Archives for posts with tag: Asia

It is over a year now since the opening of the new, expanded locks at the Panama Canal. The new locks have had a significant impact on a number of areas of shipping, including the gas carrier sector, but the main focus of the project in Panama was always the container trade, and the Asia-US East Coast route in particular. In that regard, how do things look a little over one year on?

Old For New

The new locks at the Panama Canal opened for transit on 26th June 2016, and the impact on the box shipping sector has been largely in line with expectations. The key area of impact was always going to be the Transpacific trade, and the Asia-US East Coast route in particular, the largest volume trade through the canal. Following the opening, the Asia-USEC route immediately saw swift upsizing of ‘Old Panamax’ containerships, being replaced by ‘Neo-Panamax’ units, with operators aiming to benefit from the economies of scale offered by running larger vessels through the canal. Regular deployment of ‘Old Panamaxes’ on the Asia-USEC route via the canal has fallen from 156 units in June 2016 to 30 today.

The total of ‘Old Panamaxes’ on the broader Transpacific trade now stands at 76, including some still operated via Suez to the USEC and from Asia to the USWC. However, there are around 35 ‘Old Panamaxes’ idle, and in total (based on a wide definition of 3,000+ TEU and ‘Old Panamax’ beam) 101 have been scrapped since start 2016. Having said all that, there are still many of these units deployed elsewhere, with, on the same definition, over 450 outside the Transpacific.

Bigging It Up

Looking upwards, the initial impact last summer was a speedy upsizing of tonnage to ‘Neo-Panamaxes’. This, as expected, basically jumped the class of sub-8,000 TEU ‘wide beam’ ships; just 22 of those serve Asia-USEC today. Instead it focussed immediately on the 8-11,999 TEU ships, and today there are 93 of those deployed on the Asia-USEC. And now even units as large as 12,000+ TEU are getting in on the act, with 9 deployed Asia-USEC, taking total deployment of new ‘wider beam’ units there to 124.

Switching Off?

This is all against a backdrop of robust growth on the Transpacific, with peak leg eastbound trade up by 8% y-o-y in Jan-May 2017. However, there hasn’t been any early sign of ‘cargo switching’ with flows proving ‘sticky’, even if USEC infrastructure constraints are diminishing (lifts at the 5 leading USEC ports as a share of lifts at the 5 major USWC ports is steady at c.80%). And interestingly the additional capacity on the Asia-USEC trade from the surge in upsizing has eroded the average Asia-USEC/Asia-USWC spot box freight rate ‘premium’ only gently, from 94% in 1H 2016 to 76% in 1H 2017.

More Time Required?

So, plenty of questions remain. Will the Panamaxes finally fully depart the trade? Will a ‘cargo switch’ eventually evolve? How will the freight market trend? One year may have passed but it appears more time is needed to assess in full the longer-term impact of the new Panama locks on box shipping. Have a nice day.

Graph of the week

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“Going where the work is” has been a familiar mantra for many generations across the world, and the shipping industry is no different. Indeed, much of the world’s oil tanker and bulker fleet will be familiar with the sentiments of Simon and Garfunkel, wishing they were “homeward bound” but rarely getting “home where the music’s playing” as “every stop is neatly planned”!

Far And Wide…

Our analysis this week looks at the top shipowning nations and the trading patterns of their fleets, using data from our World Fleet Register and our vessel tracking system, Clarksons SeaNet. This analysis is based on the port calls and movements of the oil tanker and bulkcarrier fleet only (the “bulk fleet”); we will be taking a closer look at containership deployment in a future edition of Shipping Intelligence Weekly.

“Cross-Traders”…

Of the top ten owning nations, Greece, Norway, Italy and Denmark come out as the classic “cross-traders”. Ships owned by Europeans call at their “domestic” ports less than 15% of the time and rely heavily on trade routes involving Asia-Pacific countries. For nations like Greece (9% domestic port calls) this is a long-standing feature, achieving its number one shipowning status despite a global GDP ranking of 50 and a bulk seaborne trade rank of 47. The countries which Greek owned ships call at most often are China (14% by tonnage, 11% by number) and then the US (12%). Indeed for European owners generally, maintaining their share of global tonnage at an impressive 42% for the bulk fleet (45% for all ships) has come despite Atlantic trade stagnating at 3bn tonnes in the past fifteen years, while Pacific trade has more than doubled (to 8bn tonnes), a dramatic relative increase in trading outside Europe.

Sticking Close To Home…

At the other extreme, the Chinese and Japanese fleets come out with over 50% of calls at domestic ports, while the South Korean fleet sits at 38% (note the analysis includes some bunkering calls, notably at Singapore, but also elsewhere). Although China continues to be well serviced by international owners, its position as the world’s largest importer (25% of “bulk” cargo), second largest economy and number one seaborne trading nation means that 74% of Chinese fleet port calls are at domestic ports. In fact, 46% of total bulk Chinese port calls by tonnage (55% in numbers) are by domestic owned vessels, 24% by European owned ships and 24% by other Asian owned units. The growth of the Chinese bulk fleet (70% since the financial crisis) has begun to catch up with bulk trade growth (81%) but still lags significantly over a fifteen-year horizon (104% compared to 399% growth). Meanwhile, the US fleet comes in with 41% domestic port calls; this includes a large proportion of Great Lakes calls and Jones Act vessels.

500 Miles, 500 More…

So shipping is truly an industry that must go far and wide to find work. For European owners this is often a lot further than the “500 miles, 500 more” that Scottish brothers The Proclaimers sing, while for Asian owners their ships are more likely to be “Homeward Bound”. Have a nice day and safe travels home.

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While the expanding role of Asia (especially China, see SIW 1132) in seaborne trade has grabbed headlines in recent years, developments in the US, still the world’s largest economy, have also had a significant impact. In a short space of time, changes in the US energy sector have dramatically altered global trading patterns in a number of commodities, significantly impacting the pattern of volume growth.

Putting On A Spurt Of Energy

For much of the last three decades, US oil production has been in decline, falling on average by 1% a year since 1980 to a low of 6.8m bpd in 2008. Yet technological advances have since led to huge gains in exploitation of ‘unconventional’ oil and gas shale reserves. In the space of just six years, the US managed to raise oil output alone by an astonishing 60% to almost 11m bpd, a new record.

Making An Oil Change

This has led to huge changes in US energy usage and import requirements. Crude oil imports have almost halved since 2005, and since 2010 have fallen on average by 11% p.a. to 260mt last year. Exports of crude oil from West Africa in particular have had to find a home elsewhere (unsurprisingly, many shipments now go East). Since US crude exports are still banned, US refiners have taken advantage of greater domestic crude supply to produce high volumes of oil products, especially for shipment to Latin America and Europe. Lower US oil demand since the economic downturn has also contributed, and seaborne product exports reached 120mt in 2013, up from 70mt in 2009. Alongside global shifts in the location of refinery capacity and oil demand growth, these trends have transformed seaborne oil trade patterns.

The impact could be similarly profound in the gas sector. As US imports of gas, mostly LNG, have dropped (on average by 34% per year since 2010), plans to add up to nearly 100mtpa of liquefaction capacity by 2020 could mean the US eventually emerges as a major LNG exporter, potentially accounting for 15% of global capacity (from 0.5% currently). Meanwhile, LPG shipments are continuing to accelerate strongly, rising by more than 60% y-o-y so far in 2014 to 6mt.

Miners Under Pressure

There has also been an impact in the dry bulk sector. Lower domestic gas prices have pushed the share of coal in US energy use to below 20%, leaving miners with excess coal supplies. US steam coal exports jumped to 48mt in 2012 from 11mt in 2009, contributing to lower global coal prices (cutting mining margins) and higher Asian import demand.

So What Next?

So the effects of the changing balance in the US energy sector have been far-reaching, and there remains scope for more shifts to occur as trade patterns continue to adjust to changes in commodity supply and prices. While the firm pace of expansion in US oil and gas output may start to slow, any change to existing export policies could have further impact. What is clear already, in terms of seaborne trade growth, is that the focus has shifted away from US imports, for decades a key driver of the expansion of global volumes, towards the country’s developing role as an energy exporter.

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The film Transporter starring Jason Statham ought to appeal to shipping folk. There’s a big action scene on a containership and the “transporter”, with his computer-like karate skills, has a commercial philosophy which consists of three absolute rules. Rule 1 – “never change the deal”; Rule 2 – “no names”; Rule 3 – “never open the package”. Could these be helpful in our branch of the transport business?

Our Word Is Our Bond

Rule 1 certainly can. Shipping is famous for sticking to its word, and Baltic members will enjoy the opening scene of the movie. Statham is waiting outside a bank, in his impeccable BMW get-away car, when four bank robbers jump in. But the deal was to transport only three, so Statham refuses to move. As police sirens wail, his clients solve the problem by shooting number four and pushing him out of the car. A better solution than arbitration, given the circumstances, but not one the Baltic recommends!

Shipowner With No Name

The Transporter’s second rule is also close to the heart of many shipowners – “no names”. During the 20th century shipping became a rather anonymous business, with the majority of ships flagged out under brass plate companies to avoid unwelcome costs. This practice of giving the ship a different name and nationality from the owner has gained wide acceptance and the “flagged out” fleet grew to 40% of world shipping in the 1980s and over 70% today. But Mr Statham’s “no names” rule is under pressure as the EU and US seek transparency so that the “responsible party” for pollution and terrorism incidents can be traced and apprehended.

P3 Package Poker

Which brings us to the 3rd rule – “never open the package”. The problem this rule addresses is that opening the package can produce unexpected consequences. It happens in the movie when the transporter opens the package and finds a girl and it can happen in business too. Take the recent “P3” package. The world’s three biggest (European) container operators decided that cooperation would give them a cost advantage. They packaged themselves as “P3” and asked for approval from the authorities. The EU agreed, but unexpectedly China did not. Why? One explanation is the balance of fleet ownership. Europe is a massive exporter of shipping services, with a fleet twice its ship demand, whilst China and SE Asia are big importers and exporters with relatively smaller fleets (see graph). To date China and Asia have accepted this imbalance, but maybe the world is changing.

Who Rules The Waves?

So, can the shipping industry learn from Mr Statham’s pithy approach to the transport business? “Never change the deal” is a core market principle and although “no names” does not work so well today as it used to, shipping has something to gain from keeping its head down. But it’s the unexpected consequences of opening the package that drives the film and maybe smart shipping players can learn something from Mr Statham’s error. Stick to the deal, keep your head down and whatever you do, never open the package, however interesting the contents may seem. Have a nice day.

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