Archives for posts with tag: brexit

Shipping is a cyclical business. For many years, Clarksons Research has tracked the ups and downs of its cycles via the ClarkSea Index, a weighted average of vessel earnings in the main shipping sectors.  In the first half of August, the index averaged less than $7,500/day, around 60% down on July 2015’s ‘mini-peak’, with most sectors having weakened. But how long should one expect a downturn to last?

Tired…

As summer 2016 has progressed, owners could be forgiven an element of downturn fatigue. Average bulkcarrier earnings from January to July 2016 were 21% down year-on-year, whilst the equivalent containership index fell by 37%. Average weighted LPG carrier earnings lost 49%. Even the tanker sector, which had been buoyed by lower oil prices stimulating demand, was down by 35% in terms of its component element of the ClarkSea Index. Both crude and product tanker earnings levels have softened over the course of Q2 2016.

Nor is the decline restricted to the major sectors. Offshore drilling rig dayrates are down by a further 30% or so year-on-year, and OSV term rates about the same amount. LNG carrier spot charter rates are 24% lower. Multi-purpose vessel charter rates have also come under further pressure. Amongst the few areas to have shown signs of improvement have been the ro-ro and ferry markets, but these are far from volume sectors.

…Crotchety…

So, the industry is undergoing a downturn, and it would be reasonable to ask: how long might the pain last for? Clearly, there are external macro-economic factors, such as the policies of the Chinese state, actions by OPEC or the effects of the Brexit decision, which might have specific influences on the future. However, perhaps past cycles could provide an indication. As the graph shows, the progress of the current weaker market has followed the trend of some previous downward moves – with the clear exception of the 2008-09 crash.

…And Emotional

The graph shows that, over the last 25 years, major downward movements in the ClarkSea Index have tended to begin to be reversed around a year to eighteen months after they began. Of course, the picture is complicated by seasonal factors. Additionally, a “dead-cat bounce” is also never off the cards: for example, the first signs of recovery in the aftermath of the 2008 crisis. This improvement, between the one and two year marks on the graph, was quickly snuffed out, partly by the heavy ordering of bulkcarriers, helping to prevent a continued recovery along a similar trajectory to previous cycles.

In 2016, the market has probably learnt this lesson, with newbuild ordering numbers lower than at any point in the last two decades. Other actions are also being taken to try to turn the market balance around: ‘non-delivery’ of newbuild tonnage in the first seven months stands at 45%, whilst owners scrapped 30.2m dwt, 33% up when annualised with potential to get close to the record of 58.4m dwt set in 2012. So, it is possible that the index may follow previous trends, and begin to reverse course. But as well as a more controlled supply side, short-term demand will also help determine whether the market stalls, or can embark on the road to recovery. Have a nice holiday.

SIW1235 Graph of the Week

Advertisements

This week, the Bank of England put into place its action plan following the UK referendum on 23rd June, which indicated the British population’s preference to leave the European Union. While the political dust has yet to settle, shipping market observers have had time to form their views on the impact of ‘c’ on the industry. This week’s Analysis attempts to put the UK and the EU’s role in shipping in context.

Holding On

Once upon a time, of course, Britannia ‘ruled the waves’ and Great Britain, with its colossal maritime heritage (remember the British Empire?) was one of the world’s leading lights in ship ownership and shipbuilding. Today the story is a little different. UK owners account for just 2% of the global fleet in GT terms. The EU as a whole, however, remains a significant player, with 36% of world tonnage. While market share has shifted to the Asia-Pacific (39%), EU owners have held their own, led by the world’s largest owner nation in Greece, which has not been subject to its own ‘Grexit’ just yet.

Sailed East

Historically, Europeans were leading shipbuilders too, but in the modern era shipbuilding is dominated by Asia. In 2015, EU builders took 1.9m CGT of new orders (over 1,000 GT), 5% of the global total, and today account for 8% of the orderbook in CGT, whilst China, Korea and Japan together account for 84%. Europeans are now largely builders in the niche markets, dominating the cruise sector and maintaining a focus on small ships. Within the EU, the UK’s contribution is limited, with just two merchant vessels over 1,000 GT built since 2011.

Big Bloc

In terms of trade, the UK, given its status as the world’s 5th largest economy, accounts for a significant volume of imports and exports. However, in a global context these account for a relatively modest share. The UK’s imports account for an estimated 2% of global seaborne trade and its exports 1%. The EU, meanwhile, is much more significant, as befits its role as the world’s largest trading bloc, accounting for an estimated 16% of seaborne imports and 12% of exports.

Service Culture

One area where the UK and Europe maintain importance is as service providers. The UK is the world’s 14th largest flag and EU flags account for 18% of world tonnage. Lloyd’s Register in the UK is still a leading class society and along with DNV-GL and BV, the EU’s heavy-hitters, class 44% of the world fleet. Furthermore, London still remains one of the world’s pre-eminent maritime business hubs at the forefront of legal services, insurance and shipbroking too!

Wider, Still & Wider

However ‘Brexit’ plays out, it won’t go without notice. In fleet ownership or trade terms, the UK alone is not so significant (though the EU as a whole is). Perhaps the more important impact might be the wider fallout of uncertainty (or worse) surrounding one of the world’s largest economies. Meanwhile, the UK will be hoping that London can retain its role at the centre of commercial maritime affairs. Leaver or Remainer, have a nice day.

SIW1233 Graph of the Week