Archives for category: Containers

We’re well into the Year of the Rooster in China now, but trade figures for last year are still coming in and it’s interesting to see what a major impact China still had in 2016. Economic growth rates may have slowed, and the focus of global economic development may have diversified to an extent, but China was very much still at the heart of the world’s seaborne trade.

Not A Lucky Year

In 2015 the Chinese economy saw both a slowdown in growth and a significant degree of turbulence. GDP growth slowed from 7.3% in 2014 to 6.9%. Steel consumption in China was easing and growth in Chinese iron ore imports slowed from 15% to 3%. Coal imports slumped by an even more dramatic 30%. Container trade was affected badly too. China is the dominant force on many of the world’s most important container trade lanes and is involved in over half of the key intra-Asia trade. Uncertainty in the Chinese economy in 2015 took a heavy toll on this and intra-Asian trade growth slumped to 3% from 6% in 2014. Going into 2016, there was plenty of apprehension about Chinese trade, and its impact on seaborne volumes overall.

Back In Action

However, things turned out to be a lot more positive in 2016 than most observers expected. China once again underpinned growth in bulk trade, with iron ore imports surprising on the upside, registering 7% growth on the back of producer price dynamics, and coal imports bouncing back by 20%. Crude oil imports into China also registered rapid growth of 16%, supported by greater demand for crude from China’s ‘teapot’ refiners.

In containers, growth in intra-Asian trade returned to a robust 6%, and the Chinese mainlane export trades fared better too, with Far East-Europe volumes back into positive growth territory and the Transpacific trade seeming to roar ahead. Overall, total Chinese seaborne imports  grew 7% in 2016, up from 1% in 2015, with Chinese imports accounting for around 20% of the global import total. Growth in Chinese exports remained steady at 2%.

Thank Goodness

Despite all this, seaborne trade expanded globally by just 2.7% in 2016. Thank goodness Chinese trade beat expectations. Of the 296mt added to world seaborne trade, 142mt was added by Chinese imports, equal to nearly 50% of the growth. Unfortunately, this was counterbalanced by trends elsewhere, with Europe remaining in the doldrums and developing economies under pressure from diminished commodity prices.

Rooster Booster?

So, 2015 illustrated that a maturing economy and economic turbulence could derail Chinese trade growth. But China is a big place, and 2016 shows it still has the ability to drive seaborne trade and that the world hasn’t yet found an alternative to ‘Factory Asia’. 2017 might see a focus on other parts of the world too, with hopes for the US economy, India to drive volumes, and developing economies to potentially benefit from improved commodity prices. But amidst all that, China will no doubt still have a big say in the fortunes of world seaborne trade. Have a nice day.

OIMT201702

Last year saw a huge amount of change in the under pressure container shipping sector. In particular, the ongoing consolidation of the sector in one form or another grabbed the headlines. To put this into context, it’s interesting to see how the level of consolidation relates to other parts of shipping, how it has developed over time and how it might progress looking forward.

Solid In A Fragmented Field

It’s quite clear that the shipping industry is a fairly fragmented business. On the basis of start 2017 Clarksons Research data, 88,892 ships in the world fleet were spread across 24,267 owners. That works out at less than 4 vessels per owner. Although 145 owners with more than 50 ships accounted for almost 12,000 of the vessels (and 29% of the GT), it’s still not that consolidated. The liner shipping business however is one the more consolidated parts of shipping, as well as being home to some of the industry’s larger corporates. At the start of the year, the 5,154 containerships in the fleet were owned by 622 owner groups, about 8 ships per owner, but, perhaps more pertinently, were operated by 326 carriers, about 16 ships per operator. Each of the top 8 operators deployed more than 100 ships. But despite the less fragmented nature of the sector, recent market conditions have led to another round of consolidation in the box business.

All Change At The Big End

The three largest operators (by deployed capacity) at the start of 2017 were European: Maersk Line (647 vessels deployed) followed by MSC (453) and CMA-CGM (454). Of the remaining carriers in the top 20 all but three were based in Asia or the Middle East. However, what’s really interesting is that out of the 20 largest carriers back in late 2014, 4 are now gone. CSAV was acquired by Hapag-Lloyd, NOL/APL by CMA-CGM and the two major Chinese lines merged. And of course in late summer 2016, the financial collapse of Hanjin Shipping marked the sector’s biggest casualty in 30 years.

Long-Term Liner Trends

Against this backdrop, the graph shows  that the latest wave of box sector consolidation is actually part of a long-term trend. Back in 1996 the top 10 carriers deployed 45% of capacity and at the start of 2017 that figure stood at 70%. The coming year is set to see Hapag-Lloyd complete its merger with UASC, and Maersk Line’s planned acquisition of Hamburg-Sud is also awaiting necessary approvals. The second half of last year also saw the three major Japanese operators declare their intention to merge containership operations in a joint venture due to be established this year and start operations in 2018. The ‘scenario’ based on these changes would see the top 10’s share at 79%, nearly twice as much as 20 years ago.

Tracking The Top Table

So, the container sector is one of the more consolidated parts of shipping, and both the long-term trend and recent developments point towards ongoing consolidation. Many hope this will help the recalibration of market fundamentals and eventually support improved conditions. In the meantime, we’ll be publishing the ranking of the top containership operators every month, so watch this space.

SIW1259

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.

 SIW1258

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.

SIW1247

Eight years ago, the onset of the financial crisis following the demise of Lehman Brothers heralded a generally highly challenging time for many of the shipping markets, which today remain under severe pressure. But even within the relatively short period of history since then, different sectors have fared better or worse at various points along the way. This week’s Analysis examines the cumulative impact…

What Was The Best Bet?

So how would a vessel delivered into the eye of the financial storm in late 2008 have fared? The Graph of the Week compares the performance of three standard vessel types. It shows the monthly development of cumulative earnings after OPEX from October 2008 onwards for a Capesize bulkcarrier, an Aframax tanker and a 2,750 TEU containership.

A Capesize trading at average spot earnings would have generated around $37m in total, benefitting from market spikes in 2009-10 and 2013. But with Capesize spot earnings hovering near OPEX in recent times, the cumulative earnings have not increased much since mid-2014. For a hypothetical vessel delivered in October 2008 (and ordered at the average 2006 newbuild price of $63m) those earnings would equate to close to 60% of the contract price (note that if the vessel was sold today, this would result in a net loss of c. $8m, taking into account the earnings after OPEX, newbuild cost and sales income but not finance costs).

Totting Up Tanker Takings

By contrast, Aframax tanker earnings hovered close to OPEX for several years after the downturn, with far fewer spikes than in the bulker sector. However, the 2014-15 rally in the tanker market allowed the Aframax to start playing catch-up, and cumulative Aframax earnings between October 2008 and September 2016 reached around $31m. This represents around 50% of the value of a newbuild delivered in 2008 (with a newbuild price at the 2006 average of $63m), not too far from the ratio for the Capesize.

Bad News For Box Backers

Containerships haven’t really seen similar spikes, with the charter market largely rooted at depressed bottom of the cycle levels since 2008, battling with a huge surplus created by falling consumer demand and box trade in the immediate aftermath of the crash. With earnings close to operating costs for much of the period, a 2,750 TEU unit generated cumulative earnings after OPEX of just $6m from October 2008, around 10% of the average newbuild price in 2006 ($50m). The timecharter nature of the boxship business would also have potentially reduced owners’ upside when improved rates were on offer, and there was an ongoing chunk of capacity idle too.

The Stakes Are Still High

So, despite persisting challenging conditions overall, some of the shipping markets have seen significant ups and downs since 2008. Though boxships have seen limited income, interestingly similarly priced tanker and bulker newbuilds delivered heading into the downturn might have offered roughly comparable accumulated returns on the outlay. With conditions currently weak across most sectors, owners today would surely love to see any form of accumulation again.

SIW1245>

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.

SIW1244

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