Archives for posts with tag: Clarkson Research

In 2016 the shipping industry saw significant supply side adjustments in reaction to continued market pressures. For shipbuilders this meant a historically low level of newbuild demand with fewer than 500 orders reported in 2016, and the volume of tonnage on order declined sharply. Meanwhile, higher levels of delivery slippage and strong demolition saw fleet growth fall to its lowest level in over a decade.SIW1256

Pressure Building Up

2016 was an extremely challenging year for the shipbuilding industry. Contracting activity fell to its lowest level in over 20 years with just 480 orders reported, down 71% year-on-year. Domestic ordering proved important for many builder nations and 68% of orders in dwt terms reported at the top three shipbuilding nations were placed by domestic owners last year. Despite a 6% decline in newbuild price levels over 2016, few owners were tempted to order new ships, especially with the secondhand market offering ‘attractive’ opportunities. Only 48 bulkers and 46 offshore units were reported contracted globally last year, both record lows, and tanker and boxship ordering was limited. As a result, just 126 yards were reported to have won an order (1,000+ GT) in 2016, over 100 yards fewer than in 2015.

A Spot Of Relief

However, a record level of cruise ship and ferry ordering provided some positivity in 2016. Combined, these ship sectors accounted for 52% of last year’s $33.5bn estimated contract investment. European shipyards were clear beneficiaries, taking 3.4m CGT of orders in 2016, the second largest volume of orders behind Chinese shipbuilders’ 4.0m CGT. Year-on-year, contracting at European yards increased 31% in 2016 in terms of CGT while yards in China, Korea and Japan saw contract volumes fall by up to 90% year-on-year.

Further Down The Chain

In light of such weak ordering activity, the global orderbook declined by 29% over the course of 2016, reaching a 12 year low of 223.3m dwt at the start of January 2017. This is equivalent to 12% of the current world fleet. The number of yards reported to have a vessel of 1,000 GT or above on order has fallen from 931 yards back at the start of 2009 to a current total of 372 shipbuilders.

Final Link In The Chain

Adjustments to the supply side in response to challenging market conditions in 2016 have also been reflected in a slower pace of fleet growth. The world fleet currently totals 1,861.9m dwt, over 50% larger than at the start of 2009, but its growth rate slowed to 3.1% year-on-year in 2016. This compares to a CAGR of 5.9% between 2007 and 2016 and is the lowest pace of fleet expansion in over a decade. A significant uptick in the ‘non-delivery’ of the scheduled start year orderbook in 2016, rising to 41% in dwt terms, saw shipyard deliveries remain steady year-on-year at a reported 100.0m dwt. Further, strong demolition activity helped curb fleet growth in 2016 with 44.2m dwt reported sold for recycling, an increase of 14% year-on-year.

End Of The Chain?

So it seems that the ‘market mechanism’ has finally been kicking into action. A more modest pace of supply growth might be welcome news to the shipping industry but further down the chain shipbuilders are suffering. Contracting levels plummeted in 2016 and the orderbook is now significantly smaller. Even with the ongoing reductions in yard capacity, shipbuilders worldwide remain under severe pressure and will certainly be hoping for a more helpful reaction in 2017.

During July 2016, the containership fleet reached a landmark 20 million TEU in terms of aggregate capacity. To many it only seems like yesterday when the boxship fleet passed the 10 million TEU mark, back in April 2007. It took less than 10 years to double in capacity to reach the new milestone. Sprightly fleet growth indeed, but how rapid is it when compared to other parts of the world fleet?

Compound Crazy

Albert Einstein once called the impact of compound growth the ‘most powerful force in the universe’, and containership fleet capacity is a great example of this power. Total boxship capacity doubled from 5m TEU in size (in April 2001) to 10m TEU (in May 2007) in 6.2 years, and since then it has doubled in size again from 10m TEU to an astounding 20m TEU across just a further 9.3 years.

This rapid growth of the containership sector is a fairly well known story. In many respects the box sector is still a youthful part of the shipping world; since the inception of container shipping in the 1950s, the fleet has grown quickly from humble origins as trade has flourished. At the same time the fleet has upsized at a phenomenal rate. The average size of containerships in the fleet stood at 1,807 TEU in April 2001 and increased to 2,425 TEU in May 2007. Today, with behemoth boxships of over 19,000 TEU on the water, the average size of units in the fleet is 3,832 TEU, and the average size of those on order is even larger at 8,030 TEU.

Maturing Slowly

In contrast, some other shipping sectors can seem more ‘mature’, growing at a gentler rate. Tanker fleet capacity took almost 21 years to double to reach its current size of 540.9m dwt. In relative terms, the trade is indeed fairly mature, with average growth in volumes of 2.2% per annum over the last 20 years in combined crude and products trade. But interestingly, this is a sector now seeing rapid capacity growth, with an uptick in trade growth in recent years driving tanker ordering. In the last 19 months tanker fleet capacity has grown by 6.5%.

Bulk Bulge

However, the bulkcarrier fleet comfortably illustrates that the boxship sector has not been alone in experiencing rocketing growth. Although the vessels themselves may not have seen the same upsizing as boxships, bulker capacity expansion has been extraordinarily fast in recent times. Astonishingly, it took just 8.6 years from January 2008 to double to its current capacity of 784.1m dwt (though it had taken around 21 years before that to double previously). Nevertheless, bulker capacity expansion has slowed now, as dry bulk trade growth has hit the buffers.

Boom Time

So, the latest instance of a rapid doubling of fleet capacity is not a one-off. The explosion of boxship capacity has indeed been rapid, but in a world where shipbuilding output was hitting all-time highs not long ago, such growth has been a wider phenomenon. The overall world fleet has increased by 55% in dwt terms in the period since the onset of the global financial crisis in September 2008 alone. That’s a robust compound annual growth rate of 5.1%! Have a nice day, Einstein!

SIW1236 Graph of the Week

Once upon a time, in Germanic languages the number 1,200 represented ‘the long thousand’ and was a traditional way of measuring large numbers. Well, today Shipping Intelligence Weekly is 1,200 issues old, and that seems like a long time indeed. How have the shipping markets fared in that time and what do the ‘long cycles’ show when the ‘SIW era’ is split into parts?

A Long, Long Time Ago

The 1,199 previous editions of SIW (stretching over 22 years back to 1992) provide us with a huge amount of useful historical data, including the ClarkSea Index, our weekly indicator measuring the health of earnings in the four main shipping markets. There are many ways in which the history of the index can be analysed but one interesting view can be generated by lining up historical ‘cycles’. The graph featured here shows the result of lining up two periods of 400 SIW issues (about 8 years each) and comparing them to the performance of the index over 300 issues (6 years) since then. What this seems to tell us is that after 300 issues of the first two cycles something pretty dramatic happens!

Moving Along

Looking at the first period, issues 100-400 don’t show a great deal of variation in terms of what was to follow. Between January 1994 and December 1999 the index peaked at $15,149/day and the lowest point was $8,679/day. However, following issue 400, the index took off, peaking at $24,395/day in early 2001, before crashing back down later in the year to $8,877/day by December 2001 as the dotcom bubble collapsed, and the impact of problems in Asia and 9/11 were felt by the global economy.

A Long Time Coming

The second period really illustrates shipping’s great ‘super-boom’. Just prior to issue 500, China joined the WTO and global trade took off. On the back of rapid demand growth driven by Asia, the index headed up from around $9,000/day in late 2001 to a record peak of $50,701/day in December 2007, bang on issue 800! This time the cycle held on past 300 issues and the peak was almost regained in May 2008, but drama was just around the corner in the form of the ‘Credit Crunch’. By April 2009 the index had plummeted to $7,442/day.

How Long Will It Go On?

The last 300 issues have seen the ‘long downturn’ with substantial deliveries of new capacity and the index stuck between $20,681/day and $7,520/day (a bit like the 1990s). Despite the index surpassing $18,000/day this year there’s been no sustained respite from the downturn yet, and as of issue 1,199 (last week) the index had fallen back to $13,348/day.

Won’t Stop For Long

So, the previous two periods definitely offered up drama after 300 issues. Today, we’re at a crossroads again. Supply growth looks to be under some degree of control at last but the big story of 2015 has been the erosion of demand side growth with seaborne trade expansion slowing to around 2%. There are a range of possible scenarios but one thing is for sure: nothing stops for long in shipping.

OIMT201511

Recent economic news has been dominated by events in two countries. Headlines have focussed on Greece and its ongoing bailout woes and possible ‘Grexit’, as well as on China and the slump in its stock market and the impact on the wider economy. In the shipping sector, trends in the development of the world fleet are equally tortuous and, once again these two countries play a leading role.

World Leaders

In terms of ownership Greek and Chinese ownership interests are amongst the most prominent on the planet. The Greek owned fleet at 314.3m dwt is the largest in the world, and Greek owners also account for the largest orderbook today (48.5m dwt). Chinese owners meanwhile account for the world’s third largest fleet at 199.6m dwt and until very recently accounted for the largest orderbook (today 45.9m dwt).

Greeks Buy Gifts

Greek owners have long been shipping’s great asset players. As the graph shows their fleet is currently growing by just above 5% y-o-y. The expansion of the Greek fleet has been partly driven by newbuild investment, with delivery of 56.6m dwt since start 2012, 14% of the world total. But their acquisition of secondhand assets has also been key. Since start 2012, Greek owners reportedly accounted for ‘net acquisitions’ (reported purchases less reported sales) of 35.5m dwt, not far below the level of their delivered tonnage – a useful way to grow the fleet.

Chinese Take Away

Chinese fleet growth stood at a heady 15.8% y-o-y back at start 2012, but today stands at 3.6%. What’s been going on? Since start 2012, Chinese owners have taken delivery of 61.3m dwt, even more than Greek owners, but they have been much less pronounced ‘net acquirers’ of secondhand tonnage (5.0m dwt). Chinese owners have also been demolishing ships backed by the state scrapping subsidy which also encourages newbuilding. This is another way to renew the fleet, but growth has slowed. However, the Chinese orderbook is equal to 23% of its fleet, so expansion looks set to return.

A Third Way?

A third economy never far from the news is Japan, and Japanese owners remain today the world’s second largest owner of tonnage with 249.9m dwt. Japan’s fleet growth has clearly slowed, from 7.4% at start 2012 to 0.9% today. In this period, Japanese owners have been ‘net sellers’ by a huge 38.0m dwt. But this year they are also very nearly the world’s leading ordering nation, placing contracts of 5.5m dwt, 15% of the world total, so despite being a clear secondhand asset divestor, their fleet should be on the way to faster growth in the future once again.

More Headlines

So, focussing on the developments in these fleets shows that there’s more than one approach to being a pre-eminent owner nation. And today’s fleet and orderbook suggest that, whatever the state of their domestic economies, owners from these three countries will retain their position in the headlines for some time yet. Have a nice day.

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