Back in 1951, in his ‘farewell’ speech, US General Douglas MacArthur famously noted that “old soldiers never die, they just fade away”. In the containership market today, the aged soldiers are to be found in the ‘old Panamax’ sector. Charter rates rest at rock-bottom rates and the fleet is in steady and perhaps terminal decline, with scrapping at record levels. Is the battle now lost?

Old Workhorses

In the 1990s and into the 2000s, Panamaxes (as they were correctly known then) were the classic ‘workhorse’ of the containership fleet. Designed with dimensions to transit the (now old) locks at the Panama Canal, in their heyday they proved extremely popular with the number of units of 3,000 TEU and above able to pass through the canal peaking at 969 in 2012, boasting back in 1996 a 32% share of containership fleet capacity. At the peak of the charter market in 2005, the one year timecharter rate for a 4,400 TEU Panamax reached $50,000/day. Although designed with canal transit in mind, Panamaxes became deployed widely. At the start of 2016, 17% were deployed on the Transpacific (mainly through the canal to the USEC) but 17% were deployed elsewhere on the mainlanes and 28% on north-south trades.

Battling On

These old soldiers have battled away bravely. In the 2000s ‘wide beam’ ships, of similar box capacity but with shallower draft, came into prominence but the ‘old Panamaxes’ held their own. The last orders for vessels of over 3,000 TEU of ‘old Panamax’ dimensions were actually placed in 2012. Even with heavy scrapping in 2013, the ‘old Panamaxes’ received a spur when increased numbers began to be deployed on parts of the intra-regional trade network, with their share of deployment there rising to over 30% in 2014, supporting a relative pick-up in earnings, with the one year charter rate for a 4,400 TEU vessel bouncing back from rock-bottom levels to over $15,000/day by early summer 2015.

Beating A Retreat

However, this may have been the last hurrah for the ‘old Panamaxes’. In June 2016 the new locks at the Panama Canal opened, allowing much larger ships to transit on the key Asia-USEC trade. Over 150 ‘old Panamaxes’ were deployed on that trade back then and today the total is down to about 70. Slow growth on north-south trades isn’t helping either, denying an easy retreat from the battlefield. This has led to the onset of major scrapping, with 55 sold for demolition this year, and 217 since the start of 2012. Rates have crashed (to levels below those for smaller ships) and asset prices have also hit the depths with a 10 year old at $6m, basically down to scrap value.

Leaving The Battlefield?

So, although plenty of ‘old Panamaxes’ are out there battling on, things are only going one way at the moment. The fleet has fallen from 969 units in 2012 to 796 at the start of October. If vessel deployment opportunities globally increase, a ‘rising tide’ might even support some of these ships, but in general a decline now appears to have set in. Like old soldiers, they may not all die at once, but it does look like many more ‘old Panamaxes’ are still set to fade away. Have a nice day.


Shipping plays a major role in the world’s industries, facilitating the transport of large volumes of raw and processed materials. However, the maritime sector forms a much more important part of the global supply chain for some commodities and industries than others. Comparing world seaborne trade in a range of cargoes to global production helps to make this abundantly clear.

Still In The Limelight

Looking at a range of cargo types (see graph), less than 50% of global production of each was shipped by sea in 2015, with a significant share of output consumed domestically. However, seaborne transport still accounts for a sizeable proportion of many of these cargoes, and a wide range of factors influence the level of dependence on shipping of each.

Compelling Cues

One obvious driver is the location of production and consumption. Crude oil is the commodity most reliant on shipping, with some 46% of crude output last year exported by sea, with oil output concentrated in a relatively small number of countries. Similarly, around 41% of global iron ore production was shipped last year, with limited domestic demand in key producers Australia and Brazil. Absolute and relative regional productivity also has an influence. Just 15% of coal output was shipped in 2015, with half of the 6.5bt of coal produced globally last year output in China, nearly all of which was consumed domestically. Still, China was the second largest coal importer in 2015, with regional coal price arbitrages driving trade.

Another key factor is the availability and efficiency of other transport modes. Twice as much natural gas is exported via pipeline than in a liquefied state by sea, with just 9% of natural gas output in 2015 shipped as LNG. Meanwhile, the level of processing of materials also has an impact. Oil and steel products are less reliant on shipping than crude oil and iron ore, with refineries and steel mills often built to service domestic demand.

Raising The Drama

However, the growth of ‘refining hubs’ has raised the share of refinery throughput shipped by almost 10 percentage points since 2000. This kind of trend is an important driver of shipping demand. The share of output of the featured commodities shipped rose from an estimated 22% in 2000 to 26% in 2015, generating c.720mt of extra trade. This equates to an additional 1% p.a. of trade growth, boosting trade expansion to a CAGR of 3.7% in 2000-15. Trade in some cargoes is more sensitive to shifts in the share of output shipped than others, but across the featured cargoes, a further change of 0.5% in the share of output shipped could create another 130mt of trade, 2% of current seaborne volumes.

No Sign Of Stage Fright

So, while trade in even the cargo most reliant on shipping accounts for less than half of global output, the world economy today is still dependent on the seaborne transport of 11bt of all cargo types. Overall growth in production and the distance to consumers are also clearly important demand drivers for shipping, but for the world’s industries there’s no denying the main part that shipping still plays in the supply of raw materials. Have a nice day!

SIW1243 Graph of the Week

As snooker players know, it’s hard to keep a good break going. In today’s conditions, the shipping industry needs supply-side re-positioning to help the markets back to improved health, and increased recycling in recent years has been a clear part of this. However, there’s still some way to go to better times, so it’s worth taking a look at how today’s ‘big break’ might leave the future potential scrapping profile.

The Big Break!

Since the start of 2009, a total of 206.6m GT of shipping capacity has been sold for recycling, compared to an aggregate of 63.1m GT in the previous seven years. This total includes 94.7m GT of bulkcarrier tonnage and 29.1m GT of containerships, helping to address oversupply in the volume shipping markets. But given such a prolific run of demolition activity, what does the future potential scrapping profile look like? Well, there are many measures that can be used to investigate this, including the metric featured in the graph. If the average age of scrapping is taken as a useful indicator of the current state of conditions facing owners in each market, then calculating the amount of tonnage remaining in the fleet at today’s average age of scrapping or higher might tell us something interesting, especially if ongoing market conditions persist.

What’s Left On The Table?

In the tanker sector, which up until fairly recently was backed by stronger market conditions, the average age of scrapping in the year to date remains relatively high, at 25 years for crude tankers and 27 for product tankers (bear in mind that not many tankers have been sold for scrap recently, and the average age may fall). Given that a lot of older single hulled tanker tonnage was phased out in the 2000s, the amount of tonnage above the average age today is limited. In the bulker and containership sectors, both under severe market pressure for some time now, the statistics are a little more revealing. Despite heavy recycling in recent times, the share of tonnage above the current average age of scrapping is 8% for Capesizes and 6% for Panamaxes. For boxships sub-3,000 TEU the figure is 10% and for those 3-6,000 TEU 12%. Of course if the average age of scrapping falls, then the picture changes again. In the 3-6,000 TEU boxship sector, the youngest ship sold for scrap this year was just 10 years old; around 50% of tonnage today is that age or older.

Cue More Demo?

What does this tell us overall? Well, using the sector breakdown shown in the graph, the statistics tell us that around 75m GT in the fleet is above the current average age of scrapping, 6% of the world fleet. At 2016’s rate of demolition, that’s another 2.4 years’ worth. And given the age profile of the world fleet, after another 2 years an additional 21m GT will have crossed the current average age mark and after 5 years another 77m GT.

Break Not Over?

So, what chance does the industry have of keeping the demolition pressure on? Well, obviously freight and scrap market conditions and regulatory influences will have a big say. However, it looks like, in today’s terms at least, the industry might be in a good position to keep the break going. Have a nice day.

SIW1242 Graph of the Week

Back in the past the gas shipping sectors may have been considered relatively niche within the world of global shipping. However, in the last two decades they have been amongst the faster growing parts of the industry. This week’s Analysis takes a look at how shipping’s ‘coolest’ sector has grown in prominence to become part of the mainstream, and some of the ups and downs along the way.

Keeping Cool

Gas (LNG and LPG) shipping may once have been considered by some as a relatively niche part of global shipping, with the fleet and trade volumes dwarfed by other sectors. Even today, LNG and LPG carriers account for just 5% of total world fleet GT, and LNG and LPG trade accounted for just 3% of global seaborne volumes in 2015. However, following phases of rapid fleet growth, the combined gas carrier fleet now stands poised to top 100 million cbm of gas carrying capacity next year, more than double the size of the fleet at the end of 2007.

Gas Expands

Following expansion in LNG trade in the late 1990s, in the mid-2000s a glut of new export terminal sanctioning led to a surge in LNG carrier contracting, peaking at 10.9m cbm in 2004. This supported average fleet growth of 15% p.a. in the period 2000-08, to 40.3m cbm at the end of 2008. In comparison the LPG carrier fleet grew more steadily, though trade growth was supported by increased export volumes from the Middle East and Europe. Between 2000 and 2008, LPG carrier capacity increased from 13m cbm to 18m cbm, at an average rate of growth of 4% p.a. Across this period combined gas carrier capacity grew by an average of 10% p.a. to total 58.2m cbm by the end of 2008. However, after the economic downturn, sanctioning of liquefaction projects slowed, which limited LNG fleet growth, and growth in the LPG sector slowed too. Between 2008 and 2014, combined gas carrier fleet capacity grew by a much less rapid 6% p.a. on average, with even slower growth in 2011-12.

Powering On

Nevertheless, since the start of 2015 it has been full steam ahead for the gas carrier fleet. With LNG carrier ordering backed by the return to liquefaction terminal sanctioning in the 2010s and the vision of a cleaner energy future, and LPG carrier demand supported by the advent of fracking in the US and refinery capacity expansion elsewhere, 26.1m cbm of combined gas carrier capacity was ordered in 2013-15. This has supported rapid fleet growth in recent years and since the end of 2014, LPG carrier fleet capacity has grown by 32% and LNG carrier fleet capacity by 12%.

Mainstream Profile

So, the gas sector’s profile is fully in the mainstream today, and despite it’s relatively limited share of the world’s tonnage and global seaborne trade, in other ways it accounts for rather more weight. Gas carriers are complex, high value units; they account for 15% of the shipyard orderbook in CGT (shipyard work) terms today, and for an estimated value of $78bn, 9% of the world fleet total. And with a 20-year compound annual growth rate of 8% in combined capacity, and the 100 million cbm mark just around the corner, surely that’s one of modern shipping’s success stories? Have a nice day.

SIW1241 Graph of the Week

Two high-level indicators of vessel and structure demand in the offshore sector are energy prices and oil company E&P spending. A third, slightly more specific indicator is estimated offshore project capital expenditure, or CAPEX. While this metric does not capture demand arising from, for example, offshore exploration campaigns, it can be a key proxy for demand resulting from offshore EPC activity.

CAPEX Defined

Since the start of 2010, around $980bn of CAPEX has been committed to some 669 offshore projects globally. But just what makes up offshore project CAPEX? As defined herein, it consists of estimated capital invested in the development, redevelopment or decommissioning of offshore fields; it excludes spending on licensing rounds, seismic surveys and exploration wells, as well as operational expenditure arising from manning and IMR at active fields. CAPEX is committed via EPC contracts, usually issued soon after a project final investment decision (FID), for items such as MOPUs, fixed platforms, pipelines and subsea trees, as well as support, installation and development drilling services. CAPEX also translates into field developments that create durable demand for OSVs. CAPEX data collected by Clarksons Research is as specified by project operators; where no definitive figure is given, estimates are derived from assessment of comparable projects with known CAPEX.

Measuring CAPEX

One advantage of CAPEX as a metric is that, unlike a count of project FIDs, it reflects the differing ‘weight’ of projects. Indeed, project CAPEX can vary by several orders of magnitude. The B-173A Expansion project off India, for example, entailed the installation of a second shallow water fixed platform on the B-173A gas field. The project, which started up in 2015, had a reported price tag of $67m. In contrast, the ongoing 230,000 bpd Kaombo Ph.1 development off Angola has a reported CAPEX of $16bn. This wide variation in costs helps to explain recent CAPEX trends. During the 2011 to 2013 boom years, estimated CAPEX averaged $204bn p.a. globally, supported by high energy prices and rising E&P budgets. As oil prices tumbled in 2014, CAPEX fell by 54% y-o-y. CAPEX in 2015 was steady on 2014, even though FIDs fell by 41%, as a few giant projects with low breakevens, such as Johan Sverdrup (Norway, $12bn) and WND Ph.1 (Egypt, $12bn), received FIDs. However, other FIDs have continued to slip in the downturn. CAPEX so far in 2016 stands at around $40bn, down 34% y-o-y on an annualised basis.

CAPEX As An Indicator

As offshore CAPEX has fallen, EPC tendering has suffered, and hence, for example, MOPU newbuild contracting has dropped from an average of 18 units p.a. in 2010 to 2013, to just eight units in 2015 and two in 2016 to date. Similarly, 16 pipelayers were contracted in the same period, but only one unit has been ordered since 2013, reflecting depressed utilisation and earnings. Until CAPEX begins to increase once more, these sectors are likely to remain challenged.

In terms of spotting a recovery, then, it is worth keeping an eye on oil companies’ offshore project CAPEX plans. For not only is CAPEX one of a range of factors affecting offshore markets; it is a useful indicator with particular relevance to EPC-led vessel activity and investment too.


During the summer, the cruise ship fleet surged past half a million berths of total capacity. The cruise industry is continuing to expand its horizons, and has seen strong newbuilding investment this year. Whilst many of the new ‘mega-ships’ will likely be heading to sunny climes, there have been developments at the small end of the sector too, for ships venturing forth to remote and often chilly destinations.

Look North…

Arctic navigation was once the preserve of intrepid explorers. In 1848, British explorer Sir John Franklin set out on an ultimately doomed attempt to navigate the Northwest Passage. His abandoned ship, HMS Terror, was finally discovered this month in near-pristine condition in 80 feet of water off Canada’s King William Island. Today, Arctic navigation is potentially less hazardous, and while many modern cruise passengers are not always seen as the most adventurous of folk, rising demand for ‘expedition’ ships has been an interesting feature of cruise ship ordering this year. Nine such orders have been placed in 2016 to date, including some for voyages to the Poles, with other contracts for small vessels catering for the high-end, luxury market. Overall, vessels with less than 1,000 berths have accounted for half of the 26 cruise ship orders placed so far this year.

Look Big…

However, it has been the rapid expansion in the ‘mega-ship’ sizes that has recently pushed the cruise fleet over its new milestone, and underpinned the expansion in the cruise ship orderbook to a record 60 units of 142,922 berths at the start of September. Around 70% of berth capacity ordered this year has been accounted for by ships of 4,000 berths and above, with many of the major brands confirming contracts. Having expanded robustly by a CAGR of 4.3% p.a. in 2006-15, growth in the cruise fleet is now likely to accelerate in the next few years, as more ‘mega-ships’ are delivered. Cruise operators retain a positive market outlook, with increased passenger volumes in Asia expected to be a key driver of global cruise passenger growth. Some experts expect Chinese cruise passenger numbers to reach 3-4 million by 2020.

Look Helpful…

Overall, 2016 is a record year for investment in the cruise ship sector, with estimated investment in the year to date at $8.9 billion, already up nearly 50% on the previous high reached last year. A large number of orders are also in the pipeline and are likely to be confirmed in the coming years, which could add at least another 65,000 berths to the orderbook (nearly half of the current size of the orderbook). Given the extremely subdued level of ordering in other vessel sectors, the cruise sector has accounted for almost 50% of the total estimated value of newbuilding investment in the year to date, and provided support to the European yards who dominate in this sector.

So, despite weak conditions prevailing in many of the major volume markets, at least the sun is still shining on one part of the shipping industry. Whether you’re looking for a trip to some warmer latitudes or a voyage to a more bracing environment, the next phase for the cruise sector might not be plain sailing but it should be an adventure. Have a nice day!

SIW1240 Graph of the Week

Marvel’s Iron Man, as depicted in the 2008 film, features industrialist and genius inventor Tony Stark creating a powered suit, later perfecting its design and fighting evil. While it was a gold titanium alloy rather than iron which was used to make the futuristic armour, iron-based materials such as steel are used incredibly widely in the world’s industries today, with clear implications for shipping too.

Steel At The Heart

The strength of Iron Man’s suit was what helped turn Tony Stark into a superhero. The versatility and strength of steel has made it today’s most important construction material, with 1.6 billion tonnes of steel produced last year. Over recent decades, steel became one of shipping’s superheroes, with the unprecedented growth in Chinese steel production leading to a doubling of global steel output between 2000 and 2014, and helping to underpin the biggest shipping market boom in history. Growth in China’s raw material demand was explosive, and by 2014, global seaborne iron ore and coking coal trade totalled 1.6 billion tonnes, one seventh of total seaborne trade.

A Dangerous Weapon

But even superheroes have weaknesses, and reaching new heights was problematic for Iron Man, when the build-up of ice on his suit at high altitudes brought him back down to earth with a bump. A distinct chill in the air has recently surrounded the steel industry too. Slower economic growth in China, which uses half of the world’s steel, led Chinese steel consumption to drop 5% in 2015, undermining steel prices. Difficult economic conditions elsewhere also limited steel use, with consumption in Latin America and the Middle East declining 7% and 1% respectively last year, and overall, global steel output fell 3%. Weaker demand for steelmaking materials was a key driver of the fall in seaborne dry bulk trade in 2015, despite a 20% surge in Chinese steel exports. The steel market remains challenging with world consumption expected to fall again in 2016, and dry bulk trade still lacks the power to boost the bulker markets back into higher altitudes.

In Need Of A Shield

Of course, steel also impacts the supply side of the shipping industry. In Iron Man’s final showdown with the ‘Iron Monger’, in the end it all comes down to a good design and precise timing, concepts close to any shipowner’s heart. As the very fabric of the ships themselves, steel is a key cost for shipbuilders, but volatile prices have just as big an impact at the older end of the market. With continued exports of surplus steel from China maintaining pressure on steel prices, there is limited light at the end of the tunnel for owners scrapping ships in difficult market conditions for values around 50% lower than just two years ago.

Iron World

So there you have it. An Iron Man with a will of iron can save the world, whilst steel can bring the world’s shipowners fortune and challenges in equal measure. Steel may no longer be the superhero of seaborne trade growth, but it is still the glue that quite literally holds the shipping industry together and keeps 11 billion tonnes a year of cargo afloat. Now that’s a superhuman effort. Have a nice day!

SIW1239 Graph of the Week