Archives for posts with tag: dry bulk

Next week sees the 100th anniversary of the opening of the Panama Canal, which has played a significant role in the history of shipping and seaborne trade. Whole classes of ships have been defined by their ability (or not) to transit the canal. Today, there are still almost 900 containerships in the fleet referred to as ‘Panamax’ and another 3,000 or so capable of passing through the current locks.

What’s The Plan?

The completion of the new Panama Canal locks remains behind schedule, with the opening date now pushed back to 2016. Despite this, the potential impact remains a hot topic. The project was partly driven by the desire to capture greater revenues from the container sector by enticing larger boxships and increased volumes of trade through the canal. The most relevant trade lane in volume terms (by far) is that from Asia to the US East Coast, an estimated 3.6m TEU in 2013 (though an increasing part of this is actually being moved via the Suez Canal).

How Big?

The new canal dimensions will dramatically alter the number of boxships that can potentially transit. As the graph shows, at the start of 2H14, 3,833 of the boxships in the fleet (75%) could transit the current Panama locks (the Panamaxes up to around 5,100 TEU, about 140 of which are actually deployed on Asia-USEC services, and other smaller vessels). An additional 1,111 ships in the fleet (22%) will be able to transit the new canal. On order, 355 of 454 units (78%) will be able to transit the new canal. In terms of ‘cut off point’, most vessels of up to and around 13,000 TEU will be able to transit.

With the vast majority of the world’s boxships able to transit the new canal, how far might upsizing of services via Panama go? Larger ships will offer potentially lower costs per box for today’s cargo, but might also encourage cargo switching from USWC to USEC services (about two-thirds of Asia-US cargo today arrives via the west but a significant share is actually destined for the eastern US).

Switch Up Or Not?

Firstly, the answer may lie with the ports. In order to receive the very largest ships capable of transiting the new locks, there is still a significant amount of infrastructure work to be completed at the USEC ports. Compounded by other issues that carriers face at US ports, the consensus seems to be that carriers may upsize services to the USEC via Panama to around 9-10k TEU first before going further. Secondly, in terms of cargo switching, the move from USWC to USEC is not as clear as it may seem. Logistics supply chains put in place by major retailers, with distribution centres based in the US interior, are likely to be fairly sticky and not instantly so sensitive to unit cost savings in the shipping part of the chain (which may or may not cover the cost of much additional inland transportation).

So, the majority of containerships will be able to transit the new Panama locks when they open. However, the initial impact of the new dimensions on container shipping may not be as obvious or instant as it seems. Project delays or not, it is likely to take some time for the full extent of the impact to be felt.

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Last week, we looked at which countries occupy the leading positions in terms of the supply side of shipping: that is, who owns all the ships. This week we follow-up by looking at which countries contribute the most to the demand side of the industry. Which countries account for the largest portions of global demand for shipping? And which countries are punching above their weight?

Key Trade Players

In total, world seaborne trade is estimated to have reached just under 10 billion tonnes in 2013. Bulk cargo trades in dry bulks, liquid bulks and gases represented 85% of this total, or a massive 8.4 billion tonnes. Overall, world trade has grown at an average rate of 3.8% since 2000. The Graphs of the Week show which countries have contributed to this, and now have the largest shares of 2013 bulk trade by sea.

China Wins, Of Course…

It will come as no surprise to anyone that China is the country with the largest portion of overall seaborne bulk trade, with a 13% share of the total. China’s imports (a massive 1.8 billion tonnes) represented 23% of global imports in 2013, including nearly 800mt of iron ore, 286mt of crude and products and 308mt of coal. Of course, China has a much lower (2%) share of those commodities’ global exports. On the other hand, its containerised exports represent around 25% of global trade in TEU terms.

The ten countries shown on the graph account for just over 50% of the world’s seaborne imports and exports of bulk cargoes, meaning that, given that there are in excess of 250 countries globally, world bulk trade is quite consolidated around a relatively small number of countries. Indeed, the top three countries account for more than 25% of the total.

No EU countries feature in the top 10 countries, demonstrating the impact of the rise of developing Asia. Then again, if considered en bloc, the EU has 14% of world seaborne bulk trade: exceeding even China, although not by much.

Using their Chance?

So, what about those countries punching above their weight? Excluding island microstates, the country with the largest ratio of trade to population is Qatar, with 94 tonnes of trade per capita. Qatar is the world’s largest gas exporter, with 33% of world LNG trade and 16% share in LPG. Other countries high on this ranking include several other Gulf states, and the sparsely-populated raw materials export giant that is Australia. However, in 2nd place is Singapore, which imports more bulk cargoes than it exports, given its status as an oil refining hub. China is just 127th place for trade per capita, while India is 181st.

Overall, the graphs confirm the importance of a list of countries which will be well known to all involved in global shipping. At the heart of world trade are a group of big raw materials exporters, along with the consumption-driven states of the developed world, plus major developing economies. All four of the key BRIC developing countries feature on the graph. Many of the so-called VISTA countries feature in the next 20 countries not shown: could they soon begin to move up the table?

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Changes in the composition of the world fleet are nothing new, and have been a recurring theme throughout the history of the shipping industry. The twenty-first century has been no exception. At the start of 2000 the world fleet totalled 788 million dwt, but today’s fleet and orderbook combined total more than 2.0 billion dwt, and alongside this expansion the make-up of the fleet has also continued to change.

Bulk Boom Bulge

Clarkson Research tracks the world fleet and orderbook of over 90,000 ships. The Graph of the Week shows the difference in each vessel sector’s share of the total fleet in terms of both vessel numbers and dwt capacity, comparing start 2000 to today’s fleet and orderbook combined. It comes as no surprise that the clearest gain in share belongs to the bulkcarrier sector. During the ordering boom of the mid-2000s bulkers were often the investors’ ship of choice, spurred on by ramped up earnings and dry bulk trade growth averaging 7% during the period 2003-07. On the basis of today’s fleet and orderbook, bulkers account for a 11% greater share of world fleet dwt than at start 2000, and a 4% larger share of fleet numbers.

The tanker fleet meanwhile has seen its share of the world fleet decline over the same period; the overall tanker fleet saw its share of dwt capacity fall by 8%. Although 317m dwt of tanker tonnage was ordered in the years 2003-08, activity in other sectors has seen the tanker tranche slim down. Crude oil trade growth this century has been limited to an average of 1% per annum, although more positive growth in oil products volumes (5% per annum on average) has driven requirement for product tankers, helping maintain the tanker share of vessel numbers.

Liner Alignment

On the liner side, the containership sector has seen a significant growth in its share of tonnage. Robust trade volume growth of an average of 8% per annum this century has ensured a requirement for rapid growth in capacity. However, that has not been the only factor. In capacity terms container tonnage has also benefitted over the period from the increasing containerization of general cargo trade. Whilst the containership share of global tonnage has increased from 8% to 13%, the shares constituted by general cargo ships, MPPs, ro-ros and reefers have all decreased in dwt and number terms.

What’s Next?

The world fleet product mix continues to evolve. The consensus view seems to be that the more rapid growth in requirement for more specialised tonnage will see the share accounted for by, for example, gas, container and offshore units expand. In the period shown here, the offshore sector, led by the numerically strong OSV fleet, has already increased its vessel number share by almost 3%.

However ‘wildcards’ also come into play(few foresaw boxships as large as 18,000 TEU back in 2000) and ordering patterns are determined by a range of factors not just demand fundamentals. If prices look attractive, shipping investors often turn back to the sectors in which they are comfortable, and the composition of the fleet doesn’t always evolve as it seems it logically should. So, for the latest trends, watch this space. Have a nice day.

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SIW1115Big ships get lots of attention. How often do you read about the Valemaxes, Capesizes and VLCCs? Of course the big bulk trades are massively important and the five major bulks totalled 2.8 bt of cargo last year. But they’re not the whole story. The minor bulks are not so minor any more. This year they will reach 1.5 bt of small parcels that tie up lots of ships – probably about 200 m dwt.

Minor Bulk, Major Cargo

This seething mass of trades is the bedrock of the “handy bulker” business, but for analysts they are challenging. Clarkson Research tracks more than 30 “minor bulk” commodities, each a micro-business with its own drivers, trading partners and transport requirements. The smallest is less than 10 mt pa and the biggest nearly 300 mt. The best way to deal with so many commodities is to bundle them into groups that can be analysed together.

The “Six Minor Bulks”

The six minor bulk commodity groups shown in the chart are agri-bulks; fertilisers; forest products; iron & steel; minor ores; and other minerals. This wide-ranging mix of trades displays good and bad points. On the positive side, the average volume trend since 1990 has been upwards. In the period 1990-2003 minor bulk trade grew at an average of 3% per annum, and this has risen to 4% in the years since then. Not so good was the volatility, growth swinging between 6-8% pa (for example 1994, 2003-4, 2006-7 and 2011) and zero or negative growth (1991, 1996, 1998, 2001 and 2008-09).

Cargo Diversity

There has also been a good deal of diversity in the growth rates of the individual commodities. Across the period in question agribulks and fertilisers, two solid trades of around 300 mt combined, grew at 3% per annum, which fits in with their agricultural base. But forest products, another 200 mt trade, have been quite flat, averaging only 0.9% growth since 1990. Iron and steel, which includes products, scrap, pig iron and DRI reached 426 mt in 2013. But trade growth has averaged only 2.8% pa and the trend is edging downwards. In contrast the minor ores, which include nickel, manganese and copper, are the stars of minor bulk. They have averaged 9.2% pa growth since 1990, accelerating to 15.7% in the last decade, backed by Chinese demand. Finally the other minerals include lignite, anthracite, cement, sulphur, salt, petcoke, limestone and lots of very small trades. Together they totalled almost 500 mt of cargo in 2013 – a challenge for analysts, but good business for small bulkers.

Real Life Shipping

So there you have it. Minor bulks don’t hit the headlines, but they provide business for an enormous range of shipowners at the smaller end of the dry market. Some are big and highly organised corporates, others are companies with just a few ships. And with each decade the trade gets bigger and more complex, which, on the whole, is good news for shipowners who like a challenge but not media attention. Have a nice day.

SIW1113Every so often we reach milestones in shipping that are worth pausing to celebrate and in 2014 the industry will achieve the no mean feat of moving 10 billion tonnes of international seaborne trade across the world’s open seas. Our Graph of the Week illustrates the strong growth of the past thirty years, with trade doubling since 1995 and tripling since 1984. The graph also highlights another industry milestone reached back in 2002, when the world fleet first transported more than one tonne per person globally. With China fuelling growth (it is estimated that at least half of the 4bn tonnes added since was China-related), this ratio has surged to the current figure of 1.4 tonnes per person.

Winners & Losers

So what are the “winners” and “losers” in the period between our two trade “milestones”? Reminding us that it has been very much at the heart of globalisation and a strong growth story despite its current travails, container trade leads the way contributing nearly a quarter of all growth with 931m tonnes. Iron ore, with 815m tonnes, and coal with 605m tonnes, are less of a surprise (with Capesizes the main beneficiary) and indeed over 50% of all trade growth was dry bulk related. Elsewhere there have been good contributions from steel products, grain, oil products and LNG. Crude oil has been disappointing however with growth of only 250m tonnes over the period and its share of trade dropping to 18%. A few trades have shown no growth at all over the period, for example phosphate rock, with fertiliser processing increasingly taking place at source.

Wildcards

Trade forecasters have been caught out more than a few times in recent years with major surprises in each of the key markets. Back in 2002, general consensus on China grossly underestimated the development of the steel industry and related import levels, while the turnaround in the US energy balance has been just as surprising and is significantly impacting the oil and gas trades. Container trade meanwhile generally grew (prior to 2009) at a few % points higher than the long term forecasts from the early 2000s. Throw in the financial crisis, when trade contracted for the first time since 1983, as a further challenge.

Another Ten Billion?

So where next for trade? In the 1980s growth was a sluggish 1%, before more encouraging growth of 4% in the 1990s and again in the 2000s. Some things seem more predictable – it’s difficult to look past China, India and Other Asia providing the majority of regional growth in the medium term, while most observers would expect gas to grow above trend – but other issues are far more uncertain. At 4% growth (a number we don’t feel is unreasonable for scenario planning on the basis of continued globalisation) we reach 15 billion tonnes by 2024 and 20 billion tonnes by 2031. Of course with shipping moving 90% of all global trade, the physical world rarely plays out like a smooth line on a graph and it’s the “wildcards” that often have the largest impact!

SIW1109In 2013 Chinese seaborne imports reached two billion tonnes, making it the world’s biggest seaborne importer. Europe’s imports had briefly edged up to 2.1 billion tonnes in 2005, but after the 2008 Credit Crisis they fell back to around 1.8 billion tonnes. Meanwhile China produced its most aggressive growth surge yet, doubling its imports, from 1.0 billion tonnes in 2008 to 2.1 tonnes in 2013.

Hitting the BIG time

It is now 10 years since Chinese iron ore importers hit the dry bulk market. In 2003 China imported 500mt of cargo and steel production was only 221mt. Forecasters, including the Chinese government, predicted that steel production would reach 300mt in 2010, a number which looked am-bitious compared with the historic growth rates in European and Japa-nese steel. But by 2010 China’s steel production was 627mt (and an estimated 779mt in 2013). This is twice the forecast and a warning of the difficulty of predicting the trade of an economy with 1.4 billion people.

Shipping’s Sino-Surprise

That seemingly unrepeatable surprise turned out to be just the beginning. Unbelievably, in the 5 years after the Credit Crisis China’s imports accelerated. A massive leap of 370mt in 2009, as the govern-ment fired up the economy, was followed by 105mt growth in 2010 and close to 200mt a year since then. Since China’s imports of 1.4 tonnes per person are still way below Europe’s 4 tonnes per capita, who knows where it will end?

Dry Bulk Domination

Dry bulk commodities continue to dominate Chinese imports, ac-counting for 74% in 2013. Although iron ore now accounts for 39% of imports, over the last 5 years the range of commodities has widened. In the lead is coal which grew from 39mt in 2008 to 302mt in 2013, overtaking oil to become the biggest energy import (by weight). Minor ores are another big grower since the Credit Crisis. In 2006 imports were only 35mt, but they reached 196mt in 2013. Alt-hough some of these cargoes are short-haul, they have broadened China’s demand for bulkcarriers, especially the surging Supramax fleet.

Future Growth – Expect Surprises

Looking ahead, these trends are quite encouraging for bulker owners. Steel is bound to stabilise at some stage, but recent developments suggests that for an economy like China, slower GDP growth can still suck in more and more dry bulk cargo. Of course that’s not a novel development, it happened to Europe, but it’s encouraging to see the range of imports widening as the economy matures.

Wild Horses, Busy Ships

So there you have it. China made the shipping industry rich in the 2000s, a great gift. But an even greater gift has been the extra billion tonnes of cargo since the Credit Crisis. Without it, shipping would be a much sadder place today. So maybe now’s the time to raise a glass to China and drink a toast to an easy passage for China’s next billion tonnes. Have a nice day.

SIW1096The timecharter is a method of vessel employment familiar to anyone involved, even in passing, with the shipping industry. Since 1990, Shipping Intelligence Weekly has recorded activity levels for period chartering in the major bulk cargo markets. But in 2012 and 2013 so far, for the first time in a decade, liquidity in the tanker timecharter market has exceeded dry bulk. So what’s going on?

The Graph of the Month shows the pattern of ‘period’ fixture activity recorded for reported timecharters of one year or more in duration (i.e. excluding short period fixtures). This shows that, in terms of tonnage and vessel numbers, period fixing of bulk carriers soared through the boom years of the mid-2000s, before declining sharply. In 2012, 197 bulker fixtures over one year were recorded, totalling just 20.1m dwt. This means just 1% of dry bulk fleet capacity was newly fixed on a long timecharter in 2012, down from 14% in 2007.

Liquid Fixture Activity

Timecharter fixing of tankers (over 1 year) has been much more consistent, fluctuating around 130-150 fixtures per year in the mid-2000s, and 13-17m dwt. This is a consistent 4-5% of the fleet newly fixed each year, a share which has held true since the mid-90s.

A Product of MRs

Of course, weakening dry bulk sentiment was the key to the falling volume of bulker period fixtures. Tanker fixtures, meanwhile, have been bolstered by a large upturn in interest for MR product tanker period charter: 82 such fixtures were recorded in 2012 and 72 in 2013 so far. The positive picture for clean trades as US exports grow and new Saudi refineries start-up has generated a great deal of interest.
This compares to back in 2004, when Aframaxes represented 35% of tanker period fixing and growth in Baltic crude exports was making the shorter-haul Atlantic crude markets look much more positive than they do post-recession. Similarly, in the bulker sector, 144 Capesizes were fixed for over a year in 2008, whilst the average period fixed amongst reported fixtures reached 3.8 years in 2007. In the less heady days of 2013, only 26 new longer period Capesize fixtures have been reported, for an average of 1.5 years. And only 17 uncoated Aframaxes have been newly fixed (9% of all tanker period fixtures): all but two for periods of a single year. The continued fragility of demand and sentiment in these sectors means few charterers have the confidence to fix for longer period, unlike in the products market.

Back in the Day

So, for the time being, the market for longer period chartering of tankers is more liquid than that for bulkers, helped primarily by interest for product tankers. How long this will last is something only time will tell. Of course, this level of activity is nothing compared to the early 1970s, when an estimated 105m dwt of tanker tonnage was on period charter, predominantly to oil companies. This was around 80% of the fleet owned by independent shipowners, or 45% of the total tanker fleet. How times have changed! Have a nice day.

SIW1083Currently there is quite a bit of interest in dry bulk carriers, despite earnings which continue to scrape along the sea bed. On the newbuilding front there is a brisk orderbook, with 42m dwt of deliveries scheduled for 2014 and brokers having difficulty finding berths for 2015. Meanwhile, some big owners who saved their cash in 2008 are in the market,“hoovering up” ships. So does that mean recovery is just around the corner?

Dry Bulk Buzz?

Let’s start with the easy stuff, the supply-demand balance. It’s easy because with today’s fundamentals you don’t need a computer model to work out that, despite heavy scrapping, there is a mega-backlog of surplus bulkers. Since 2007 the dry bulk fleet has increased by 85%, whilst bulk trade has grown by only 32%. This has transformed the 6% shortage in 2007 into the bulker market’s biggest ever “surplus” of around 30% (see graph). For comparison there was an 11% surplus in 1998/9 and 10% in 1986, both grim years with rock bottom rates and distressed asset prices.

Three Shades of Gloom

But the investment market does not see it this way. Admittedly the freight rates are perfectly consistent with the grim fundamentals: the spot market has averaged around $7,500/day for Capes and $5,200/day for Panamaxes so far this year, which barely covers OPEX. But asset prices tell a very different story, with the price of a 5 year old Panamax bulker up 9% in the last three months to about $21m and a 5 year old Capesize about $34m. At the bottom of the 1999 recession the Panamax price dropped to $13m and the Capesize price to $24m. So why are today’s prices so firm?
The conventional reasons for optimism are the economic outlook and shipyard capacity. In spring the world economy was deep in recession, but the bounce-back has started. A few years of 6% trade growth would soon soak up the surplus. Meanwhile, by 2014, bulker deliveries will halve. Encouraging, but hardly decisive.

In reality today’s market is not really about fundamentals. There are other factors at work. The fall in the credit worthiness of banks, and in the interest they pay, has left investors seeking investments with long term “real” value. Ships are core assets which (like bank deposits) are not making much today but will do some day. Meanwhile escalating bunker prices have put icing on the cake; slow steaming has absorbed much of the surplus. When the market tightens, the fleet will speed up, and investors with fuel efficient ships will benefit.

Still No Magic Solutions

So there you have it. Frightening fundamentals are maybe the worst ever for bulkers. But with fewer shipyards and a better economic cycle, the surplus could disappear in a few years, leaving investors with ships performing much better than bank deposits. It will take time, but as Shakespeare said “How poor are they that have not patience! What wound did ever heal but by degrees?” Good advice, but don’t forget that some wounds take longer to heal than others!

SIW1073imagelBulk investors are on the war path and there’s some serious business being done. Last year orders for tankers and bulkers slumped to 36m dwt, even lower than in the late 1990s when bulk orders averaged 44m dwt a year. With only 13m dwt of tankers and 23m dwt of bulkers ordered, analysts could relax. But this year orders have doubled again, with 24m dwt contracted in the first four months.

Love Bulkers, You Cheap Chicks

Despite all the pain in the dry bulk market (and the products tanker euphoria) the serious money is still on bulk carriers, with 15m dwt ordered compared with only 9m dwt of tankers. Capes still top the charts with 57 ships ordered of 10.4m dwt. With earnings so far this year only $9,000/day, surely this does not make sense. Or does it? It all depends on how good future dry bulk trade turns out to be and what cheap deals investors are managing to squeeze out of the hungry shipyards.

Bouncy Bulk, Slumpy Oil

On the cargo side, the story is all about the way trade trends have developed since 2002 (see graph). Between 1986 and 2000 the oil (including products) and dry bulk trade followed a similarly subdued growth trend. Both increased from 1.4-1.5bt to 2.2bt in 2001. Then in 2002 everything changed. Dry bulk trade took off and oil trade lost what little momentum it had. As a result by 2012 the dry bulk trade had grown to be around 50% bigger than oil trade, with an aver-age growth trend of 6% pa.

Slippery Oily Waters

As dry bulk trade accelerated oil trade growth slowed, and by 2012 it had grown by less than 600mt, around 2% pa. The problem was mainly the North Atlantic economies, still a major force in the oil trade importing over 16 mbpd of crude oil in 2012, 43% of the global total. But the 2000s started badly for them and things got worse after 2006 when the oil price rocketed over $100/barrel, boosting the North Atlantic’s domestic supplies from unconventional sources and undermining global demand, leaving the oil trade looking shaky.

All the Dried Eggs in One Basket

Meanwhile the dry bulk story is just China. The dotted line, showing dry bulk trade less Chinese imports, demonstrates that without China dry bulk would be in the same predicament as oil. So how robust is the Chinese story going forward? Of course it’s a very big country, but iron ore imports are getting into the high risk zone. Luckily in the last couple of years coal has stepped in to provide a bonus bulk boost. China has lots of coal, but in the wrong place and quality is not brilliant. In four years imports have jumped by over 200mt.

Big Country, Big Bulk, Big…

So there you have it. Maybe there is method in the madness of diving into the Capesize market at this rather delicate moment in the re-cession. Of course it might be boredom, as investors get fed up with vacillating. Or perhaps, despite everything, big bulk is still beautiful. Have a nice day.