Archives for category: trade

This month marks the 25th anniversary of the publication of the very first edition of Shipping Intelligence Weekly. So, this week we take a look back to 1992 and compare the shipping industry then to its profile today. If this reveals anything it’s that whilst many things change dramatically, in an industry like this some things don’t appear to change too much at all…

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Wonderful World Of Trade

Seaborne trade provides the platform upon which the shipping industry operates. Back in 1992 world seaborne trade stood at an estimated 4.6 billion tonnes and in comparison current projections suggest that in 2017 it will reach 11.3 billion tonnes. That’s 2.5 times bigger than 25 years ago (see table). Iron ore trade is projected to be 4.3 times larger than back in 1992, LNG trade 4.5 times larger and container trade a mighty 6.3 times more voluminous. The 2017 seaborne trade estimate represents about 1.5 tonnes per person on the planet. That’s quite some performance all round and keeps the world of shipping turning.

My How Big You’ve Grown

Meanwhile, shipping capacity has also expanded equally rapidly. The fleet has grown by a multiple a little greater than that registered by trade over the 25 year period. At the start of 2017 the global fleet totalled 1.86 billion dwt compared to 621 million dwt at the start of 1992. That’s a multiple of 3.0 times larger. Of course, over the period there have been changes to vessel productivity, not in the least the moderation of service speeds in many sectors in the post-Lehman downturn.

What Things Cost These Days

Alongside these significant changes, the value of shipping assets has seen more mixed trends. A 5 year old VLCC was 8% cheaper at the start of 2017 (in current terms) than at the start of 1992 but such is the state of play in the bulkcarrier market that a 5 year old Capesize is 43% cheaper. Adjust these for inflation and the values look even lower. On the other hand the scrap value of ships is higher than in 1992 on the back of an 81% higher $/ldt ship steel scrap price.

Economic Activity

Despite the recent commodity price downturn, raw materials overall are substantially more expensive than back in 1992.  Brent crude stood at $54.8/bbl at the start of 2017 compared to $18.2/bbl in early 1992 and iron ore at $76.3/tonne compared to $33.1/tonne. Bunker prices (380cst Rotterdam) have increased from $69.0/tonne to $312.5/tonne.

Elsewhere only $1.24 of shipping’s universal currency is now needed to buy one pound sterling, compared to $1.83 back in 1992, but USD borrowing (6-month LIBOR) is much less dear at 1.3% rather than 4.2%. The world economy is still growing more quickly than back in 1992, projected at 3.4% in 2017 compared to 2.3%, and is over 3 times bigger at about $79 trillion. The size of the Chinese economy has rocketed from $0.5 trillion to $12.4 trillion, and the world’s population has expanded from 5.5 to 7.4 billion.

Nothing Changes?

Last of all, some things never seem to change. At the start of 1992 the ClarkSea Index of vessel earnings stood at $11,700/day. At the start of 2017 it stood just 5.2% lower at a remarkably similar $11,092/day. In between the index once tipped over $50,000/day; that’s a cyclical business for you! Now let’s see what changes the next 25 years throw up. Many happy returns SIW!

In the world of seaborne trade, distance forms a crucial element in terms of determining how much demand for vessel capacity is created by trade volumes. One interesting measure of this is the estimated average haul of global seaborne trade. However, since the turn of the millennium, the historical trend isn’t quite as easy to follow as one might imagine.

Back Where We Started?

Across the period 2000-15, estimated global seaborne trade increased by 70% from 6.4bn tonnes to 10.8bn tonnes. Over the same 15-year period, the total in terms of tonne-miles jumped 71% from around 31,300 to 53,500 billion tonne-miles. As a result of these very similar growth rates, the ‘average haul’ of each tonne of seaborne trade didn’t move too much across the period as a whole, inching up from 4,926 to 4,944 miles. That’s on average an upward trend of just 1.3 miles per year! However, through this period there were clearly elements of seaborne trade which were being stretched, but others where the average haul was shrinking.

Down Then Up, And Again!

In 2000-02 the overall average haul declined. Crude trade volumes were falling, particularly on some of the longer-haul trades from the Middle East and West Africa. The average haul of dry bulk trade was declining with a firm rise in  Australia-Far East coal volumes. In containers, the fastest growth was being seen on some of the intra-regional trades. However, in 2003-06, average haul rose again, almost back to 2000 levels, with firm increases in the average haul of iron ore and grain trade on the back of growing exports from the Americas to the Far East.

Then, in 2007-09 things turned again and average haul headed downwards once more. This included a drop in the average haul of coal trade on the back of a rise in short-haul Asian imports. The average haul of container cargoes also fell in 2007-08, partly driven by a strong increase in short-haul intra-Asian trade. Finally, in 2010-15 overall average haul increased once again, with a firm rise in the average haul of crude oil, underpinned by Chinese import growth, leaving us almost exactly back where we started in 2000.

Tonnes And Tonnes

So, across the whole of seaborne trade, the statistics actually tell us that it’s the expansion in volumes which has accounted for the lion’s share of the additional seaborne tonne-miles in the last 15 years. But trade patterns in individual cargo types do change, and no-one should rule out the possible impact of new longer trades; there are still parts of the global trade matrix to fill out further.

No Surprises?

However, so far this century, despite short-term fluctuations, average haul has not really changed too much. Maybe we shouldn’t be too surprised given the relatively fixed origin of many of the commodities moved by sea? The recent trend is upwards, but intra-regional trading blocs are becoming more cemented. Perhaps the best approach is to follow the advice of many a wise shipowner in challenging times: keep the cargo moving (and don’t worry about how far it’s going!).

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Generally, shipping industry watchers spend much of their time monitoring events out to sea: how fleets are evolving, trade volumes growing and freight rates performing. But occasionally it can be worth pointing the telescope in the other direction, and spending time considering how events on land can affect the industry. One such major land-based change has been the development of US shale oil and gas.

What No-One Saw Coming

Back in 2009, few would have dared predict that new fracking technologies would allow the US to add 10m boepd of unconventional output across a five year period. This is roughly the same net volume as was added to global offshore output between 2000 and 2015. The offshore markets have been amongst the hardest hit by the oversupply, and cuts in investment will make it harder to add to the 46.9m boepd set to be produced offshore globally in 2016. Since the oil price slump, rig rates have dropped by more than 50%, OSV rates by more than 35%, and today more than 300 rigs and 1,400 OSVs are laid up.

Shale In The Sights

One of the main factors which helped shale fracking to become widespread was the rapid recovery of the oil price after the 2009 downturn. This, of course, also helped the offshore sector have its day in the sun, before the downturn. But shale’s growth also had an impact on other shipping segments. US LPG exports grew at a CAGR of 71% in 2010-15. The growth of shale gas even led to proposals for the first transatlantic exports of ethane derived from it, and orders for ‘VLECs’ vessels followed.

The rise of shale gas also changed the LNG trade fundamentally. In 2010, US LNG imports were expected to be a major growth area. Today, the US has 117mt of under-utilised LNG import infrastructure (imports were just 1.86mt in 2015). Some projects have been converted to liquefaction, and up to 250mt of export capacity was mooted. One new project, Sabine Pass, is now exporting.

Telescoping Tank Capacity

Growth of US shale substantially reduced US import demand for light crudes. This primarily affected imports from West Africa. The transatlantic trade on Suezmaxes and Aframaxes fell from 1.8m bpd in 2010 to 0.3m bpd in 2014. But a 1975 ban on US crude exports prevented tanker exports of surplus oil, much of which is light grades for which US refineries were not ideally configured. US Jones Act tankers and tank barges benefited, as limited fleet supply for upcoast voyages sent coastal timecharter rates as high as $140,000/day in mid-2015, but there was no similar effect on international trade.

The US government has now eased the export restrictions, but this has come as lower oil prices have hit the rig count and output onshore. The lower oil price has caused shale to go into decline. Yet it has provided a nice boost for tanker trades, as low oil prices have stimulated oil demand from transportation and industry.

So, developments in the mid-west of America have had major ramifications for energy shipping and offshore markets globally. This is set to continue as the industry waits to see how shale responds to the slight oil price gain over Q2 2016. This only goes to demonstrate the need to keep this related land-based industry under surveillance. Have a nice day.

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Motoring terminology has always provided shipping analysts with a wide range of vocabulary to use when describing the car carrier sector. Last year demand growth appeared to have stalled, and the indicators suggest that there hasn’t been a significant acceleration this year. With the market improvements seen back in late 2013 now seemingly eroded, what are the signs on the road today?

Trade Growth Stalling

In some ways the signals are quite clear. The road has hardly been smooth for seaborne car trade in recent years. Volumes have yet to surpass the record level of an estimated 28.5m cars in 2007, with total trade in 2015 expected to total 26.7m cars. Trade fell by more than 30% in 2009, and while volumes have recovered to some extent, and increased by a helpful 4-6% per annum in 2011-13, growth in 2014 ground to a halt. Relocation of car production limited shipments from key Asian exporters, while imports into a number of key and emerging regions were affected by economic and political disruptions.

Similar trends have imposed a ‘speed limit’ on car trade growth this year, with volumes only on track to increase by around 1% in 2015. Strong car sales in the US and Europe have helped to drive some growth, but continued expansion of vehicle output close to major and developing demand centres, combined with economic difficulties significantly limiting imports into China, Brazil and Russia, has prevented further acceleration.

Down In A Low Gear

Meanwhile, growth in the PCC (Pure Car Carrier, including Pure Car & Truck Carrier) fleet has also decelerated in recent years, easing from 5% in capacity terms in 2013 to 2% in 2014. While the majority of car carriers operate under long-term agreements, the market is still impacted by supply and demand trends, and the slowdown in fleet growth appears, with demand looking lacklustre, to have been insufficient to prevent weaker fundamentals. Charter rates for a 6,500 ceu PCTC had improved in late 2013 and into 2014, topping $26,000/day in mid-2014. However they have since come under pressure and sentiment has become more negative during 2015.

Alternative Routes?

On the investment side, however, the indicators might be suggesting something else. Following limited ordering of new car carrier capacity in 2014, owners have put their foot down and in the first ten months of 2015 ordered units of 0.25m car equivalent capacity, more than in six of the last seven years. Replacement demand appears to have driven much of this, but there has been plenty of activity at the top end of the size range, so clearly some owners still think ‘big is beautiful’ and that the road ahead seems clear.

The Traffic Report

So, the car carrier sector may have hit a rather big jam. But down another road, there’s still plenty of traffic flow. Slow lane or fast, this all needs further examination, and each year, in our Car Carrier Trade & Transport report, we look at the trends in detail. This year’s report is available on the Shipping Intelligence Network now. Have a nice day.

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In the 1989 film Back to the Future II, Marty McFly and Doc Brown travelled forwards in time to 21st October 2015. While the film’s view of future technology has in many cases proved surprisingly accurate, today’s lack of hoverboards, flying cars and pizza hydrators suggests some were way off the mark. Such mixed success will likely seem very familiar to anyone attempting shipping market predictions today.

This Is Heavy, Doc

It is well documented that the incredible volatility in the shipping markets makes them very difficult to predict, even to seasoned market watchers, and so it can often be easier to try to predict the fundamentals. While Back to the Future II successfully predicted the broad trend towards the more widespread role of technology in everyday life, even the ‘big picture’ macro trends in the shipping industry can be hard to get totally right.

Not much seems ‘bigger picture’ than the world economy, and here forecasters have certainly revised their opinions over time. Taking the IMF’s views as a reasonable benchmark, it is clear how the projection for world economic growth in 2015 has moderated, from 4.0% in April 2014 to 3.1% in October 2015, as the outlook for global expansion has softened. The world also notoriously got it wrong on the oil price outlook. Throughout much of 2014, most expectations for oil prices in 2015 were for an average of above $100/bbl. But the crash in prices in late 2014 led to a major adjustment in future expectations, with most forecasters now projecting average prices in full year 2015 of around $60/bbl or below.

Time Circuits, On!

Pinning down forecasts for the big shipping aggregates can also be hard. Views of world seaborne trade in 2015 have recently changed significantly. In early 2015, the expectation for growth this year was 4.0%. However, following dramatic changes in imports of coal and iron ore into China, as well as a gradually more depressed outlook for container trade, the latest forecast for world seaborne trade growth in 2015 stands at 2.5%.

Speeding Up To 88mph

Even on the supply side, it can be hard to forecast with absolute precision. In early 2014, the estimate for growth in the world cargo fleet in 2015 (in terms of GT) stood at 3.5%. In early 2015, this rose to 4.2% as the likely outlook for deliveries and demolition changed, but with scrapping accelerating and then slowing again the outlook has changed once more. Today, the projection for growth in the cargo fleet is 3.9%, hopefully a fairly accurate figure with three-quarters of the year gone.

You Mean We’re In The Future?

So, what does this all tell us? Macroeconomic trends are notoriously hard to predict. Today, with the consensus outlook increasingly fragmented, the margin of error in forecasting seaborne demand is also significant. And even then the supply side can be tricky to pinpoint too. So, while forecasts of the fundamental balance do provide a helpful indication of expectations for future market trends, these should always be handled with caution. Marty and Doc might well be amongst the first to agree that the future doesn’t always turn out how you might expect. Have a nice day.

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Analysts are busy updating their models for the new US budget year. If the big picture for tankers and bulkcarriers is what interests you, it’s not enormously complicated. Everyone uses roughly the same information, and data for running supply-demand balances is readily available. Of course it’s a complex world, but one conclusion is recurrent – overall, there’s still plenty of surplus shipping capacity.

Same Surplus, Different Rates

The fundamentals have not changed much over the summer. Comparing ‘raw’ supply and demand figures, both the tanker and bulker sectors appear to have a surplus of around 25%. These are the same numbers that have been cropping up for a while. But earnings statistics tell a different story. Over the last year tanker earnings averaged $29,000/day (VLCCs $50,000, Suezmaxes $43,000 and Aframaxes $35,000). But bulkers only managed $8,000/day (Capesizes $11,000, Panamaxes $8,000 and Supramaxes about $7,600). If both markets have 20-30% surplus capacity, what’s going on?

Could the statistics be wrong? It’s possible but it’s hard to see how. In tankers, for example, 2015 seaborne oil imports are only 6% higher than in 2008 but the tanker fleet is 33% bigger. These statistics are fairly easily verified. Bulk trade is up 38% since 2008, but the fleet has grown 93%. There may be some extra tonne-miles, but not enough to change the conclusion that both markets are carrying a lot of surplus ships.

A Slow Moving Mystery

Another possibility is our old friend ‘slow steaming’. Maybe tanker owners are getting smarter. The tanker fleet trading at 15 knots carries around 25-30% more cargo than at 11-12 knots. Supply-demand calculations are usually based on a ‘design’ speed, say 15 knots. So if the fleet trades at 11 knots, the ‘surplus’ disappears because the fleet is strung out around the world, with no surplus ships at the loading zones. Freight negotiations are based on prompt ships, so it’s the backlog that does the damage. If ships speed up, surplus capacity is released to undermine the boom. But if owners do not speed up, and are sufficiently aggressive, they can benefit from the supply curve kink until someone breaks ranks, and create market spikes.

Cargo Helps

Bulkers operate in a more complex market, with different charterers. Capesizes trading at around 11.5 knots have squeezed out a few short spikes in recent years, but the smaller ships haven’t. A market moving from demand growth to apparent stagnation does not help either. Owners have a better chance of pushing rates up when cargo volumes are rising.

Does It Matter?

So there you have it. Tankers are doing well today, but are they now a better investment? The red line on the graph shows the trend in the difference in earnings over 25 years. Tankers on average earned about $7,300/day more with a slight trend in bulkers’ favour. But what the graph really demonstrates is that it basically averages out in the end. Like poker, it’s not about the hand, it’s about the players. Have a nice day.

We’re not sure if you can buy a ship on Alibaba, but the way merchant ships get traded is one of the shipping industry’s most distinctive features. These assets fluctuate wildly in value, providing shipping investors with a unique opportunity to take a flutter in terms which consign most other gamblers to the little league.

Astonishing Volatility

Since 1985 the published price assessment for a 5 year old Panamax bulker has fluctuated between extremes of $5.5m and $92m. Few assets in the global economy offer this sort of extreme pricing, in a liquid market. Of course these extremes are now part of shipping folklore and they don’t happen every day. But it leaves shipping searching for turning points and wondering whether today’s prices are a good or bad deal.

Three Sources Of Asset Value

Lots of factors determine the price of a 5 year old ship, but three stand out. The anchor is the newbuild price which can set the ceiling. But the new ship is not ready for a couple of years, so the price also includes an assessment of short-term earnings. Also the newbuild price may include a discount or premium, depending on the market. So there’s an element of market sentiment on both sides of the equation.

Old Ships Versus New

The graph plots the price of a 5 year old ship as a percentage of the newbuild price over 25 years from 1990. The average comes to 80% for the Aframax tanker and 86% for the Panamax bulker, which with all other things being equal implies an expected life of 25 years for the tanker and 31 years for the bulker, reflected in the generally higher age at which Panamaxes have been scrapped. The tanker and bulker prices follow different cycles. In 2008 the tanker index stood at around 100%, so the 5 year old ship cost the same as a newbuilding. But the 5 year old Panamax price shot up to $89m, compared with a newbuild price of $55m, giving a ratio of 162%. So the market expected the ship to earn $34m by the time the newbuilding had been delivered. A difficult premium to justify and strongly influenced by market sentiment.

Cheap Bulkers, Dearer Tankers

Today the opposite is happening, though on a more modest scale. This time it was the bulker index which fell from 80% in June 2014 to 69% in August 2015, below the historical average of 86%. Meanwhile the tanker index rose from 67% to 87%, above the historical average of 80%.

Gambling On The Margins

So there you have it. This really is a highly volatile and big ticket market. However the long-term trends show that, like in all good casinos, the odds pretty much average out in the end. So maybe the message is that today’s tanker values have now edged above the historical trend, whilst bulkcarrier prices have moved in the other direction and are looking decent long-term value on the basis of this kind of analysis. Of course in the end it’s a matter of finding the right ship and the money to buy it. You could try Alibaba, but a shipbroker would be a safer choice. Have a nice day.

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