Archives for category: bulkcarriers

One of the notable features of the shipping markets in 2017 was the record level of S&P activity, with reported sales volumes topping 90m dwt in capacity and more than 1,600 units. After a slow start in early 2018, this year’s activity levels subsequently picked up, but indications suggest a slower Q3 than one year previously. Where does this leave 2018 S&P volumes against last year’s record?

For the full version of this article, please go to Shipping Intelligence Network.

Shipping analysts spend plenty of time assessing the merits of the capacity in the fleet and the volume of seaborne trade. However, there’s another important aspect of the shipping industry which also tells us something important about market activity. Ports and port calls are the joints that hold the trade network together, the origins and destinations of cargoes and the key locations for the ships that carry them.

For the full version of this article, please go to Shipping Intelligence Network.

 

When shipping markets start to move into the next phase of the cycle following a downturn, sometimes the percentage increases in earnings can look very impressive indeed. But of course they’re generally from a low base. With some of the shipping sectors now moving into a new phase, how else might the improvements be put into a helpful context?

For the full version of this article, please go to Shipping Intelligence Network.

In recent years, in generally difficult market conditions, it has been no surprise that many sectors have seen a significant removal of surplus tonnage. This has been particularly notable in the bulkcarrier and containership sectors, and in the case of the Capesizes and the ‘Old Panamax’ boxships, it has been a bit like the famous race between the tortoise and the hare but with even more changes in leadership…

At The Start

Back in 2012, Capesize demolition was on the up with the market having softened substantially in 2011 on the back of elevated levels of deliveries. Meanwhile, ‘Old Panamax’ containership demolition (let’s simply call them Panamaxes here) was also on the rise with earnings under pressure. Across full year 2012, 4.7% of the start year Capesize fleet was sold for scrap (11.7m dwt) and 2.6% of the Panamax boxship fleet (0.10m TEU). In both cases this was working from the base of a fairly young fleet, with an average age at start 2012 of 8.2 years for the Capes and 8.9 years for the Panamax boxships.

The cumulative volume, as a share of start 2012 capacity, of Capesize demolition remained ahead of Panamax boxship scrapping until Sep-13, by which time 7.3% of the start 2012 Panamax boxship fleet had been demolished compared to 7.2% of the Capesize fleet. In 2013 the Cape market improved with increased iron ore trade growth whilst the boxship charter market remained in the doldrums. In 2013, Cape scrapping equated to 3.2% of the start 2012 fleet (7.9m dwt); the figure for Panamax boxships was 6.0% (0.24m TEU). The fast starter had been caught by the slow burner.

Hare Today…

But by 2015, Cape scrapping was surging once more, regaining the lead from the Panamax boxships. By May-15 the cumulative share of the start 2012 fleet scrapped in the Capesize sector was 13.7% compared to 13.4% for the Panamax boxships. Iron ore trade growth slowed dramatically in 2015, whilst the Panamaxes appeared to be enjoying a resurgence with improved earnings in the first half of the year ensuing from fresh intra-regional trading opportunities.

…Gone Tomorrow

But the result of the race was still not yet clear. Today the Panamaxes are back in front again, thanks to record levels of boxship scrapping in 2016, including 71 Panamaxes (0.30m TEU) on the back of falling earnings, ongoing financial distress and the threat of obsolescence from the new locks in Panama. Despite a huge run of Capesize scrapping in Q1 2016 (7.5m dwt), the cumulative figure today for Capes stands at 22.3% of start 2012 capacity, compared to 25.4% for Panamax boxships, remarkably similar levels.


Where’s The Line?

So, today the old Panamax boxships are back in the lead, but who knows how the great race will end? Capesize recycling has slowed with improved markets, but Panamax boxships have seen some upside too, even if the future looks very uncertain. Hopefully they’ll both get there in the end but no-one really knows where the finish actually is. That’s one thing even the tortoise and the hare didn’t have to contend with. Have a nice day.

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Many of shipping’s asset markets appear to offer a fairly reasonable level of liquidity most of the time, but just like the “Karma Chameleon” in the 1983 No.1 song, sometimes this can “come and go” due to a variety of factors. Recently, it appears that S&P market liquidity has been coming on strong in the main volume sectors, and once again there appear to be a number of different drivers behind the changes…

You Come And Go…

As in all economic asset markets, liquidity can change its hue according to the market environment, depending on the appetite of potential buyers and sellers to transact at a given level against a backdrop of a range of factors, including the availability of finance. From much lower or dropping levels of liquidity just a year or so ago, it seems that today S&P market liquidity has been on the up, with things looking increasingly active recently. The graph indicates, for the three main volume sectors, the monthly level of liquidity in terms of the volume of reported sales (in vessel numbers) on an annualised basis, as a percentage of the existing fleet at the start of each month. A 6-month moving average (6mma) is then taken to remove some of the month-to-month volatility and illustrate the general trend.

By George! A New High…

The lines on the graph (unlike in the song lyrics they’re not “red, gold and green”…) show how quickly the liquidity has risen in the main sectors. For bulkcarriers the 6mma has jumped from 4.1% in Feb-16 to 7.2% in Apr-17. In the tanker sector, it increased from 3.3% in Apr-16 to 4.6% in Mar-17, and in the containership sector it has leapt from 2.3% in Feb-16 to 5.5% last month. On a combined basis across the three sectors, the 6mma has increased from 3.5% in Feb-16 to 6.0% in Apr-17, and the monthly figure for Feb-17 reached 9.7%. The 6.0% figure represents the highest 6mma level of liquidity since the onset of the financial crisis in late 2008 (the low point being 2.5% and the average across the period 4.3%).

S&P’s Big Hits…

However, on inspection the drivers look a little different. In the bulkcarrier sector, as has been widely reported, with some improvements in freight market conditions buyer appetite appears to be back, and has driven pricing upwards. Reported sales volumes in the first four months of 2017 stood at 277 units, up more than 50% y-o-y. In the tanker sector, liquidity appears to be coming back after a period in which, against easing markets, prices may have been too high for buyers’ tastes. Again, volumes in the first four month are up by more than 50% y-o-y. In the boxship sector, meanwhile, it’s different once again, with distressed sales to the fore after the cumulative impact of markets which have until now been in the doldrums for some time. Mar-17 saw an all-time record monthly level of containership sales (44) and the year to date figure is closing in on the full year 2016 total.

In The Culture Club?

So, S&P liquidity can come and go, and recently it has clearly been on the way up. For those trying to transact to access tonnage, or exit the market, that’s a big help, and it’s good news too for asset players, an enduring part of the shipping market’s culture. Have a nice day!

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Once upon a time, before the Chinese economic boom captured so much of the attention of the world of shipping, the US was a more important demand source for seaborne trade. Its share of global imports is lower today, but the US still plays a key part in world seaborne trade. What’s the detail behind this backdrop and how might the big changes in US politics impact the trends?

In A Chinese Theatre

Looking back, in 2006, North American container imports accounted for 18% of world box trade, whilst 22% of global seaborne crude oil trade went to the US. In 2016, these figures were 13% and 12% respectively. Some of this change is relative: rapid growth in China and developing Asia has clearly reduced the US share of global trade. Nevertheless, US imports have actually fallen in many of the major categories of seaborne trade. The volume, however, is still highly significant, so changes in US trade patterns are of major importance. The import trades shown on the graph alone account for around 6% of global seaborne trade.

A Mexican Stand-Off

Looking forward, one key aspect is the clear scenario in which US policy under the new administration becomes more protectionist. The US is withdrawing from the mooted Trans-Pacific Partnership and there is the possibility of punitive tariffs. The focus is manufacturing: attempts to ‘re-shore’ production which once upon a time would have taken place in the West. This could have a negative impact on certain import trades. The US accounted for 23% of all car imports by sea in 2016. Tariffs could harm this trade, as could a more aggressive approach against alleged dumping of cheap Asian steel products (the US imported more than 30mt of steel in 2016, 8% of the global seaborne trade). Meanwhile, efforts to promote US products could imperil the c.4% pa compound growth rate of eastbound transpacific container trade since 2010, although more jobs in manufacturing might also support increased US consumer activity.

Spaghetti Western

Another key aspect relates to energy. The US economy was once driven by cowboys; more recently shale oil has taken a key role. This has reduced energy imports, the US’s largest import category. Crude and products imports fell 45% in the last decade, whilst LNG imports dropped by 86%. Pro-energy industry policies of the new administration may have some further negative effects on hydrocarbon imports, though the set-up of US refineries means that some heavy crude imports are needed to ensure a balanced refinery slate. Conversely, oil industry-friendly policies could encourage exports, although additional LNG exports will partly depend on continued expansion of high-CAPEX liquefaction capacity.

 

Coming Up Next?

So, the backdrop is that seaborne trade is less dependent on the US than it once was, with some volumes that used to “Go West” increasingly heading to Asia. But, US seaborne trade does remain highly significant, and key elements appear potentially exposed to shifts in aspects of US policy. Though there may be pros as well as cons, looking ahead it’s clearly going to be important to watch closely for the impact of the big change in the US.

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Every year, readers of the Shipping Intelligence Weekly are invited to submit their predictions of the value of the ClarkSea Index at the start of November the following year. The predictions are always illuminating, indicating how market watchers feel the shipping markets may pan out in the coming year, as well as shedding light on how well they have fared in avoiding potential forecasting ‘traps’…

Treading Carefully

So far in 2016, the ClarkSea Index has averaged $9,131/day, 37% lower than the full year 2015 average, with earnings in each of the sectors that comprise the ClarkSea Index down in 2016. Although there was a general consensus that tanker and LPG carrier earnings would come off this year, with accelerating fleet growth expected, some were hopeful that earnings in the bulkcarrier and containership sectors had bottomed out and would see some upside. Whilst these views on the tanker and gas carrier sectors appear to have played out broadly as expected, year to date average bulker and containership earnings currently stand 20% and 33% down on full year 2015 average levels respectively, and on November 4th the ClarkSea Index stood at $9,207/day.

Avoiding The Traps?

In the past, the ClarkSea Index competition has often indicated that participants expect the market to improve in the coming year. However, this year, many participants have avoided this potential ‘trap’, with just one third of entrants expecting (or perhaps hoping) that the ClarkSea Index would stand above the full year 2015 average on 4th November 2016. In fact, only 20% of entrants expected the ClarkSea Index to improve to $15,000/day or above at that point in time.

However, the majority of participants’ entries failed to avoid another ‘pitfall’ of forecasting, not expecting (or perhaps not wishing) that overall market conditions would deteriorate further. Rather expectations appeared to be that the ClarkSea Index would remain broadly steady. Overall, the average of the entries was $13,442/day, broadly in line with the 2015 average of $14,410/day, with around 70% of competition entrants predicting that the ClarkSea Index would stand between $11,000/day and $15,000/day on the first week of November.

Circumventing The Pitfalls

As those in shipping are all too aware, predicting how the markets as a whole will fare in the year ahead is a tricky task, especially when considering the often contrasting fortunes of the sectors that make up the ClarkSea Index. Throw the issue of timing that prediction to a single week into the mix, and side-stepping the various traps becomes even harder. The average of the predictions was more than $4,000/day away from the actual result.

So, the ClarkSea Index highlights the still very challenging market conditions, and although some of the optimism of previous competition entries was not so evident this year, it was still the case that the majority of predictions were too high. Nevertheless, the competition as always provided one winner. This year’s closest prediction was a forecast of $9,042/day, just $165 away from the actual value. Congratulations to the winning entrant; the champagne is on its way.

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