Archives for posts with tag: growth

The development of the global merchant fleet is affected by a very broad range of interwoven supply and demand factors, including shipping and commodity cycles, investor sentiment, regulatory concerns, yard capacity and so on. Another factor is shore-side infrastructure projects, which can be tricky to disentangle from the wider web, though this influence is a little clearer on, for example, the LNG carrier sector…

For the full version of this article, please go to Shipping Intelligence Network.

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It is over a year now since the opening of the new, expanded locks at the Panama Canal. The new locks have had a significant impact on a number of areas of shipping, including the gas carrier sector, but the main focus of the project in Panama was always the container trade, and the Asia-US East Coast route in particular. In that regard, how do things look a little over one year on?

Old For New

The new locks at the Panama Canal opened for transit on 26th June 2016, and the impact on the box shipping sector has been largely in line with expectations. The key area of impact was always going to be the Transpacific trade, and the Asia-US East Coast route in particular, the largest volume trade through the canal. Following the opening, the Asia-USEC route immediately saw swift upsizing of ‘Old Panamax’ containerships, being replaced by ‘Neo-Panamax’ units, with operators aiming to benefit from the economies of scale offered by running larger vessels through the canal. Regular deployment of ‘Old Panamaxes’ on the Asia-USEC route via the canal has fallen from 156 units in June 2016 to 30 today.

The total of ‘Old Panamaxes’ on the broader Transpacific trade now stands at 76, including some still operated via Suez to the USEC and from Asia to the USWC. However, there are around 35 ‘Old Panamaxes’ idle, and in total (based on a wide definition of 3,000+ TEU and ‘Old Panamax’ beam) 101 have been scrapped since start 2016. Having said all that, there are still many of these units deployed elsewhere, with, on the same definition, over 450 outside the Transpacific.

Bigging It Up

Looking upwards, the initial impact last summer was a speedy upsizing of tonnage to ‘Neo-Panamaxes’. This, as expected, basically jumped the class of sub-8,000 TEU ‘wide beam’ ships; just 22 of those serve Asia-USEC today. Instead it focussed immediately on the 8-11,999 TEU ships, and today there are 93 of those deployed on the Asia-USEC. And now even units as large as 12,000+ TEU are getting in on the act, with 9 deployed Asia-USEC, taking total deployment of new ‘wider beam’ units there to 124.

Switching Off?

This is all against a backdrop of robust growth on the Transpacific, with peak leg eastbound trade up by 8% y-o-y in Jan-May 2017. However, there hasn’t been any early sign of ‘cargo switching’ with flows proving ‘sticky’, even if USEC infrastructure constraints are diminishing (lifts at the 5 leading USEC ports as a share of lifts at the 5 major USWC ports is steady at c.80%). And interestingly the additional capacity on the Asia-USEC trade from the surge in upsizing has eroded the average Asia-USEC/Asia-USWC spot box freight rate ‘premium’ only gently, from 94% in 1H 2016 to 76% in 1H 2017.

More Time Required?

So, plenty of questions remain. Will the Panamaxes finally fully depart the trade? Will a ‘cargo switch’ eventually evolve? How will the freight market trend? One year may have passed but it appears more time is needed to assess in full the longer-term impact of the new Panama locks on box shipping. Have a nice day.

Graph of the week

“Going where the work is” has been a familiar mantra for many generations across the world, and the shipping industry is no different. Indeed, much of the world’s oil tanker and bulker fleet will be familiar with the sentiments of Simon and Garfunkel, wishing they were “homeward bound” but rarely getting “home where the music’s playing” as “every stop is neatly planned”!

Far And Wide…

Our analysis this week looks at the top shipowning nations and the trading patterns of their fleets, using data from our World Fleet Register and our vessel tracking system, Clarksons SeaNet. This analysis is based on the port calls and movements of the oil tanker and bulkcarrier fleet only (the “bulk fleet”); we will be taking a closer look at containership deployment in a future edition of Shipping Intelligence Weekly.

“Cross-Traders”…

Of the top ten owning nations, Greece, Norway, Italy and Denmark come out as the classic “cross-traders”. Ships owned by Europeans call at their “domestic” ports less than 15% of the time and rely heavily on trade routes involving Asia-Pacific countries. For nations like Greece (9% domestic port calls) this is a long-standing feature, achieving its number one shipowning status despite a global GDP ranking of 50 and a bulk seaborne trade rank of 47. The countries which Greek owned ships call at most often are China (14% by tonnage, 11% by number) and then the US (12%). Indeed for European owners generally, maintaining their share of global tonnage at an impressive 42% for the bulk fleet (45% for all ships) has come despite Atlantic trade stagnating at 3bn tonnes in the past fifteen years, while Pacific trade has more than doubled (to 8bn tonnes), a dramatic relative increase in trading outside Europe.

Sticking Close To Home…

At the other extreme, the Chinese and Japanese fleets come out with over 50% of calls at domestic ports, while the South Korean fleet sits at 38% (note the analysis includes some bunkering calls, notably at Singapore, but also elsewhere). Although China continues to be well serviced by international owners, its position as the world’s largest importer (25% of “bulk” cargo), second largest economy and number one seaborne trading nation means that 74% of Chinese fleet port calls are at domestic ports. In fact, 46% of total bulk Chinese port calls by tonnage (55% in numbers) are by domestic owned vessels, 24% by European owned ships and 24% by other Asian owned units. The growth of the Chinese bulk fleet (70% since the financial crisis) has begun to catch up with bulk trade growth (81%) but still lags significantly over a fifteen-year horizon (104% compared to 399% growth). Meanwhile, the US fleet comes in with 41% domestic port calls; this includes a large proportion of Great Lakes calls and Jones Act vessels.

500 Miles, 500 More…

So shipping is truly an industry that must go far and wide to find work. For European owners this is often a lot further than the “500 miles, 500 more” that Scottish brothers The Proclaimers sing, while for Asian owners their ships are more likely to be “Homeward Bound”. Have a nice day and safe travels home.

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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.

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This month marks the 25th anniversary of the publication of the very first edition of Shipping Intelligence Weekly. So, this week we take a look back to 1992 and compare the shipping industry then to its profile today. If this reveals anything it’s that whilst many things change dramatically, in an industry like this some things don’t appear to change too much at all…

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Wonderful World Of Trade

Seaborne trade provides the platform upon which the shipping industry operates. Back in 1992 world seaborne trade stood at an estimated 4.6 billion tonnes and in comparison current projections suggest that in 2017 it will reach 11.3 billion tonnes. That’s 2.5 times bigger than 25 years ago (see table). Iron ore trade is projected to be 4.3 times larger than back in 1992, LNG trade 4.5 times larger and container trade a mighty 6.3 times more voluminous. The 2017 seaborne trade estimate represents about 1.5 tonnes per person on the planet. That’s quite some performance all round and keeps the world of shipping turning.

My How Big You’ve Grown

Meanwhile, shipping capacity has also expanded equally rapidly. The fleet has grown by a multiple a little greater than that registered by trade over the 25 year period. At the start of 2017 the global fleet totalled 1.86 billion dwt compared to 621 million dwt at the start of 1992. That’s a multiple of 3.0 times larger. Of course, over the period there have been changes to vessel productivity, not in the least the moderation of service speeds in many sectors in the post-Lehman downturn.

What Things Cost These Days

Alongside these significant changes, the value of shipping assets has seen more mixed trends. A 5 year old VLCC was 8% cheaper at the start of 2017 (in current terms) than at the start of 1992 but such is the state of play in the bulkcarrier market that a 5 year old Capesize is 43% cheaper. Adjust these for inflation and the values look even lower. On the other hand the scrap value of ships is higher than in 1992 on the back of an 81% higher $/ldt ship steel scrap price.

Economic Activity

Despite the recent commodity price downturn, raw materials overall are substantially more expensive than back in 1992.  Brent crude stood at $54.8/bbl at the start of 2017 compared to $18.2/bbl in early 1992 and iron ore at $76.3/tonne compared to $33.1/tonne. Bunker prices (380cst Rotterdam) have increased from $69.0/tonne to $312.5/tonne.

Elsewhere only $1.24 of shipping’s universal currency is now needed to buy one pound sterling, compared to $1.83 back in 1992, but USD borrowing (6-month LIBOR) is much less dear at 1.3% rather than 4.2%. The world economy is still growing more quickly than back in 1992, projected at 3.4% in 2017 compared to 2.3%, and is over 3 times bigger at about $79 trillion. The size of the Chinese economy has rocketed from $0.5 trillion to $12.4 trillion, and the world’s population has expanded from 5.5 to 7.4 billion.

Nothing Changes?

Last of all, some things never seem to change. At the start of 1992 the ClarkSea Index of vessel earnings stood at $11,700/day. At the start of 2017 it stood just 5.2% lower at a remarkably similar $11,092/day. In between the index once tipped over $50,000/day; that’s a cyclical business for you! Now let’s see what changes the next 25 years throw up. Many happy returns SIW!

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 the summer, the cruise ship fleet surged past half a million berths of total capacity. The cruise industry is continuing to expand its horizons, and has seen strong newbuilding investment this year. Whilst many of the new ‘mega-ships’ will likely be heading to sunny climes, there have been developments at the small end of the sector too, for ships venturing forth to remote and often chilly destinations.

Look North…

Arctic navigation was once the preserve of intrepid explorers. In 1848, British explorer Sir John Franklin set out on an ultimately doomed attempt to navigate the Northwest Passage. His abandoned ship, HMS Terror, was finally discovered this month in near-pristine condition in 80 feet of water off Canada’s King William Island. Today, Arctic navigation is potentially less hazardous, and while many modern cruise passengers are not always seen as the most adventurous of folk, rising demand for ‘expedition’ ships has been an interesting feature of cruise ship ordering this year. Nine such orders have been placed in 2016 to date, including some for voyages to the Poles, with other contracts for small vessels catering for the high-end, luxury market. Overall, vessels with less than 1,000 berths have accounted for half of the 26 cruise ship orders placed so far this year.

Look Big…

However, it has been the rapid expansion in the ‘mega-ship’ sizes that has recently pushed the cruise fleet over its new milestone, and underpinned the expansion in the cruise ship orderbook to a record 60 units of 142,922 berths at the start of September. Around 70% of berth capacity ordered this year has been accounted for by ships of 4,000 berths and above, with many of the major brands confirming contracts. Having expanded robustly by a CAGR of 4.3% p.a. in 2006-15, growth in the cruise fleet is now likely to accelerate in the next few years, as more ‘mega-ships’ are delivered. Cruise operators retain a positive market outlook, with increased passenger volumes in Asia expected to be a key driver of global cruise passenger growth. Some experts expect Chinese cruise passenger numbers to reach 3-4 million by 2020.

Look Helpful…

Overall, 2016 is a record year for investment in the cruise ship sector, with estimated investment in the year to date at $8.9 billion, already up nearly 50% on the previous high reached last year. A large number of orders are also in the pipeline and are likely to be confirmed in the coming years, which could add at least another 65,000 berths to the orderbook (nearly half of the current size of the orderbook). Given the extremely subdued level of ordering in other vessel sectors, the cruise sector has accounted for almost 50% of the total estimated value of newbuilding investment in the year to date, and provided support to the European yards who dominate in this sector.

So, despite weak conditions prevailing in many of the major volume markets, at least the sun is still shining on one part of the shipping industry. Whether you’re looking for a trip to some warmer latitudes or a voyage to a more bracing environment, the next phase for the cruise sector might not be plain sailing but it should be an adventure. Have a nice day!

SIW1240 Graph of the Week