Archives for posts with tag: fleet growth

Back in the past the gas shipping sectors may have been considered relatively niche within the world of global shipping. However, in the last two decades they have been amongst the faster growing parts of the industry. This week’s Analysis takes a look at how shipping’s ‘coolest’ sector has grown in prominence to become part of the mainstream, and some of the ups and downs along the way.

Keeping Cool

Gas (LNG and LPG) shipping may once have been considered by some as a relatively niche part of global shipping, with the fleet and trade volumes dwarfed by other sectors. Even today, LNG and LPG carriers account for just 5% of total world fleet GT, and LNG and LPG trade accounted for just 3% of global seaborne volumes in 2015. However, following phases of rapid fleet growth, the combined gas carrier fleet now stands poised to top 100 million cbm of gas carrying capacity next year, more than double the size of the fleet at the end of 2007.

Gas Expands

Following expansion in LNG trade in the late 1990s, in the mid-2000s a glut of new export terminal sanctioning led to a surge in LNG carrier contracting, peaking at 10.9m cbm in 2004. This supported average fleet growth of 15% p.a. in the period 2000-08, to 40.3m cbm at the end of 2008. In comparison the LPG carrier fleet grew more steadily, though trade growth was supported by increased export volumes from the Middle East and Europe. Between 2000 and 2008, LPG carrier capacity increased from 13m cbm to 18m cbm, at an average rate of growth of 4% p.a. Across this period combined gas carrier capacity grew by an average of 10% p.a. to total 58.2m cbm by the end of 2008. However, after the economic downturn, sanctioning of liquefaction projects slowed, which limited LNG fleet growth, and growth in the LPG sector slowed too. Between 2008 and 2014, combined gas carrier fleet capacity grew by a much less rapid 6% p.a. on average, with even slower growth in 2011-12.

Powering On

Nevertheless, since the start of 2015 it has been full steam ahead for the gas carrier fleet. With LNG carrier ordering backed by the return to liquefaction terminal sanctioning in the 2010s and the vision of a cleaner energy future, and LPG carrier demand supported by the advent of fracking in the US and refinery capacity expansion elsewhere, 26.1m cbm of combined gas carrier capacity was ordered in 2013-15. This has supported rapid fleet growth in recent years and since the end of 2014, LPG carrier fleet capacity has grown by 32% and LNG carrier fleet capacity by 12%.

Mainstream Profile

So, the gas sector’s profile is fully in the mainstream today, and despite it’s relatively limited share of the world’s tonnage and global seaborne trade, in other ways it accounts for rather more weight. Gas carriers are complex, high value units; they account for 15% of the shipyard orderbook in CGT (shipyard work) terms today, and for an estimated value of $78bn, 9% of the world fleet total. And with a 20-year compound annual growth rate of 8% in combined capacity, and the 100 million cbm mark just around the corner, surely that’s one of modern shipping’s success stories? Have a nice day.

SIW1241 Graph of the Week

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

It’s the time of year, with the school holidays and end of term approaching, that many pupils will nervously take home their school reports to anxious parents. With the spread of challenges facing the industry, it’s unlikely the shipping markets would achieve many top grades. However some sectors might still achieve an “A” for effort and this week’s analysis reviews the markets’ performance in the first half.

Must Do Better!

Our Graph of the Week compares performance in the first half of 2016 to the averages since the financial crisis, as a barometer of performance against trend. First on the graph is the ClarkSea Index, our average earnings index covering all major sectors, which is 18% down on the average since 2009 and 30% compared to 1H 2015. The index actually finished the mid-year at just $8,575/day, close to its all time low of $7,444/day. Clearly room for improvement.

Heading For Re-Sits?

With widely reported historical lows in the bulker sector in the first half, Capes averaged below $5,000/day in 1H 2016, some 76% below the average since 2009. Containerships fared little better, slumping to 54% below trend while offshore rates were also almost 50% down on trend and generally hovering around OPEX levels. The prevalence of lay-up and stacking makes offshore arguably the most challenged sector at present. LPG rates also moved below trend, with VLGCs averaging $32,000/day, albeit following their stellar performance of 2015. Meanwhile trade is heading towards more muted growth with an expectation of 2.2% in 2016 compared to a trend rate of 3.2%.

“A” For Effort

Reduced fleet growth (1% to reach 1.8 bn dwt), increased demolition and extremely limited newbuild orders should all get an “A” for effort. Although demolition of 29m dwt was slightly below 1H 2012 levels, it was 43% above trend. However orders of 18m dwt and $16bn constituted a 35-year low and 68% down on the average since 2009 (lower than the 19.1m dwt in 1H 2009 and lower still if the Valemax orders of 12m dwt are excluded). Further pain for the shipyards and pressure on newbuild prices seems likely as the year progresses. Sale and Purchase activity was well down in value terms but marginally above trend by tonnage, reflecting the strong buying appetite for bulkers (bulker sales of 21m dwt in 1H 2016, the highest tonnage figure since 1H 2007).

Keep Up The Good Work

Although they eased back during the first half, tanker earnings continued to perform above trend with VLCC rates still averaging around $50,000/day. Product tanker earnings have also eased back somewhat this year but remain above trend, as does our index of chemical tanker earnings. The best performer across shipping was the Ro-Ro market, continuing its improvement from 2015 and 60% above trend, with the Ferry and Cruise markets also generally positive.

So shipping is experiencing some of its toughest conditions since the financial crisis and, despite its many efforts, may well be heading for an appointment with the headmaster (the bankers?). Have a nice day.

SIW1229

On 14th August 1948, Don Bradman, Australia’s greatest cricketer of all, walked out for his last test match innings, at the Oval in London. Over 52 test matches, his average score was an astonishing 99.9 runs. All he needed was 4 runs for a test match average of 100 (sorry non-cricketers, you’ll have to check it out on Wikipedia). But he was bowled out second ball by leg spinner Eric Hollies.

Two Simple Rules

The moral of this sad story is that however experienced you are, two basic rules apply. Keep your eye on the ball and watch out for spinners that behave erratically. That seems to apply pretty well to today’s tanker market. The fantastic revival of tanker earnings started in October 2013, was interrupted by the summer dip in 2014, then picked up in October 2014. Since then it has not looked back, with crude tanker earnings generally averaging $40-$50,000/day. There is a little weakening right now, but sentiment appears to be confident for the winter.

Demanding Wicket

Against the background of a 2% fall in seaborne crude oil trade in 2014, US fracking and a lacklustre world economy, this earnings surge was a surprise. But there were some mitigating factors. Low oil prices are boosting demand and the IEA has revised up its forecast for growth in global oil demand in 2015 to 1.6m bpd.

Growth on long-haul trades has also helped. Between 2011 and 2014 Caribbean tonne-mile exports increased by 36%, largely due to increased shipments to China and India. That sounds good, but many VLCCs repositioned with a backhaul e.g. West African crude for Europe, and maybe a Transatlantic fuel oil cargo. Although handling fuel oil is time consuming, especially when it involves STS (ship to ship), this undermined some of the “tonne-mile” effect. And so did cargo-leg speeds, which appear to have edged upwards over the last year. But while the part played by demand may not seem entirely clear, there has still been a notable improvement in crude trade volumes this year, with seaborne shipments to major importers estimated to have increased by 4% year-on-year in 1H 2015.

It’s Supply, Stupid?

When we turn to supply, the picture becomes clearer. Until the summer of 2013, the crude tanker fleet was growing at 15-20m dwt pa. That’s about 5-6% per annum growth, well above demand growth. But by October 2013 growth had fallen to 2%, producing a nice year-end spike. The tanker supply slowdown kept on going and by July 2014 the crude tanker fleet was declining. Admittedly the growth has
edged up so far in 2015, but only to around 1-2% per annum.

Nasty Spinner In Sixteen?

So there you have it. Tanker investors have scored well in the last year, but, like Don Bradman, they must remember rule two and watch out for the spinners. Although fleet growth is sluggish, the crude tanker orderbook for 2016 could produce a “googly” as it pushes fleet growth back up to 6% (depending on demolition). Even with positive demand, tanker investors are going to have to keep their eye on that ball and hope it breaks the right way. Have a nice day.

SIWK20150814

In the outrageously camp film The Spy Who Shagged Me, made in 1999, super-spy Austin Powers battles with the forces of darkness in the form of Dr Evil. The doctor’s most outrageous tactic is to invent a new Time Machine which allows him to travel back to the 1960s where he steals Austin’s Mojo, leaving the unlikely sex symbol spy totally “shagless”. “Crikey!”, he expostulates, “I’ve lost my Mojo”.

Big Boy Boost

Over the years, investors in the VLCC market have shared an equally debilitating experience. The first of these miracles of modern shipping appeared in 1967. Over 1,000 feet long and carrying 2 million barrels of oil, they were the last word in efficiency, delivering Middle East oil to Europe and Japan, who were rebuilding their economies, for less than $1 a barrel. As US domestic oil production fell in the early 1970s it boosted imports even more, and to meet this demand Saudi Arabia increased output from 2.8m bpd in 1967 to 9.7m bpd in 1977. The VLCC market went mad. Investors queued to order 4 million barrel ships and the VLCC fleet grew faster than any other shipping fleet in history, from zero in 1967 to 193m dwt in December 1979.

Mighty Mojo Missing

Unfortunately, around that fateful date in the late 1970s, VLCCs, like Austin Powers, lost their Mojo. The problem was not Dr Evil and his Time Machine; it was two oil crises in quick succession. The first in 1973 pushed oil to $10/barrel, and after the second crisis in 1979 oil reached $30/barrel, by which time it was changing hands for 15-20 times more dollars than a decade earlier. These developments in the oil market triggered a double barrel downer for VLCC demand. First, a long and deep recession in the world economy undermined long-haul imports, and secondly a major round of oil saving technology cut demand even more (for example power stations switched from oil to coal, a massive structural change in oil’s market). By 1986 Saudi Arabia’s production had dropped by two-thirds to 3.6m bpd and VLCCs were in deep trouble. The fleet dropped 37% to 110m dwt in 1988, surely some form of record.

20 Years Out In The Cold

For twenty years from 1983 to 2003 the VLCC fleet struggled along in a grim and Mojo-less world. Then in 2003 a big dose of Chinese medicine got the fleet kick started again. Long-haul imports by the big three of Europe, USA and Japan were topped off by China and the Asian tigers, and from 2003 to 2013 the VLCC fleet grew at 4% pa. But since 2007 demand has been sapped by high oil prices, increased US production, a credit crisis, and a deep OECD recession. As a result crude oil tonne miles have only increased by 5% in total since 2007.

Dr Evil’s Wicked Way

So there you have it. Although it’s not the 1960s, Dr Evil is still at work on the VLCC fleet’s Mojo. Of course today’s Mojo surgery is not as dire as the 1980s, but the flagging crude demand growth since 2007 and brisk fleet growth have created spare capacity. Luckily some of it is soaked up by slow steaming, so when he’s in the mood, our hero can still enjoy a nice little spike. But sadly Austin’s still very short on stamina. Have a nice day.

SIW 1149

Like the big dipper at a fun fair, the shipping industry has its share of ups and downs. After a thrilling start to the century, rapid fleet growth and the financial crisis dampened the market. However, we are now seeing signs of a better balance between fleet expansion and trade growth.

All Aboard

The shipping rollercoaster has plenty of ups and downs, and one of the best ways of keeping track of the twists and turns is by looking at the balance between the growth in seaborne trade and growth in the fleet.

The Graph of the Week shows the development of fleet growth and trade over the most recent two 8-year periods. During the first phase (1999-2006 inclusive), fleet and trade growth broadly tracked each other, resulting in a competitive and, at times, prosperous market.

Trade growth started strongly at the turn of the century, prompting a “mini-boom” and giving shipping’s thrill-seekers a taste of things to come. After a couple of slower years in 2001-02 in the wake of the “dot-com crisis”, trade growth recovered and achieved a CAGR of 4.6% for the period as a whole. At the same time the fleet grew at 4.2% per annum – tracking demand growth but not exceeding it. The tight market conditions that characterised this first cycle of the century drove the shipping market to incredibly firm levels and, for some, the thrill of a lifetime.

Hold On Tight

During the second 8-year phase (2007-2014 inclusive) fleet growth has surged ahead of trade. For the first couple of years the market was strong enough to absorb the large number of new deliveries coming out of a rapidly expanding shipbuilding sector. However, in the wake of the global financial crisis, consistently higher fleet growth resulted in much weaker market conditions.
In 2009 global seaborne trade fell by 4.0%, compared to fleet growth of 7.1%. Trade made up some lost ground in 2010 when it grew by 9.6%, but with fleet growth hitting 9.5% that year and 8.8% in 2011, trade growth was unable to keep pace. Over the past 8 years as a whole, the fleet has grown by a CAGR of 6.5%, compared with trade growth of 3.5%.

Here We Go Again

Over the past two years deliveries have eased enough for fleet growth to fall back below 4% pa, and in 2014 trade growth is expected to exceed fleet growth for just the second time in over a decade (the other time being 2010 when trade was recovering from the financial crisis). As a result shipping markets are relatively tighter and faster to react to localised demand/supply imbalances. The last 9 months have seen spikes in bulker, tanker and gas carrier rates which have encouraged renewed interest in tonnage acquisition (both secondhand and more efficient newbuilds) and capital markets.

So the 21st century so far has been a breathless ride. There have been long, slow climbs and the occasional sharp drop, but many enjoy the thrill of the ride and want to get straight back on. Shall we go again? Have a fun day.

SIW1124