EnBW on Aug. 16 signed a memorandum of understanding for gas supplies into the Wilhelmshaven and Brunsbuttel floating storage and regasification units, which are set to start operations this winter with a capacity of 12.5 Bcm/year. Germany is developing a total of five state-backed FSRU projects, but the focus is initially on supplying LNG into the Wilhelmshaven and Brunsbuttel sites. The FSRUs in Brunsbuttel and Wilhelmshaven are to be operated by RWE and Uniper. The reduction in Russian flows to Germany via Nord Stream since mid-June and then the complete halt in deliveries at the end of August have helped keep European gas prices at sustained highs. Platts, part of S&P Global Commodity Insights, assessed the Dutch TTF month-ahead price at an all-time high of Eur319.98/MWh on Aug. 26. It was last assessed on Sept. 23 Eur179.20/MWh, almost three times higher than at the end of 2021. Oil products supply Before Russia's invasion of Ukraine in February, Germany was the world's second-biggest buyer of Russian crude after China, importing 687,000 b/d of crude and 149,000 b/d of oil products from Russia in November 2021, according to the International Energy Agency. Most of the crude was delivered via the northern branch of the Druzhba pipeline system from Russia, with smaller amounts arriving via tanker to Rotterdam and its North Sea ports of Wilhelmshaven and Brunsbuttel. Germany had already seen most of its refiners and oil importers switch away from Russian supplies since March. By mid-April, the government said the country had slashed its dependence on Russian crude to 12% of its imports from 35% before the invasion of Ukraine. The UAE energy producer has also signed agreements with German customers, including power plant operator Steag and copper producer Aurubis for the supply of low-carbon ammonia. The first cargo of low-carbon ammonia from ADNOC arrived in Germany Sept. 15 on its way to Aurubis, which will use the low-carbon ammonia as a feedstock in its wire rod plant. The demonstration cargo, produced by Fertiglobe, an ADNOC unit that produces fertilizers, is the first of several test cargoes to be sent from the UAE to Germany as the UAE energy producer expands its strategic energy partnership. Low-carbon ammonia delivery ADNOC plans to work with several German companies on hydrogen projects and signed deals with companies including Uniper, Aurubis and RWE as it looks to expand into Europe after having establishing export markets in Asia. ADNOC signed an agreement with German companies Hydrogenious and Uniper on March 21 on imports to Wilhelmshaven, covering 7,000-10,000 mt/year of green hydrogen shipments from 2025, as part of a demonstration project. ADNOC aims to supply up to 25% of Germany's imported clean hydrogen and derivatives such as ammonia. The UAE is also targeting a 25% share of the global green and blue hydrogen market by 2030. As part of agreements signed on Sept. 25, UAE's renewable energy firm Masdar will also explore opportunities to develop as much as 10 GW in offshore wind in the North Sea and Baltic Sea in Germany by 2030, WAM said.

Platts, part of S&P Global Commodity Insights, will launch daily carbon-accounted Aframax dirty tanker freight assessments on four key routes in Europe, effective Aug. 1, 2022, to provide further transparency into this developing market. These new assessments will reflect the cost to move crude oil or fuel oil on an Aframax tanker on each route, including the additional cost required to offset 100% of the carbon dioxide emissions created through the combustion and exhaust of a ship's marine fuel through the European Union's Emissions Trading System (ETS). These assessments add to the suite of freight carbon intensity values and freight carbon intensity premiums Platts has already been publishing since October 2021 , which measure the impact of greenhouse gas emissions to transport various crude grades from production storage terminals to typical refinery locations around the world. The new carbon-accounted Aframax freight assessments will be published in Worldscale points as well as in US dollars/mt. The new assessments are: Assessment Name Cargo Size Daily Code Monthly Average Code Carbon-Accounted Aframax UKC-UKC WS 80 ANEUH00 ANEUH03 Carbon-Accounted Aframax Baltic-UKC WS 100 ANEUB00 ANEUB03 Carbon-Accounted Aframax Ceyhan-Med WS 80 ANEUF00 ANEUF03 Carbon-Accounted Aframax Black Sea-Med WS 80 ANEUD00 ANEUD03 Carbon-Accounted Aframax UKC-UKC $/mt 80 ANEUG00 ANEUG03 Carbon-Accounted Aframax Baltic-UKC $/mt 100 ANEUA00 ANEUA03 Carbon-Accounted Aframax Ceyhan-Med $/mt 80 ANEUE00 ANEUE03 Carbon-Accounted Aframax Black Sea-Med $/mt 80 ANEUC00 ANEUC03 Last July, the European Commission proposed adding shipping to the EU ETS gradually from 2023 to 2026, when shipowners would need to buy permits covering all their emissions inside the EU and 50% of their emissions from international voyages beginning and ending in the EU. The Environmental Committee of the European Parliament voted in May 2022 to delay the inclusion of the shipping sector into the EU ETS from 2023 to 2024, but require that 100% of emissions from intra-EU voyages be covered from the outset, dropping previous plans for a phase-in period between 2023-2026. The latest EU proposals will look to cover 50% of emissions for voyages into and out of the European Economic Area until 2027, and 100% of emissions of these voyages thereafter. The vessel speed and bunker fuel consumption used in the calculations of the new carbon-accounted freight assessments were arrived at by extensive market survey and reflect market practice. The calculations will use the daily EU Emission Allowance Nearest-December price (EADLP00) as published by Platts. The tank-to-wake carbon emissions based on the fuel consumption will be calculated using the carbon conversion factors published in Annex 1 of Regulation (EU) 2015/757 of the European Parliament and of the Council on the monitoring, reporting and verification of carbon dioxide emissions from maritime transport. These carbon conversion factors, to be published by Platts from Aug. 1, are: Assessment Name Value Daily Code Carbon Conversion Factor 0.5% VLSFO 3.151 t-CO2/t-fuel ASFOA00 Carbon Conversion Factor 0.1% MGO 3.206 t-CO2/t-fuel AMGOA00 Platts will publish the values defined in the relevant European legislation and will reflect any updates accordingly. The new assessments will be published in the Platts Dirty Tankerwire; on Platts Global Tanker pages PGT1960 and 1961, Platts Shipping Alert pages 1430 and 1431, as well as in the Platts price database under the codes above. Please send all comments or questions to shipping@spglobal.com and pricegroup@spglobal.com . For written comments, please provide a clear indication if comments are not intended for publication by Platts for public viewing. Platts will consider all comments received and will make comments not marked as confidential available to the public upon request.

Asian fuel oil was expected to face further downward pressure over July 25-29 as the market pushes increasingly into trading second-half August loading cargoes. The Asian low sulfur fuel oil market was likely to ease on the back of near-term demand-supply balance, pointing to an easing of availability of both finished grade product and low sulfur blending components in August. The Asian high sulfur fuel oil market, on the other hand, was likely to garner support in the near term on optimism that demand was likely to see an uptick from the utility sector, especially in the West, where high gas prices have turned focus on alternative burning fuels. Morning trades for the September ICE Brent futures contract were seen at $102.50/b at 0345 GMT July 25, down from $103.90/b at 0830 GMT July 22, Intercontinental Exchange data showed. Marine fuel 0.5% ** The Singapore marine fuel 0.5% August/September swap was heard pegged at $35/mt in mid-morning trade, unchanged from its assessment on July 22. ** The downstream low sulfur bunker fuel market was also likely to come under pressure in the near term. The Singapore-delivered marine fuel 0.5%S bunker premium over benchmark Singapore marine fuel 0.5% cargo touched a record high $117.85/mt July 20, but finished the week ended July 22 lower at $103.63/mt, S&P Global Commodity Insights data showed. ** The low sulfur bunker fuel premium was also likely to be further pressured in the Middle Eastern port of Fujairah by competitive selling interest. The Fujairah-delivered marine fuel 0.5%S bunker premium over Singapore marine fuel 0.5% cargo averaged $96.26/mt in the week ended July 22, down from $113.84/mt the week before, S&P Global data showed. ** Supply of South Korea's LSFO bunker for balance July delivery dates is expected to tighten as local refiners have mostly sold out July inventories, market sources said. ** Despite rising LSFO stockpiles at the North Asian bunker hub of Zhoushan, a forecasts for inclement weather over July 25-29 is likely to subdue demand and weigh on bunker premiums, local bunker suppliers said. ** Amid the recent inflow of LSFO replenishment cargoes to Hong Kong, traders expect rising inventories to soften bunker premiums, while downstream demand reportedly remains lackluster. High sulfur fuel oil ** The Singapore 380 CST HSFO August/September swap was pegged at $3.50/mt in mid-morning trade, up from $3/mt at the Asian close July 22, broking sources said. ** Determined buying interest saw the cash differential for Singapore 380 CST HSFO cargo over Mean of Platts Singapore 380 CST HSFO average a premium of 14 cents/mt in the week ended July 22, up from a discount of $2.46/mt the week before. ** The downstream 380 CST high sulfur bunker fuel market reflected the uptick in the upstream market, with the premium for Singapore-delivered 380 CST bunker rising to average $16.04/mt in the week ended July 22 from $15.25/mt the week before. ** Amid increasing arrivals of container liners calling at South Korean ports, which strengthened HSFO bunker demand, local bunker suppliers expect higher inflows of HSFO imports to slow the inventory drawdown. ** Lackluster demand for HSFO bunkers amid ample inventories is likely to pressure Hong Kong's bunker premiums, according to market sources. ** Market participants in Japan expect HSFO bunker premiums to remain competitive amid lukewarm downstream demand for late July-early August deliveries, while adequate stockpiles would likely also keep prices steady.

Asia-Pacific tankers are likely to be firm in the third quarter of 2022, driven by changing trade flows leading to longer voyages amid the lingering Russia-Ukraine war and slow growth in the fleet. While clean tanker freight hit an all-time high in June for some routes and a 26-month high for others, market participants and analysts expect that even dirty tankers will make gains in the current quarter. This is likely to benefit owners who can use rising earnings to retire costlier debt while it may further push up the delivered cost of cargoes, making oil and its products expensive for end-users. However, the growth in earnings will be stymied by record-high bunker prices. "Tanker freight is in early stages of a cyclical recovery, which is likely to continue in the third quarter, with strength gradually shifting from clean to dirty," said Oslo-based Ole-Rikard Hammer, senior analyst, oil and tankers, Arctic Securities. London-based Maritime Strategies International, or MSI, has forecast daily average spot VLCC earnings during Q3 at $4,500, taking into account voyages to China from the US and the Persian Gulf, compared with a daily loss $6,200 in the first quarter. It has forecast that compared with Q1, LR2 earnings on the Persian Gulf-Japan route may more than quadruple to $24,700 in Q3. Clean tankers will remain very strong due to a smaller orderbook for new ships, the imminent regulations on carbon emissions and the reorganization of the trade flows caused by sanctions on Russia, said Enrico Paglia, a Genoa-based research manager with Banchero Costa, or Bancosta. Oil demand Global oil demand is growing and inventories are very low, a classic setup for a trade upswing, Hammer said. This already became evident during the first half of 2022, with volumes approaching pre-pandemic levels, he added. International Energy Agency, or IEA has forecast that the global oil demand will surpass pre-pandemic levels in 2023 at close to 102 million b/d. Shipping executives across the globe are latching on to such projections, while painting a bright picture for tankers' freight. VLCCs have been reeling under pressure of a large fleet and brokers estimate the average daily losses so far this year in spot chartering on the Persian Gulf-North Asia routes at just over $5,000. Late in June, before the freight rose above the key psychological mark of w50, daily losses for VLCCs on these routes were more than $15,000, the estimates showed. Clean tankers have outperformed their dirty counterparts but now they too are expected to close the gap as refineries ramp up run rates, said Hammer. IEA estimates that expansion in global refining capacity will boost throughputs by 2.3 million b/d this year. War time energy trade With the Russia-Ukraine war in its fifth month, there is now greater clarity on changing trading patterns, which has given a boost to longer voyages, or ton mile demand and tankers' freight. Ton-mile demand is calculated by multiplying the volume of cargo moved in metric tons by distance traveled in miles. Covering a longer distance implies diminished availability of ships even if the total size of the fleet remains the same, or conversely, it offsets the increase in supply of tonnage. In May, crude shipments from the Middle East to Asia dropped by about 8% month on month, MSI's Director, Tim Smith said in a monthly report. OPEC production also fell by about 200,000 b/d from the previous month, he said. Earlier trade was lagging as OPEC+ cut output and companies cleared an overhang in inventories, said Hammer. Outlook has now improved. Western sanctions on Russia will push up freight for dirty tankers in the medium term, added Paglia. Volumes are increasing, not least because demand for cheaper Russian crude is high, said Hammer. Moreover, distances are lengthening with Russian barrels shifting to Asia, while more oil is coming elsewhere as a substitute from the US Gulf and the Persian Gulf. According to IEA, Non-OPEC+ is set to lead world supply growth through next year, adding 1.9 million b/d this year and 1.8 million b/d in 2023. Orderbook From next year, the tankers' fleet growth is expected to slow considerably to around 1% due to historically low orderbooks, which are currently equivalent to around 6% of the trading fleet and a slight pick up in demolitions, said Bancosta's Paglia. The tankers' orderbook is at least at a twenty-year low, added Arctic's Hammer. Low scrapping means there is still some fleet growth, but it is slowing and the level is manageable, he said. According to Bancosta's estimates, during the first five months of the year, the global dirty tankers fleet grew by 1.5% with the VLCC fleet expanding by 1.8%. During the same period the fleet size of clean tankers increased by 1.5%, but remains almost unchanged for relatively smaller sized ships due to a reduction of the number of handy tanker and LR1s amid scrappings. In dirty tankers, Iran remains a dark horse and Paglia said a strong boost to freight could come if sanctions on the country are lifted, as that would increase demand and force a significant part of older tonnage to the scrapyards.

The Russia-Ukraine war may have come as a shot in the arm for overall global decarbonization efforts, but the maritime industry is still far behind in that value chain to draw those resources, with significant progress required and favorable incentives needed to expedite shipping's decarbonization journey as it embraces a multifuel future, industry experts said. "I think it's sad. Whilst the world agreed that we had an existential threat and the need to decarbonize, we had to wait for a country to invade anther country to make us realize that we have to do something faster," Sanjay Kuttan, Chief Technology Officer at the Singapore-headquartered Global Center for Maritime Decarbonization, or GCMD, said June 16 at the S&P Global Commodity Insights Bunker and Shipping Summit, 2022. "We [globally] need to accelerate our efforts...So, I hope that even when the war ends, the pace of acceleration doesn't taper off because the existential threat affects not only one nation but the whole world," he said. Sanjay Verma, business development director at Warstila, also echoed a similar sentiment. However, he noted that it was imperative to take a holistic view. "We are far behind in that value chain for shipping to get that fuel [renewables] and truly it should be done again following the same logic of cleaning the world, not the ship," Verma said. Embracing a multifuel future When it comes to cleaner marine fuels, LNG, perhaps methanol, are the only alternatives that are viable today, Takeo Akamatsu, General Manager of Green Innovation Business Unit Plant Project, Marine & Aerospace Division at Itochu Corporation said. "We believe ammonia will come soon and some years later we may have the option of green LNG, green methanol and green ammonia," Akamatsu said. In April, Itochu Corporation said it had launched the Joint Study Framework for Ammonia Bunkering Safety, a framework for sharing issues and knowledge on safety and guidelines for ammonia bunkering with the aim of social implementation of ammonia use as a marine fuel, together with 16 companies and organizations. "We are now focused on Singapore for our pilot [project] and are working with partners to set up [a] bunkering station in Singapore...[separately] our target is to deliver the first vessel with ammonia-fueled engine in the first quarter of 2026," Akamatsu said. But Itochu is not the only one exploring ammonia's potential as a marine fuel. In January, the GCMD awarded its ammonia bunkering safety study to a DNV-led consortium. "It actually started off because we wanted to demonstrate that ammonia bunkering can be done safely as a physical activity," Kuttan said. "So, we need to get a policy sandbox from the regulators in Singapore that allows us to execute that and hopefully we can get the project on water in early 2024," he added. Meanwhile Kuttan noted that when one looked at the infrastructure to be delivered, biofuels were perhaps the "closest fuel that can be deployed today." There are some inherent challenges in terms of testing methodologies to ensure the right quality and quantity for blending but that by far is the easiest fuel, he said. Scaling it, however, is an issue presently and the old argument about competition with the food chain remains, he said. "All Wartsila engines can run on biofuels but if I look at shipping and the need of shipping -- the volume and the areas where it requires fuel -- for me LNG is the only option at the moment," Verma said. "This agenda of climate change is not to make shipping look good, it's to reduce the carbon footprint of the planet and you are not doing any justice [to this] by using methanol today [in] the way it is.... So why not use LNG and why use methanol on the ship?" he said. Carbon tax mechanism When it came to carbon offsets and carbon credits, Kuttan noted that there was no clear cut consensus in the industry on their effectiveness to achieve decarbonization. "When you look around the rules around the carbon credits which are additionality and the rules around sustainability of those offsets, especially considering upcoming regulations around CII, EEXI or EEDI in the past, one wonders whether the rules of additionality can be actually addressed from maritime carbon offsets," he said. "So, it's not a very straightforward application and we need to think through how to justify the carbon offset in line with the global regulatory requirements," he added. Compared to carbon offsets, a carbon tax is something which is "more doable", Verma said. It would directly incentivize owners who are investing in their fleet as well as create a level playing field, he said. Akamatsu agreed that using conventional fuel and then offsetting it was not the "proper direction" to take. There was a need for other mechanisms, he said. Meanwhile, another industry source opined that while carbon offsets could help in the short-term. "I don't think this mechanism will achieve the goals that a carbon tax will," he said, adding that the practice of carbon offsets could potentially get abused.

Shipping needs to smarten up its emissions rules if it is to decarbonize effectively, with the International Maritime Organization's new carbon metrics a prime candidate for review given the potential for unintended consequences, Eman Abdalla, global operations and supply chain director at Cargill Ocean Transportation, told S&P Global Commodity Insights on the sidelines of the Posidonia shipping industry event in Athens June 9. The next tranche of emissions-related regulations to hit the industry include the IMO's carbon intensity indicator (CII), which is an operational efficiency measure designed to increase fuel efficiency and decrease carbon emissions. The CII will be calculated by dividing a vessel's total fuel consumption by the number of nautical miles, based on which an annual rating ranging from A to E will be assigned to the vessel. First annual reporting will be completed in 2023, with the first ratings given in 2024. The potential problem with this system is that any means of lengthening the voyage can improve a vessel's CII, Abdalla said. Broadly speaking, a vessel's CII could be improved by installing energy efficient technology but also by reducing cargo volume intake, slow steaming, diverting from the shortest or quickest route on a voyage, or increasing the distance sailed, including ballast voyages. This is one of Cargill's chief concerns about the forthcoming international shipping regulations. Playing on the mathematics and increasing voyage time, such as ballast voyages, is a good example of a bad consequence of environmental legislation, Abdalla said. "Instead, we want regulations that are focusing on carbon intensity per ton-mile," she said. The effectiveness of the CII, along with the Energy Efficiency Existing Ship Index or EEXI, which measures the environmental credentials of the design of a ship, will be reviewed by the IMO before the start of 2026, based on which further amendments will be made. Levelling up on carbon reporting Creating a level playing field for reporting emissions is also an important area to work on, Abdalla said, noting that being able to accurately measure something is an essential step to being able to do something about it. "First of all, we are trying to bring greater transparency into the industry, through unifying methodologies and having regular reporting in place, through the Sea Cargo Charter," she said. The Sea Cargo Charter provides a global framework for aligning chartering activities with responsible environmental behavior to promote international shipping's decarbonization. Currently there is a range of different ways to report and to price carbon. Sticks and carrots Market-based measures to make polluters pay for the negative externalities they bring to shipping are also being discussed by the IMO and the European Union. Such measures are sticks that some market players believe will give an important push to cleaning up the shipping industry. But Abdalla said a more positive incentive would be clear regulations for renewable fuels, which could encourage more investment in these fuels. Ship owners currently have to think about investing in assets that could still be in use in 2050, despite the uncertain regulatory and commercial environment that far ahead. "I think once the right regulations are in place and there is more visibility of the right kind of regulatory frameworks then the energy companies are going to be incentivized to make the right investments in the new green fuels," she said.

In this episode of the Oil Markets Podcast, associate editors Stepan Lavrouk, Lawrence Toye and Kelly Norways discuss with John Morley the impact of the Russia-Ukraine conflict on the fuel oil and bunker markets. Our experts explore the tightness in the VLSFO market and the way refineries and buyers are adapting to the new market fundamentals, where many companies avoid Russian product while others benefit from discounted prices. Tell us more about your podcast preferences so we can keep improving our shows. Take our two-minute survey here: https://bit.ly/plattspod22 More listening options: No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor's Financial Services LLC or its affiliates (collectively, S&P).

The lockdowns in Shanghai have caused significant supply chain disruption around the world, but also falling container rates from their all-time highs. In this episode of the Commodities Focus podcast, Americas containers editor David Lademan speaks with Asia containers specialist Ayush Verma and managing editor George Griffiths about how the ongoing lockdowns in China amid their 'zero-COVID' policy have impacted global trade flows, and what to expect once the shutters reopen on Shanghai’s production facilities. Tell us more about your podcast preferences so we can keep improving our shows. Take our two-minute survey here: https://bit.ly/plattspod22 More listening options: No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor's Financial Services LLC or its affiliates (collectively, S&P).

In the background of the pandemic, IMO 2020 was reshaping the landscape of traditional marine fuels. Now, more than two years since the pandemic began, the US Gulf Coast 0.5%S market has established new standards for supplying this fuel. It came with unique blending challenges. The USGC HSFO market has also taken on a new life as a secondary option as a marine fuel. In this Oil Markets podcast, S&P Global Commodity Insights' Beth Brown and Patrick Burns discuss the recent decision to eliminate hand blends from trades reported in the Platts Market on Close assessment process in the US and how trading in these markets has evolved. This Oil Markets podcast was produced by Jennifer Pedrick in Houston. More listening options: No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor's Financial Services LLC or its affiliates (collectively, S&P).

Preliminary numbers that the Port of Los Angeles posted indicate a 5.8% drop in twenty-foot equivalent unit liftings for April against the same period a year ago, marking the second- busiest April in the port's history. While finalized numbers have yet to be released, the port estimated volumes would total 890,000 TEU for April. "A bit lighter compared to last year's torrid pace, but still strong numbers by any measure," said port Executive Director Gene Seroka at a May 6 briefing. Imports totaled 459,918 TEU, down 6.2% on the year. Empty container moves, while registering a 2% decrease against the year, remained well above pre-pandemic averages at 334,852 TEU. Soaring empty exports are indicative of ongoing national trade challenges, Seroka said, adding that efforts are needed to boost exports and ensure accessibility to US export shippers. Finalized cargo metrics will be released as soon as final April data is available, the port said in a May 6 statement. Looking forward Cargo is still finding its way out of ports throughout central China," Seroka said. "So far, there's been no dramatic change in number of vessels leaving China since lockdowns six weeks ago." The port projects May and June volumes to come in at the mid- to upper 800,000 TEU range. "While conditions could change. I don't foresee a bust coming in Trans-Pacific trade," Seroka said. "More likely, we may see a lull in volume with a fairly quick bounceback when the lockdowns end. If this lockdown goes deeper into May or June, these are issues we're going to have to grapple with." Platts Container Rate 13—North Asia-to-West Coast North America—was assessed at $8,500/FEU May 6, up $400 from the start of the week.

The shipping sector faces a massive challenge in decarbonizing to meet global climate goals. To accelerate those efforts, leaders at the COP26 climate change conference in Glasgow last year agreed to develop at least six green shipping corridors by 2025 and many more by 2030. The Biden administration has fully supported the plan and is urging private industry to also get on board. One of the more significant corridors to emerge is between the Port of Los Angeles, the busiest container port in the Western Hemisphere, and the Port of Shanghai, the world's largest port. Christopher Cannon, chief sustainability officer at the Port of Los Angeles , spoke with senior editor Meghan Gordon about how plans for the Los Angeles-Shanghai green shipping corridor are shaping up. They discussed the role fuel producers will play and which alternative fuels look most promising. Cannon also gives an update on efforts to ease West Coast port congestion and predicts another possible port backup when Chinese cities emerge from pandemic lockdowns. Stick around after the interview for Jordan Blum with the Market Minute looking at how workforce issues in the rail sector could affect shipments of oil feedstocks, ethanol, coal, grain and other commodities. This podcast was produced by Meghan Gordon in Washington and Jennifer Pedrick in Houston. Related content: Maritime sector eyes carbon price on bunker fuels as possible decarbonization solution CONTAINER QUARTERLY: Shippers look to USEC gateways amid USWC congestion, uncertainty Saudi Aramco still in engineering phase for ministry-ordered crude capacity expansion Enduring waves of climate change: Maritime decarbonization, a tempest before the calm More listening options: No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor's Financial Services LLC or its affiliates (collectively, S&P).

The global fuel oil supply chain has in the recent past been impacted by tight product availability due to the war in Ukraine and the subsequent restrictions on Russian oil purchases. The Asian fuel oil market, which accounts for roughly half of the global marine fuel demand, has been severely stretched too. One of the most significant incidents of fuel contamination in recent history at the world's largest bunkering hub Singapore has only exacerbated the tight supply situation. Not surprisingly then, Asian fuel oil market participants have been closely monitoring the evolving demand-supply dynamic in China, a major producer-supplier of marine fuel. They are tracking not only the impact from oil demand loss, but also, how it may potentially sway the government's decision on the timing and quantum of the second round of fuel oil export quotas. In this podcast, S&P Global Commodity Insights' Rajesh Nair , Atsuko Kawasaki and Zhuwei Wang discuss the various scenarios that are likely to play out and its impact on the Asian fuel oil market. Related Infographic: Markets brace for oil, gas demand destruction as China pursues zero-COVID policy More listening options: No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor's Financial Services LLC or its affiliates (collectively, S&P).

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.

All-inclusive container rates into North America were rangebound at depressed levels during the week ended April 22 amid weak demand for cargoes out of Asia. As many North Asian cities and production regions remain under lockdown, US cargo owner sources indicated that Asian exports were increasingly difficult to book, compounded by a raft of port omissions on the part of ocean liners. Despite this, demand remained low, as the market is off-season. "Not seeing anything in five digits," a North American forwarder source said. "No premiums at all, I don't know if that's just temporary because of what's happening in China." During the week ended April 22, S&P Global Commodity Insights heard scant all-inclusive rates on the North Asia-North America run at slight premiums to market FAK rates, although significant pockets of FAK space were available out of North Asian gateways, particularly on bookings made with new entrants and charter players. Sources pegged inbound premium rates at just $1,000-2,000/FEU above base rates for prompt loadings. While booking activity remained muted against pre-Lunar New Year demand, sentiment held that purchasing and resultant rates were primed to hike from mid-May onward as the market pivots towards the traditional peak import season. Southeast Asia-North America lane steady The all-inclusive premium rates on the Southeast Asia-North America route were largely stable in the week ending April 22. The all-inclusive container freight from Southeast Asia for East Coast North America was heard at $17,000-$18,000/FEU and at $15,000-$16,000/FEU for West Coast North America, sources said. The all-inclusive premium rate was steady despite softening of the basic FAK rate on the Southeast Asia-West Coast North America route. Basic freight on this route dropped by $1,700/FEU on the week to $7,800/FEU, as shippers preferred to route cargoes to the US East Coast in anticipation of delays on the west coast, where port labor union talks are expected to start in May. A source said the negotiations in the past have been rife with disputes that led to long delays in clearing shipments from ports. "This time logistics are already stretched, and shippers don't want to take any chances," the source said, adding that they are now preferring to shift cargoes to East Coast North America. Although there was a drop in basic freight, the premium on this route was stable. "Most shippers in the sport market are paying the premium price to secure bookings because even though the carriers display lower FAK rates on their websites, there is no space at that price point," another source said. Market participants expected premiums to increase in May once lockdowns in China are lifted and demand for containers from Far East Asia tightens equipment availability in Southeast Asia. Asia-Europe market trends further south Container rates from Asia to Europe continued to slip, albeit gently, over the course of the week as demand continued to tail off, with the market waiting for news from Shanghai before booking more goods to leave the region. "Rates are coming down because there just isn't demand, it's a simple as that," a European freight forwarder said. "Why pay for delays when you could just wait?" As a result of the lockdowns, however, delays have started rising at other Chinese ports, including a larger vessel queue offshore Shanghai. "People are starting to pick up their enquiry from SE Asia where they can," a third freight forwarder said. "There are a few other Chinese major ports that are seeing some form of spike in demand, if there is any way to move goods out of China, people are eyeing it up. Sadly as Shanghai is the largest port, no matter what people try and do, there simply isn't the capacity at other ports to export goods." Platts Container Rate 1, from North Asia to the North Continent, fell a further $100 on the week to $12,000/FEU, the same level as in mid-June 2021 and the lowest rates recorded for over ten months. Meanwhile, PCR11, from North Asia to the UK, fell $150 over the same period to $13,100/FEU April 22.

US President Joe Biden announced April 21 that US ports would ban all Russian-affiliated ships, a move seen as largely symbolic as the port calls are rare and the US has already zeroed out its imports of Russian oil. The UK and Canada previously blocked access to their ports by Russian-affiliated ships, and the EU has proposed a similar measure in response to the war in Ukraine. Biden said he was taking the step alongside allies to "further deny Russia the benefits of the international economic system." "That means no ship—no ship that sails under the Russian flag or that is owned or operated by Russian interests will be allowed to dock in a United States port or access our shores," Biden said. Russian shipowner Sovcomflot owns and operates 133 tankers, including 50 Aframax 17 Suezmaxes and two VLCCs. In the Americas, the Aframaxes have tended to be primarily employed on the US Gulf Coast-Transatlantic runs, as major oil companies transported light sweet US crude barrels to their Europe refining outlets. Currently none of the Sovcomflot-operated tankers are positioned in or heading toward the USGC, according to Platts cFlow trade-flow analytics software. "It already has impacted the Aframax shipping markets in the Americas," a shipowner said, commenting on the impact of President Biden's announcement that US ports would ban all Russian-affiliated ships. "Everybody has been dumping their time charters back in March. Sovcomflot vessels floated in the Gulf for two weeks initially when US sanctions on the import of Russian oil were announced in early March." A Russian-flagged crude oil tanker was seized in Greek waters April 15, according to Greece's maritime ministry. The Pegas has spent about a week off the Greek port of Karystos and its last port was Martas, Turkey, according to Platts cFlow trade-flow analytics software. The US Treasury Department Feb. 22 listed the Pegas among five Russian commercial vessels designated as blocked entities. They cannot access the US financial system, and US persons are banned from dealing with them. April 22 marks the end of the 45-day wind-down period for Biden's executive order banning US imports of Russian oil, natural gas, and coal. US imports of Russian crude zeroed out for the three weeks to April 15, according to the latest Energy Information Administration data. January-March imports averaged 54,800 b/d, down sharply from 2021 imports of 199,000 b/d, according to EIA data.