Archives for category: Fleet

One of the great stories of the Bible’s New Testament centres on the feeding of a multitude of 5,000 with just five loaves and two small fish. Shipping also has a notable 5,000 to feed in the form of the containership fleet. In this case, the feat has not only been continually finding enough cargo for the fleet to carry but also generating more capacity across a similar number of ships as time has gone by.

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

 

New Zealand’s Rugby World Cup victory has further cemented the now long-held dominance of the All Blacks in international rugby. But the performance of the European nations in this year’s World Cup was disappointing, and over the long-term in shipping too, focus has gradually shifted from Europe to the other side of the world, with Asia the increasingly dominant player in many parts of the maritime industry.

Another Round Kicks Off

The rise of Asia and especially China as key drivers of seaborne trade growth has over recent decades turned maritime eyes increasingly eastwards. Across many aspects of the shipping industry, Asia has consistently been moving up the league tables, but having slipped behind in the game, how does Europe’s position look now?

A look at overall economic performance suggests not. EU GDP growth is certainly improving after falling to -0.4% in 2012 (see graph), partly owing to low oil prices and the weak euro. But this recovery is far from convincing – growth is expected to remain below 2% this year. As a team performance, the overall impression of regional growth is one of distinct patchiness, with a weak showing in Greece and in countries exposed to difficulties in Russia partly offsetting improved displays in others such as France, Italy and Spain.

Trade Struggles To Convert

The implication of these trends on seaborne trade is similarly mixed. After notably firmer volumes in 2014, European container imports have slowed in the year to date, with volumes on the Far East-Europe route down 5%. Imports even into countries showing improved economic growth this year have declined. Asia remains the focus of box trade expansion, with Europe’s share of global imports set to fall below 14% this year.

In the dry bulk sector, China’s leap up the leaderboard has squeezed the share of EU imports in global iron ore and coal trade to 12% last year. China’s dry bulk imports are now coming under pressure, but the EU has been unable to claw back lost ground. However, in the crude oil trade, Europe has stubbornly stayed in the game, keeping a share of around 24% in global crude trade since 2010. With EU imports set to grow 8% this year, 2015 could see the EU drive a greater share of crude trade growth than China for only the second time since 2005.

Tackling The Leader

Moreover, an apparent bounce-back is currently being seen in fleet ownership. Asia’s rapidly growing fleet had reduced the share of EU owners in the world fleet to 35.5% in 2013 (see inset graph). However, a 15% expansion in the Greek-owned fleet since start 2014 has helped the EU to begin to even out the scoreline, and the EU’s share of the world fleet is now rising for the first time since 2008.

But No Turnover

So, some elements of European shipping now seem to be driving forward. But economic difficulties linger on, and in reality improvements have generally been only limited in scope. For now, just as the All Blacks must be feeling secure at the top, in the world of shipping Team Asia still seems well ahead of the European pack.

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For many of the markets covered by Shipping Intelligence Weekly, the first part of 2015 was relatively kind. Rates for crude and product tankers were riding high, boxship charter rates picked up for the first time in years and VLGC rates have hit levels above 2014 averages. Even Capesizes have recently shown signs of life. But spare a thought for the offshore sector, the hardest hit by the oil price decline.

Price Drop

Back in the downturn of 2008/09, most commodity and shipping markets felt the negative impact and the offshore markets were no exception, with dayrates dropping by an average of around 35% (see graph).  Moving forward to the current time, however, the 50% decline in oil prices since mid-2014 has brought some relief for merchant vessels, in the form of cheaper bunkers, and stimulated oil demand, helping trade. But cheaper oil has meanwhile put heavy pressure on the offshore sector, where field operators already faced cashflow problems as field developments ran late and over-budget. The response has been sharp cuts in exploration and production (E&P) budgets. It is estimated that spending on offshore E&P will fall by 19% this year.

Investment Cuts

This means investment decisions on new projects have been deferred, whilst expenditure to enhance recovery from existing fields has also slipped. Accordingly, drilling demand has fallen, just as deliveries of new jack-up and floating drilling rigs have accelerated. Rates for ultra-deepwater floaters are now almost 50% below their late 2013 peak, at around $300,000/day. This reflects the reduced demand in frontier areas for exploration and appraisal drilling, not helped by the corruption investigations in Brazil. Meanwhile, jack-up drilling rig rates have been equally hard hit, with shale gas production killing demand in one of their traditional major markets, the shallow water Gulf of Mexico. Utilisation of jack-ups is below 80%, and rates have fallen more than 35% to around $100,000/day.

Less Support For Vessels

This has had rapid knock-on consequences. The 5,365 vessels and 1,133 owners in the OSV market are also exposed to the downturn in exploration drilling and operational field maintenance. Fewer active rigs harms the AHTS market for rig towage and positioning, whilst PSVs rely on the growth in active offshore installations (drilling rigs, plus mobile and fixed production platforms) to add to demand. Rates for OSVs are down in all regions, by over 35% on average in terms of the index on the graph. PSVs have a further problem of a robust supply growth to contend with (and close to 40% of the fleet on order for the largest units over 4,000 dwt).

Of course, markets are cyclical, and the offshore sector had its moment in the sun during 2012/13, at a time when several of the merchant shipping markets were in the doldrums. Although the current oversupply in world oil markets of around 1.5m bpd is a clear short-term hurdle, projected demand trends suggest that higher oil prices remain a likely prospect in the long-term, and the improvement in other sectors suggests that there will eventually be light at the end of the tunnel for offshore too. It’s just that it could be a little way off yet. Have a nice day.
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On 14th August 1948, Don Bradman, Australia’s greatest cricketer of all, walked out for his last test match innings, at the Oval in London. Over 52 test matches, his average score was an astonishing 99.9 runs. All he needed was 4 runs for a test match average of 100 (sorry non-cricketers, you’ll have to check it out on Wikipedia). But he was bowled out second ball by leg spinner Eric Hollies.

Two Simple Rules

The moral of this sad story is that however experienced you are, two basic rules apply. Keep your eye on the ball and watch out for spinners that behave erratically. That seems to apply pretty well to today’s tanker market. The fantastic revival of tanker earnings started in October 2013, was interrupted by the summer dip in 2014, then picked up in October 2014. Since then it has not looked back, with crude tanker earnings generally averaging $40-$50,000/day. There is a little weakening right now, but sentiment appears to be confident for the winter.

Demanding Wicket

Against the background of a 2% fall in seaborne crude oil trade in 2014, US fracking and a lacklustre world economy, this earnings surge was a surprise. But there were some mitigating factors. Low oil prices are boosting demand and the IEA has revised up its forecast for growth in global oil demand in 2015 to 1.6m bpd.

Growth on long-haul trades has also helped. Between 2011 and 2014 Caribbean tonne-mile exports increased by 36%, largely due to increased shipments to China and India. That sounds good, but many VLCCs repositioned with a backhaul e.g. West African crude for Europe, and maybe a Transatlantic fuel oil cargo. Although handling fuel oil is time consuming, especially when it involves STS (ship to ship), this undermined some of the “tonne-mile” effect. And so did cargo-leg speeds, which appear to have edged upwards over the last year. But while the part played by demand may not seem entirely clear, there has still been a notable improvement in crude trade volumes this year, with seaborne shipments to major importers estimated to have increased by 4% year-on-year in 1H 2015.

It’s Supply, Stupid?

When we turn to supply, the picture becomes clearer. Until the summer of 2013, the crude tanker fleet was growing at 15-20m dwt pa. That’s about 5-6% per annum growth, well above demand growth. But by October 2013 growth had fallen to 2%, producing a nice year-end spike. The tanker supply slowdown kept on going and by July 2014 the crude tanker fleet was declining. Admittedly the growth has
edged up so far in 2015, but only to around 1-2% per annum.

Nasty Spinner In Sixteen?

So there you have it. Tanker investors have scored well in the last year, but, like Don Bradman, they must remember rule two and watch out for the spinners. Although fleet growth is sluggish, the crude tanker orderbook for 2016 could produce a “googly” as it pushes fleet growth back up to 6% (depending on demolition). Even with positive demand, tanker investors are going to have to keep their eye on that ball and hope it breaks the right way. Have a nice day.

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Successful investors are always looking to get on the right side of an uneven bet, and the shipping market has had an uneven look to it so far in 2015. There has been some improvement in earnings, and the Clarksea Index has risen to around 30% above its 2014 average. However, the upside has not been spread equally across the sectors at all, and the same could be said of trends in capacity growth.

Uneven Territory

Looking at the key markets, the LPG sector has continued to be a star performer, and tankers have had a great run in the year to date too. Containerships have seen charter earnings increase from historical lows, but poor old bulkers continue to see rock bottom levels. It’s an uneven picture to say the least. However, one factor that appears to be more even is the volume of capacity entering the fleet.

Flattening Out

Shipyard output looks fairly steady, with the 6-month moving average of deliveries averaging around 7-8m dwt per month for about a year and half now. As a result fleet growth has slowed from the c.9% level seen in 2010-11, and today the projection is for a fairly steady rate of growth in total cargo fleet capacity, with expected expansion of 3.5% this year and 4.1% in 2016. Is this good news? A high level view may suggest that, with a fair wind on the demand side, more moderate supply side growth at least should not make the underlying market surplus any worse. However, looking in more detail it is clear that the rate of capacity growth is highly uneven across sectors too.

Speeding Up

Supply growth in the key cargo vessel sectors can be split into three. In the fast lane we have those sectors where fleet growth is expected to speed up in 2016. LPG carrier capacity growth already looks rapid (VLGC capacity is projected to grow by 18% this year) and will accelerate again next year. Crude tanker fleet growth will also speed up (VLCC capacity is projected to expand by 6% in 2015). What sort of ‘landing’ might that bring for these markets? Capesize bulker fleet growth will ramp up to 5% in 2016 (as if this sector needed any more pressure), and after a few years of shrinkage the 1-3,000 TEU boxship sector will at last see some (much needed) expansion (1%).

Slowing Down

Supply growth in other sectors looks set to remain relatively steady in 2016 compared to 2015, but there are also a number of sectors where it is projected to slow in 2016. LNG carrier and Handy bulker supply growth will start to recede. Notably, expansion in the large (8,000+ TEU) boxship sector will begin to slow (20% in 2015 to 13% in 2016) whilst the medium-sized boxship fleet will staunchly continue to decline (by 2% in 2016).

So, market earnings are uneven today and despite the big picture suggesting that capacity growth will remain moderately steady across 2015 and 2016, delving into the detail suggests that supply-side impetus will be uneven from one sector to another. Some sectors might be start to feel fresh pressures whilst others might breathe a sigh of relief. Those aiming to get on the right side of the bet should look closely. Have a nice day.

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In today’s container shipping market, the presence of a group of ‘charter owners’ who account for a significant part of the fleet is an accepted part of the landscape. But this has not always been the case; it has taken a number of phases of investment to bolster the capacity of this important part of the boxship ownership spectrum, and in today’s environment it’s worth taking a closer look at the past.

An Equal Share

Container ‘liner’ operators deploy tonnage owned by themselves and also capacity provided by independent ‘charter owners’. In today’s fleet there are 5,126 boxships, and charter owners account for 2,722 of them, equivalent to 53% of the units and 48% of the TEU capacity. However, this wasn’t always the case. Back in the early 90s the liner companies owned 75% or more of the capacity, and the charter market was embryonic.

Phases One & Two

A key driver of change was increased investment in boxships in Germany backed by the ‘KG’ finance system, allowing ship owners and managers to access private investment, offering investors a tax break in the form of accelerated depreciation in return. 285 charter owned ships in today’s fleet were built in 1996-98 (Phase 1), 139 (49%) of them owned by German companies. By 1999 charter owners accounted for 35% of global TEU. Though the benefits of the KG system were eventually limited to tonnage tax gains, the early 2000s saw renewed German investment. Of today’s charter-owner fleet, 700 units were built in 2000-05 (Phase 2), 424 (61%) owned by Germans. This took the charter owner share of TEU to 47% by 2006. Some Greek and Japanese owners had also become established but Germans led the way.

Fast Then Slow

Phase 3 followed. During the great ordering boom, German owners invested even more heavily, swept along by positive sentiment and earnings, as well as the availability of ‘easy’ finance. Of today’s charter owner fleet, 1,113 units were delivered 2006-10, 701 (63%) of them German owned. By 2011, 51% of global TEU was charter owned. But with the credit crunch in 2008, the KG system collapsed and charter owner ordering slowed.

Time For New Phases?

Of today’s charter owner fleet, just 402 units were built in 2011 or since (Phase 4), with only 178 of them German owned (44%). The charter owner share of TEU began to fall. Although others entered the charter owner arena, including Greeks, Chinese and ‘new’ shipping money, nothing as yet has quite replaced the volumes provided by the Germans. Charter owners account for 68% of capacity on order today, but the average number of charter owner ships built in the last 5 years is half the number built in the previous 10.

So, with steady demand growth a reasonable bet, and an apparent gap in the investment profile, market watchers await to see who might step forward. Despite operators focussing their firepower on very large ships, today’s orderbook stands at a relatively modest 18% of the fleet. For investors looking to become a fixture, might boxship charter ownership offer opportunities for new phases?

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Money, or even love if you prefer, are claimed to make the world go round. For the shipping world, however, it’s trade that sets things spinning. Those wishing to grasp the magnitude of world seaborne trade might want to consider that it is projected to close in on 11 billion tonnes in 2015. Examining the statistics in more detail sheds further light on its role in the world economy.

What’s In The Basket?

Seaborne trade is made up of a wide range of commodities. Tankers and bulkers carry a huge amount of the tonnage. This year, the 11.0 billion tonnes (bt) will include of 3.2 bt of major bulks, another 1.5 bt of minor bulks and 2.8 bt of crude oil and refined oil products. But there’s plenty of room for other cargo too. Manufactures take their place with 1.7 bt of containerised cargo (which punches further above its weight in value terms) and another 1.1 bt of other non-bulk dry cargo (some still ripe for containerization). More specialised shipping completes the set, with 0.6 bt of liquefied gas trade and chemicals trade combined. These components tell us a lot about the shipping model, and the last two SIW feature articles noted the role of China: importing industrial raw materials in bulk, and exporting manufactures on containerships.

Popular Concept

This year world seaborne trade is projected to represent 1.5 tonnes of cargo for each person on the planet, up from 1.0t in 2000. As economic growth continues in developing economies, populations typically contribute more to world seaborne trade on a per capita basis, and as they ‘catch up’ with western world levels this drives increased trade (and a higher ratio). Even if the ratio remains unchanged, the current projection of 8.4 bn people on the planet by 2030 would mean an extra 1.7 bt of seaborne trade.

Multiplier Effect

Then there’s the ‘multiplier’ effect. Over the last 5 years, for example, the growth in world seaborne trade has clocked in on average at 1.13 times more than the growth in the world economy. As globalisation has taken hold, international trade has typically grown more quickly than world economic output. Seaborne container trade, for example, has enabled the connection of distant producers and consumers, and also the component trade enabling multi-location manufacture connected by low unit cost shipping. Discovery of natural resources in locations other than economic growth centres also helps. In 2015, the world economy is expected to grow by 3.5% but world seaborne trade is expected to grow more quickly, by 4.1%.

Keep It Going Round

Since the decline in 2009, seaborne trade growth has been quite consistent, averaging about 4%. Without the huge fleet dwt growth of 55% in the period 2008-14, the market downturn might have been less severe. On Shipping Intelligence Network, monthly tables and our Seaborne Trade Monitor report provide regularly updated seaborne trade statistics. At a rough estimate, seaborne trade constitutes over 80% of the global total volume by all modes. That’s some achievement, and until the world comes up with an alternative, it will keep on making the world go around. Have a nice day.

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