Archives for posts with tag: earnings

Now that half the year has passed, a review of offshore project sanctioning might be timely. Activity has picked up in 2017, especially for larger projects with CAPEX allocations of at least $500m. The uptick in FIDs has coincided with improved E&P budget guidance from many IOCs. So oil price volatility notwithstanding, could this be an sign of generally improving prospects for larger offshore projects?

Large Projects On The Rise

Offshore field project sanctioning reached a peak of 120 FIDs in 2012. Since then, sanctioning activity has been under pressure from a range of factors, most notably the weaker energy price environment that has prevailed since 2H 2014. Indeed, oil company E&P spending cuts induced by the falling oil price in 2015 precipitated a 33% decline in FIDs that year. Larger projects (with an estimated CAPEX of at least $500m) have been hit the worse, with the number of such developments in 2016 to receive an FID down by 60% on 2012. In comparison, the number of smaller projects sanctioned in 2016 was down by a less severe 32% on 2012.

However, 2017 is (so far) looking rather more promising: 31 offshore field projects received FIDs in 1H 2017, of which 48% were larger projects. Among these were Coral FLNG Ph.1 ($7bn), Leviathan Ph.1 ($3.75bn), Liza Ph.1 ($3.2bn) and Njord A Upgrade ($1.6bn). FIDs have been stimulated by the higher (albeit volatile) oil price, as well as by successes in reducing offshore project costs (by around 30-40% on start 2014, on average).

Small Runs Rule

That being said, while it is true that sanctioning of larger projects seems to be on the rise, it is important to note that many such projects (including all those named above bar Liza Ph.1) were conceived pre-downturn and were on the verge of obtaining an FID in 2014. This implies that the recent uptick in large-project activity may not be sustainable, especially as the backlog of such projects continues to fall. Indeed, the history of start-up delays and cost over-runs at mega-projects such as Kashagan Ph.1 ($48bn) and Greater Gorgon Ph.1 ($55bn) had already prompted operators to rethink the viability of larger offshore projects even before the oil price downturn. Onshore US basins are also potentially problematic for offshore projects, insofar as they compete (quite effectively) for scarce investment dollars.

Efficiency Matters

As a result of these considerations, operators have been downsizing many of the other large-scale projects planned prior to the fall in the oil price. Browse is set to use two FPSOs instead of three FLNGs, for example, while Bonga SW “Lite” now entails an FPSO with a processing capacity 33% smaller than before. Many operators are also placing more emphasis on subsea tiebacks to existing facilities, instead of major new offshore hubs (even if this means lower production volumes). Adapting to the potential “lower for longer” oil price outlook thus seems to be a priority for many upstream players.

So although FIDs at larger projects have picked up, looking beyond the backlog of projects from before the downturn, such developments seem to be less in favour. Scratching the surface, small projects are at least an offshore outlet for upstream investment and in the long run, perhaps cost savings cemented post-2014 might make large projects more competitive.



“Look after the pennies and the pounds look after themselves” goes the saying, a mantra the shipping industry has a long taken to heart. In this week’s Analysis, we review trends in ship operating expenses (OPEX) that have taken the total cost base of the shipping industry through the $100 billion barrier for the very first time.

Watching The Pennies!

Of all global industries, perhaps few have had the extreme cost focus of shipping over the past 30 years. During the 1980s recession, any operating “fat” was largely removed with the growth of open registries and a drive to outsourcing. This helped shipping, alongside its near “perfect” competitive economic model, deliver exceptionally cheap and secure freight, in turn a key facilitator of globalisation.

Nice And Lean…

OPEX response since the financial crisis has been relatively modest. Our average OPEX index (using the ClarkSea “fleet” mix and information from Moore Stephens) shows just a 1% decrease in OPEX since the financial crisis to $6,451/day in 2016. By comparison, the ClarkSea Index dropped 71%, from $32,660/day in 2008 to $9,441/day in 2016 (a record low). In part, this modest, albeit painfully achieved, drop reflects upward pressures from an expanding fleet and items such as crew and ever- increasing regulation. However it also reflects the already lean nature of OPEX.

$100 Billion And Counting…

Our estimate for aggregate global OPEX for the world’s cargo fleet has now breached $100 billion for the first time, up from $98 billion last year and $83 billion in 2008. The largest constituent remains crew wages ($43 billion covering 1.4 million crew across the fleet). By comparison aggregate ship earnings for our cargo fleet fell from an eye watering $291 billion in 2008 to $123 billion in 2016!

Cutting The Fat…

One sector that has seen dramatic cost reduction has been offshore. Estimates vary, but 30% seems a reasonable rule of thumb for reductions in OPEX since 2014. While painful, this has been part of a process of making offshore more competitive against other energy sources (offshore contributes 28% of oil production, 31% of gas, and 16% of all energy) and one of the factors behind the increase in sanctioning of offshore projects.

Getting Smarter…

So shipping is one of the leanest industries around but is always under pressure to do more! It seems clear that squeezing cost in the traditional sense, offshore aside, will be pretty challenging — UK media reported on the docking of the 20,150 teu MOL Triumph, highlighting it was manned by only 20 crew! Getting smarter, collecting and using “big data” and technology and automation are all gaining traction. The industry’s fuel bill (accounted for outside of OPEX) is clearly a big target.

This will all require new technology, skills and perhaps new accounting approaches. Plenty of food for thought but it seems like just going on another severe diet won’t work this time. Have a nice day!


With the ClarkSea Index around $9,000/day, and many if not most of the major shipping markets under severe pressure, it’s hard to escape the conclusion that the shipping markets are a tough place right now, with limited pickings to share between owners. However, everything’s relative, and from one angle the size of the ‘pie’ might just be bigger than it seems…

How Big’s The Pie?

Last week the ClarkSea Index stood at $8,743/day, and during 2016 as a whole the index averaged $9,441/day, taking into account earnings in the tanker, bulkcarrier, gas carrier and containership sectors, across a selection of over 21,000 units at the start of the year. Estimating the aggregate annual earnings for the basket of vessels in question, that works out at $72.5 billion in full year 2016. To put this in context against the boom years of the 2000s, in 2007 the ClarkSea Index averaged $33,061/day across a basket of over 15,000 ships, generating aggregate earnings of $189.1bn, over two and half times more than in 2016.

In terms of average earnings levels, 2016 actually compares more equally to 1992, 25 years ago, when the ClarkSea Index averaged $9,786/day, or 1999 when it averaged $9,855/day. But of course the fleet has grown since those days and, in dwt terms, the basket of ships in the index in 2016 was 159% bigger than in 1999 and 219% larger than in 1992. Aggregate earnings in 1999 reached $43.6bn and in 1992 were $36.1bn. 2016’s total was 66% and 101% larger respectively. In today’s challenging markets it is food for thought that the earnings stream is still that much bigger than at similar earnings levels in the past.

A Bigger Bake

And furthermore, there’s a wider world of shipping outside the scope of the ClarkSea Index basket which is (hopefully) generating income too. If, for instance, the 2016 earnings of the ClarkSea Index basket were extrapolated on a $/dwt basis (it stood at $48/dwt) across the whole of the 1.7bn dwt world cargo fleet, the overall earnings of that wider fleet would have come to $85bn. That’s roughly the size of the economy of Ukraine!

Rising Cost Of Ingredients

However, having said all this, it’s not just about earnings. Costs need to be taken into account too. Using a weighted index of OPEX across the ClarkSea Index basket and subtracting it from aggregate earnings would imply an overall net cash flow in of $23.4bn in 2016 (this compares to around $150bn in 2007 and 2008). Helpfully, in recent decades fleet expansion has outweighed growth in OPEX so the net cash flow pie has grown compared to previous downturns too.

A Slice Of The Action

So, whilst market conditions are as challenging as any seen in the last few decades, the revenue ‘pie’, though hardly tasty yet, is at least significantly larger than it was last time that earnings were at a similar level. For the industry that means a larger pie to be shared around. In today’s difficult markets that could be helpful, but of course you have to get a big enough slice. Have a nice day.


In the first film in the Bridget Jones series, 32 year old single Bridget soon ends up in the middle of a love triangle with the sensible Mark Darcy and charming Daniel Cleaver. The second sequel, released last year, sees Bridget finding herself unexpectedly expecting a baby. But Bridget Jones hasn’t been the only one battling tricky relationships and a rising headcount, as tanker owners will attest.

Happy Couple

The tanker market has certainly had some tumultuous times of late. Crude tanker earnings picked up in 2014, averaging nearly $27,000/day, and surged to an annual average of around $50,000/day in 2015. Things started to cool off into 2016, but in the full year average earnings were still fairly healthy at just under $30,000/day. They say two’s company; and these positive conditions did seem to have been brought about by the fortuitous lining up of two key factors.

Firstly, limited tanker ordering in the years after the global economic recession led to a spell of very muted growth in the tanker fleet. By the start of 2015, tanker fleet capacity was just 3% larger than at the start of 2013 (in the same period, the bulkcarrier fleet grew 10%). Secondly, the oil price crash in mid-2014 kick-started a period of unusually firm growth in seaborne oil trade. The ensuing low oil price environment supported healthy refinery margins and a build-up in oil inventories in key regions, whilst price pressures also dampened US oil production and boosted US crude imports. Overall, seaborne crude oil trade grew on average by a healthy 3.5% p.a. in 2015-16.

Delivery Record

However, a resurgence in contracting (1,278 tankers were ordered in 2013-15, up from 577 in 2010-12) has seen tanker fleet growth accelerate, to around 6% in 2016. The tanker supply surge has continued, with deliveries in January 2017 reaching an all-time monthly record of 6.7m dwt. With these new additions, tanker fleet capacity has already grown by 1.1% since the start of 2017, a similar rate of growth to that seen in full year 2014, with more tonnage delivered last month than in some whole years in the 1980s. In full year 2017, tanker fleet growth looks set to reach around 5%.

Troubling Trio

Another tricky element could also now be materialising on the demand side. Compliance by major oil exporters with agreed production cuts seems to have been high so far. The wider impact of these cuts on the tanker market is certainly far from clear, but there is the potential for improved oil price levels to support US oil output and undermine crude imports. At the same time, oil inventory drawdowns in some regions remain a key risk

Finding Mr Right

So, they say three’s a crowd, and the tanker market could be facing up to some real tests if the three factors of fast supply growth, changes in oil production and inventory drawdowns come together. Bridget Jones would be the first to tell you that finding the right way forward when the future’s uncertain and numbers are multiplying is tricky at the best of times, but rarely have shipowners not been up for a challenge. Have a nice day.


Historically, a prime characteristic of the shipping industry has been that when one sector is performing weakly there is generally another that is strong, and that even when most of the markets are down there is often one which provides at least some counterbalance by performing more robustly. Today’s market climate suggest that it’s worth taking a look at this interesting element of the industry’s make-up.

Interesting Indices

One way to examine this is simply to look at the performance of the key sectors over time. The graph shows six-month moving averages of indices representing earnings in the four major volume sectors, with each index based on the 100 mark being equivalent to the historical average. This allows a quick view of the relative health of each sector in historical terms compared to the other key sectors at any point in time. Today, the bulker and containership earnings indices are at a low ebb. Yet, though not quite at last year’s heights, the tanker market continues to perform robustly with the index above 100, and gas earnings, though sliding, still look strong in historical terms.

Looking back, this type of landscape is not new. In the 1990s, for 60 months in a row, the containership index stood above 100 whilst the other market indices lingered below the 100 mark. For over half of the period between May 2001 and March 2003, the tanker market index stood above 100 whilst the other sectors experienced earnings below historical averages. In the aftermath of the credit crunch, in 17 of the 18 months between May 2009 and October 2010 the bulker market index stood above 100 whilst the other indices remained below that level.

Different Drivers

This behaviour should not be unexpected. Only some market drivers are common across sectors. On the demand side, although macroeconomic factors can prove general, commodity-specific trends are often key. On the supply side, whilst shipbuilding, finance and steel industry developments can have a common impact, sector-specific building and demolition trends are very important too.

Clear Coefficients

To some extent this can be measured in statistical terms. The ‘correlation coefficient’ measures the strength of the relationship between two series (+1 represents the most positive correlation, 0 no correlation and -1 the most negative correlation). The average coefficient between the pairs of indices here is just 0.26, implying little correlation. Removing the more ‘niche’ gas sector index from the comparison, the average coefficient between the remaining three series is 0.52, still not really indicative of a particularly significant positive correlation.

Helpfully Out Of Sync?

So, shipping markets are highly cyclical but the cycles are not always in sync. In less than 20% of the period here were earnings in all four sectors concurrently below historical averages. With some sectors today looking fragile and demand growth sluggish overall, history might offer some reassurance if the brighter spots start to fade, by suggesting that something else might eventually have its time in the sun. Have a nice day.


In many instances the shipping industry is all about growth, with trade volumes expanding along with the world economy and fleet capacity growing too. However, that’s not exclusively the case. Today, trade volumes in some commodities are stalling, and there are some parts of the fleet that are on the wane. What might a look at some of those shrinking sectors tell us?

Frozen Out?

There are a number of reasons that can drive fleets into decline. The first is technological substitution by another sector. The reefer fleet is a good example. Total reefer fleet capacity has been in decline since the mid-1990s as containerized transportation has encroached onto the territory once held by conventional reefers. In 2012 reefer capacity in cubic feet declined by 12%, and last year by 0.6%.


Upsizing is another driver that can cause capacity in certain sectors to decline. As larger vessels offer greater real (or perceived) economies of scale, smaller vessel sectors can get left behind. This has been most noticeable in the containership sector. The sub-1,000 TEU boxship sector, once home to the classic ‘feeders’, has been in decline in TEU capacity terms since 2009, with growth in the boxship sector as a whole focussed on much larger vessels.

All Change?

Another driver of decline in a fleet segment can be a specific development in infrastructure. The Panamax containership fleet is an example of this. Although there are 838 Panamaxes still on the water, Panamax fleet capacity, which once accounted for more than 30% of the containership fleet, has been in decline since 2013, and there are no units on order. The planned expansion of the Panama Canal has made the Panamaxes yesterday’s vessels, and when the new locks eventually open (currently slated for later this year) the prospects for decline look even more certain. 11 Panamaxes have been sold for recycling already in 2016.

Cycling Through?

Market cycles can also explain shrinking fleets, although in this case the trends may not necessarily be lasting. In the Ro-Ro sector, with markets softer, total lane metre capacity was in decline for most of 2010-14. When markets are weak there is often limited vessel replacement with earnings insufficient to tempt owners at prevailing newbuild prices. Eventually the cycle turns, and earnings improve, incentivising owners to order new tonnage leading to fleet growth once again.

What Goes Down, Must Go Up?

Happily, however, each of these drivers also explain fleet expansion, generally with other sectors benefiting from the same trends in technology, upsizing or infrastructure. World fleet growth has slowed but remains positive, although even here it’s worth noting the patterns; growth has been more focussed on tonnage than ship numbers. Nevertheless, the global fleet is a broad church, and not everything is growing all of the time. The interesting news, however, is that if there’s growth overall, and one part is in decline, then another part must be growing even more quickly! Have a nice day.


With tanker owners “on top of the world” and their dry bulk counterparts often feeling like they are “staring into the abyss”, 2015 was a year of contrasting fortunes across bulk shipping. However with global seaborne trade growth slowing to 2% (to reach 10.7bn tonnes) and the world fleet growing at 3% (to reach 1.8bn dwt), for many sectors it has been a case of the fundamentals working against them.


Onwards And Upwards

The good news or the bad? Well let’s start with the good! There is no doubt who stole the show in 2015, with average tanker earnings up 73% y-o-y and VLCCs leading the way, up 120% with earnings spiking over $100,000/day. Low oil prices drove demand (total seaborne oil trade grew 4.8% to 2.9bn tonnes), supporting the best tanker market since 2008. Indeed, with a tanker fleet around 30% bigger than during the last market spike, the approximate earnings flow into the sector topped $42bn, the second highest year on record after 2008 ($46bn).

Sitting Pretty

Although tankers had a sparkling year, VLGCs managed to outdo even their stellar performance of 2014, with average earnings increasing to over $85,000/day! LPG was also the top performing trade, with an estimated 8% increase (with US exports up over 30% to around 16mt). The specialised products market made steady gains, as did the ro-ro, ferry and cruise markets. Elsewhere however, it was difficult to avoid a sinking feeling.

That Sinking Feeling!

Having spent the years since the financial crisis worrying about supply, dry bulk owners seemed to “get the message” with an 87% increase in demolition and an 74% drop in ordering. 93 demolished Capesizes represented an all time record, and bulkcarrier fleet growth of 2.7% was the slowest since 2003. However the reality of the “new economic normal” in China (where coal imports dropped 28% and iron ore imports managed just 1% growth) meant that seaborne dry bulk trade stalled at 4.7bn tonnes. Average earnings fell 28%, but in the final months of the year, earnings sat at OPEX levels and reached well publicised all time lows.

Buyers & Sellers…

Despite the rush to beat NOx Tier III regulations, newbuilding orders across tankers and bulkers totalled 65m dwt, down 32% year-on-year. Overall yard orders totalled 96m dwt ($70bn), down 21%, with busy ordering of large containerships in the first six months of the year. The average lead time for orders however dropped to 22 months and the immediate outlook is quiet. We reported 67m dwt of tanker and bulker sales in 2015, down on 2014, especially for tankers (-34%). Asset prices were relatively steady in tankers but unsurprisingly down 30-40% in dry, with buyers increasingly selective towards good spec tonnage. Greek owners again topped the asset play charts, involved in nearly 50% of all reported tanker and bulker deals either as buyers or sellers. Meanwhile, scrap prices nearly halved, as global steel prices fell.

Poles Apart?

So, it was a year of contrasting fortunes across wet and dry (we estimate the largest earnings differential on record!), but a tough year for most across shipping (look out for our review of the container market next week and our offshore review in Offshore Intelligence Monthly for more depressing numbers!). Perhaps 2016 may be a case of “opposites attract”, with those tanker owners sitting on the top of the world eyeing up a bottoming out dry cycle. Have a nice New Year!