Archives for category: ClarkSea index

Next month over 50,000 will gather for the biennial SMM fair in Hamburg. Since the last fair (coinciding with the lowest ever ClarkSea Index!) there have been major developments, not least in environmental regulation. Despite an eroding newbuild orderbook, a modest uptick in ordering and recent enthusiasm for scrubbers are set to combine with plenty of positive discussion around technology and digitalisation!

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

After reporting on a range of gloomy statistics in 2016, has shipping been able to pick itself up from ‘rock bottom’? Strong trade volumes, a record S&P market and improving bulker and containership markets have all provided some welcome relief. But challenges in the tanker, gas and offshore markets continue while uncertainty around environmental regulation builds. As ever, it’s been an interesting year!

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

At this time of year, icy conditions are not uncommon, but the warmth of the festive season is usually enough to melt even the coldest of hearts. Going into this year, shipping market activity might have still felt pretty iced up for many, but increased activity in a number of core areas in 2017 has seen the shipping market temperature rise a little…

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 last year’s half year shipping report, we reported on an industry that “must do better”. With the ClarkSea Index averaging $10,040 per day in the first half (up 2% y-o-y but still 14% below trend since the financial crisis) there are still many subjects (sectors) struggling for good grades as our Graph of the Week shows. But are there some that are showing a bit more potential?

Don’t Rest On Your Laurels!

A year on from record lows, bulker earnings remain below trend (defined as the average since the financial crisis) but are showing signs of improvement. Capesize spot earnings moved from an average of $4,972/day in 1H 2016 to $13,086/day (75% below trend versus 33% below trend). Indeed, based on the first quarter alone, Panamax earnings moved above trend for the first time since 2014 and we have certainly seen lots of S&P activity. The containership sector has responded to the Hanjin bankruptcy with another wave of consolidation (the top ten liner companies now operate 75% of capacity) and some improvements, albeit with lots of volatility, in freight rates. Improved volumes, demolition and the re-alignment of liner networks, helped improve charter rates and indeed feeder containerships rates have moved above trend for the first time since 2011. Although some gains have been eroded moving into the summer, fundamentals for both these sectors suggest improvements in coming years but it may be a bumpy road!

Dropping Grades!

After solid marks in last year’s reviews, the tanker sectors tracked here have moved into negative territory compared to trend, with the larger ships feeling the biggest correction as fleet growth, particularly on the crude side, remains rapid and oil trade growth slows. Aside from a small pick-up in the LNG market in recent weeks, the gas markets remain weak, with VLGC earnings 42% below trend. Some increased activity, project sanctioning and investor interest has not yet taken offshore off the “naughty step” .

Still Top Of The Class?

The only sector significantly above trend for the first half is Ro-Ro, with rates for a 3,500lm vessel averaging euro 18,458/day, 42% above trend. There also continues to be strong interest in ferry and cruise newbuilding (the 2 million Chinese cruise passengers last year, now 9% of global volumes, is supporting a record orderbook of USD 44.2bn, as is the interest in smaller “expedition” ships). We must also give a mention to S&P volumes that are 60% above trend (51m dwt, up 50% y-o-y) and to S&P bulker values which improved 25% in the first quarter alone.

Showing Potential?

Upward revisions to trade estimates have been a feature of the first half, and we are now projecting full year growth of 3.4% (to 11.5bn tonnes and 57,000bn tonne-miles). Although demolition has slowed (down 55% y-o-y to 16m dwt), overall fleet growth of 2.3% is still below trend but an increase on 1H 2016 (1.6%). While there has been some pick-up in newbuild ordering to 24m dwt (up 27% y-o-y), this remains 52% below trend. Last year we speculated on an appointment with the headmaster – still possible but perhaps this year extra classes on regulation and technology? Have a nice day.

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“Look after the pennies and the pounds look after themselves” goes the saying, a mantra the shipping industry has a long taken to heart. In this week’s Analysis, we review trends in ship operating expenses (OPEX) that have taken the total cost base of the shipping industry through the $100 billion barrier for the very first time.

Watching The Pennies!

Of all global industries, perhaps few have had the extreme cost focus of shipping over the past 30 years. During the 1980s recession, any operating “fat” was largely removed with the growth of open registries and a drive to outsourcing. This helped shipping, alongside its near “perfect” competitive economic model, deliver exceptionally cheap and secure freight, in turn a key facilitator of globalisation.

Nice And Lean…

OPEX response since the financial crisis has been relatively modest. Our average OPEX index (using the ClarkSea “fleet” mix and information from Moore Stephens) shows just a 1% decrease in OPEX since the financial crisis to $6,451/day in 2016. By comparison, the ClarkSea Index dropped 71%, from $32,660/day in 2008 to $9,441/day in 2016 (a record low). In part, this modest, albeit painfully achieved, drop reflects upward pressures from an expanding fleet and items such as crew and ever- increasing regulation. However it also reflects the already lean nature of OPEX.

$100 Billion And Counting…

Our estimate for aggregate global OPEX for the world’s cargo fleet has now breached $100 billion for the first time, up from $98 billion last year and $83 billion in 2008. The largest constituent remains crew wages ($43 billion covering 1.4 million crew across the fleet). By comparison aggregate ship earnings for our cargo fleet fell from an eye watering $291 billion in 2008 to $123 billion in 2016!

Cutting The Fat…

One sector that has seen dramatic cost reduction has been offshore. Estimates vary, but 30% seems a reasonable rule of thumb for reductions in OPEX since 2014. While painful, this has been part of a process of making offshore more competitive against other energy sources (offshore contributes 28% of oil production, 31% of gas, and 16% of all energy) and one of the factors behind the increase in sanctioning of offshore projects.

Getting Smarter…

So shipping is one of the leanest industries around but is always under pressure to do more! It seems clear that squeezing cost in the traditional sense, offshore aside, will be pretty challenging — UK media reported on the docking of the 20,150 teu MOL Triumph, highlighting it was manned by only 20 crew! Getting smarter, collecting and using “big data” and technology and automation are all gaining traction. The industry’s fuel bill (accounted for outside of OPEX) is clearly a big target.

This will all require new technology, skills and perhaps new accounting approaches. Plenty of food for thought but it seems like just going on another severe diet won’t work this time. Have a nice day!

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With the ClarkSea Index around $9,000/day, and many if not most of the major shipping markets under severe pressure, it’s hard to escape the conclusion that the shipping markets are a tough place right now, with limited pickings to share between owners. However, everything’s relative, and from one angle the size of the ‘pie’ might just be bigger than it seems…

How Big’s The Pie?

Last week the ClarkSea Index stood at $8,743/day, and during 2016 as a whole the index averaged $9,441/day, taking into account earnings in the tanker, bulkcarrier, gas carrier and containership sectors, across a selection of over 21,000 units at the start of the year. Estimating the aggregate annual earnings for the basket of vessels in question, that works out at $72.5 billion in full year 2016. To put this in context against the boom years of the 2000s, in 2007 the ClarkSea Index averaged $33,061/day across a basket of over 15,000 ships, generating aggregate earnings of $189.1bn, over two and half times more than in 2016.

In terms of average earnings levels, 2016 actually compares more equally to 1992, 25 years ago, when the ClarkSea Index averaged $9,786/day, or 1999 when it averaged $9,855/day. But of course the fleet has grown since those days and, in dwt terms, the basket of ships in the index in 2016 was 159% bigger than in 1999 and 219% larger than in 1992. Aggregate earnings in 1999 reached $43.6bn and in 1992 were $36.1bn. 2016’s total was 66% and 101% larger respectively. In today’s challenging markets it is food for thought that the earnings stream is still that much bigger than at similar earnings levels in the past.

A Bigger Bake

And furthermore, there’s a wider world of shipping outside the scope of the ClarkSea Index basket which is (hopefully) generating income too. If, for instance, the 2016 earnings of the ClarkSea Index basket were extrapolated on a $/dwt basis (it stood at $48/dwt) across the whole of the 1.7bn dwt world cargo fleet, the overall earnings of that wider fleet would have come to $85bn. That’s roughly the size of the economy of Ukraine!

Rising Cost Of Ingredients

However, having said all this, it’s not just about earnings. Costs need to be taken into account too. Using a weighted index of OPEX across the ClarkSea Index basket and subtracting it from aggregate earnings would imply an overall net cash flow in of $23.4bn in 2016 (this compares to around $150bn in 2007 and 2008). Helpfully, in recent decades fleet expansion has outweighed growth in OPEX so the net cash flow pie has grown compared to previous downturns too.

A Slice Of The Action

So, whilst market conditions are as challenging as any seen in the last few decades, the revenue ‘pie’, though hardly tasty yet, is at least significantly larger than it was last time that earnings were at a similar level. For the industry that means a larger pie to be shared around. In today’s difficult markets that could be helpful, but of course you have to get a big enough slice. Have a nice day.

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