Archives for posts with tag: shipping industry

The introduction of new environmental regulations is leading the shipping industry to look for ways of reducing its emissions of harmful gases. This week we focus on two separate but related issues: the way in which vessels are powered, and the type of fuel that they use. New technologies are being adopted, with certain ship types leading the way…

Electric Therapy

The majority (96%) of active merchant vessels are powered by mechanical systems in which a form of fuel oil powers a main engine (usually a 2 or 4-stroke diesel) which is connected to the propeller. Most other vessels are “diesel-electric”, in which the power generated by the (4-stroke) main engine(s) is converted to electricity before being transferred to propeller(s) or thruster(s) via electric motors.

By optimising the loading of the engines, diesel-electric systems can lower fuel consumption and emissions. These systems are well established in sectors such as offshore, tugs and passenger, where manoeuvrability, variation in power demand and engine noise are important considerations. For larger cargo vessels, where demand for power is generally higher and more consistent, conventional mechanical systems remain more efficient and cost-effective. Our Graph of the Week shows that against a backdrop of reduced contracting in the larger cargo sectors, electrically-driven ships have assumed a greater share of the newbuilding market, accounting for 22% of reported newbuilding contracts so far this year.

Battery Charged

The next step for electric power may be more widespread adoption of batteries in main propulsion systems. There are 22 vessels in service and 14 on order that use batteries, mostly alongside either conventional diesel or dual-fuel generating sets. As well as reducing emissions when using battery power, these can enhance efficiency by optimising engine loads and transferring surplus power to or from the batteries as required. For smaller ferries intended for short routes, all-electric propulsion systems are feasible.

Gas Treatment

LNG has been identified as a cleaner fuel capable of reducing vessel emissions in line with new regulations. Clarksons Research’s World Fleet Register currently identifies 542 merchant ships in the fleet and on order capable of using LNG fuel. 351 of these are LNG carriers, which can use cargo boil-off to fuel a choice of turbine, dual-fuel diesel electric or dual-fuel 2-stroke main engines. In other sectors LNG fuel has taken longer to gain market share, but there are signs that where ship designs and the supply of bunkers allow, it is becoming more popular. Out of the 130 contracts recorded so far in 2017, 21 are for vessels capable of using LNG fuel. These include 4 Aframax tankers, the largest vessels other than LNG carriers to adopt dual-fuel 2-stroke engines.

More efficient power systems and cleaner fuels are two examples of how the shipping industry is responding to the challenges set by new environmental regulations. Alongside other developments in vessel design and operating practices, shipping is steering towards a more efficient and cleaner future. Have a nice day!

SIW1266:Graph of the Week

In the last few decades, the shipping industry has generally been able to rely on seaborne trade as a fairly steady performer. However, the slowdown in volume growth since the financial crisis has focussed the industry’s thoughts on potential barriers to healthy long-term trade growth, so all eyes are on signs of a potential return to faster expansion in volumes…

Steady As She Goes

From 1988 to 2008 growth in world seaborne trade averaged an estimated 4.2% pa, a fairly robust level underpinning long-term demand for ships. Sure, the markets at times felt the impact of oversupply, but sustained weakness of demand growth wasn’t generally the problem. However, since 2009 the growth rate has slowed, averaging 3.2%, and just 2.8% since 2013. This still equates to significant additional volumes (1.8% growth in 2015 added 194m tonnes) but it’s still enough to get market players worrying.

Could Be Worse?

But should it? Maybe it depends on how you put the trend into context. Cycles can be long; Martin Stopford has famously identified 12 dry cargo cycles of more than 10 years back to the 1740s! The current cycle certainly feels like it has dragged on; it’s now more than eight years since the onset of the financial crisis. However, there are interesting historical comparisons. Between 1929 (the year of the Wall Street Crash) and 1932, the value of global trade dropped by 62% and didn’t get back to the same level until the post-war years. Now that really would have been a time to worry!

Getting Serious?

Today perhaps some of the anxiety is amplified by the seemingly wide range of factors that look threatening to seaborne trade’s supportive historical record. Protectionist tendencies, whether they be from the Trump presidency or the UK’s Brexit vote, slowing growth in China, ‘peak trade’, robotics and 3D printing: no-one really knows how things will pan out but everyone’s watching closely for anything to allay at least some of the fears.

Basket Case

So that brings us back to our old friend the ‘monthly trade basket’ (see graph and description). Six months ago we reported that this appeared to be showing a pick-up and this time round things are still looking positive. The 3-month moving average shows a generally upward trend since autumn 2015 with an average of 4% in the second half of 2016, hinting that the bottom of the demand cycle may finally have been passed. The current projection for overall seaborne trade in 2017 is still less than 3% with plenty of scenarios possible, but both market sentiment and the momentum right now feel a little more positive than that.

Feeling Any Better Yet?

So, while it’s quite right to try to assess the range of factors which appear to be lining up against a return to more robust levels of trade growth, it’s also far from incorrect to look for signs of a turn in the trend. Cycles in shipping can be long and sometimes it can take a while to identify them. That may not be helpful to hear but you can have a nice day trying…

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Last year saw a huge amount of change in the under pressure container shipping sector. In particular, the ongoing consolidation of the sector in one form or another grabbed the headlines. To put this into context, it’s interesting to see how the level of consolidation relates to other parts of shipping, how it has developed over time and how it might progress looking forward.

Solid In A Fragmented Field

It’s quite clear that the shipping industry is a fairly fragmented business. On the basis of start 2017 Clarksons Research data, 88,892 ships in the world fleet were spread across 24,267 owners. That works out at less than 4 vessels per owner. Although 145 owners with more than 50 ships accounted for almost 12,000 of the vessels (and 29% of the GT), it’s still not that consolidated. The liner shipping business however is one the more consolidated parts of shipping, as well as being home to some of the industry’s larger corporates. At the start of the year, the 5,154 containerships in the fleet were owned by 622 owner groups, about 8 ships per owner, but, perhaps more pertinently, were operated by 326 carriers, about 16 ships per operator. Each of the top 8 operators deployed more than 100 ships. But despite the less fragmented nature of the sector, recent market conditions have led to another round of consolidation in the box business.

All Change At The Big End

The three largest operators (by deployed capacity) at the start of 2017 were European: Maersk Line (647 vessels deployed) followed by MSC (453) and CMA-CGM (454). Of the remaining carriers in the top 20 all but three were based in Asia or the Middle East. However, what’s really interesting is that out of the 20 largest carriers back in late 2014, 4 are now gone. CSAV was acquired by Hapag-Lloyd, NOL/APL by CMA-CGM and the two major Chinese lines merged. And of course in late summer 2016, the financial collapse of Hanjin Shipping marked the sector’s biggest casualty in 30 years.

Long-Term Liner Trends

Against this backdrop, the graph shows  that the latest wave of box sector consolidation is actually part of a long-term trend. Back in 1996 the top 10 carriers deployed 45% of capacity and at the start of 2017 that figure stood at 70%. The coming year is set to see Hapag-Lloyd complete its merger with UASC, and Maersk Line’s planned acquisition of Hamburg-Sud is also awaiting necessary approvals. The second half of last year also saw the three major Japanese operators declare their intention to merge containership operations in a joint venture due to be established this year and start operations in 2018. The ‘scenario’ based on these changes would see the top 10’s share at 79%, nearly twice as much as 20 years ago.

Tracking The Top Table

So, the container sector is one of the more consolidated parts of shipping, and both the long-term trend and recent developments point towards ongoing consolidation. Many hope this will help the recalibration of market fundamentals and eventually support improved conditions. In the meantime, we’ll be publishing the ranking of the top containership operators every month, so watch this space.

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The shipping markets have in the main been pretty icy since the onset of the global economic downturn back in 2008, but 2016 has seen a particular blast of cold air rattle through the shipping industry, with few sectors escaping the frosty grasp of the downturn. Asset investment equally appears to have been frozen close to stasis. So, can we measure how cold things have really been?

Lack Of Heat

Generally, our ClarkSea Index provides a helpful way to take the temperature of industry earnings, measuring the performance of the key ‘volume’ market sectors (tankers, bulkers, boxships and gas carriers). Since the start of Q4 2008 it has averaged $11,948/day, compared to $23,666/day between the start of 2000 and the end of Q3 2008. However, earnings aren’t the only thing that can provide ‘heat’ in shipping. Investor appetite for vessel acquisition has often added ‘heat’ to the market in the form of investment in newbuild or secondhand tonnage, even when, as in 2013, earnings remained challenged. To examine this, we once again revisit the quarterly ‘Shipping Heat Index’, which reflects not only vessel earnings but also investment activity, to see how iced up 2016 has really been.

Fresh Heat?

This year, we’ve tweaked the index a little, to include historical newbuild and secondhand asset investment in terms of value, rather than just the pure number of units. This helps us better put the level of ‘Shipping Heat’ in context. In these terms, shipping appears to be as cold (if not more so) as back in early 2009. This year the ‘Heat Index’ has averaged 36, standing at 34 in Q4 2016, which compares to a four-quarter average of 43 between Q4 2008 and Q3 2009.

Feeling The Chill

Partly, of course, this reflects the earnings environment. The ClarkSea Index has averaged $9,329/day in the year to date and is on track for the lowest annual average in 30 years. In August 2016, the index hit $7,073/day, with the major shipping markets all under severe pressure.

All Iced Up

The investment side has seen the temperature drop even further. Newbuilding contracts have numbered just 419 in the first eleven months of 2016, heading for the lowest annual total in over 30 years, and newbuild investment value has totalled just $30.9bn. Weak volume sector markets, as well as a frozen stiff offshore sector, have by far outweighed positivity in some of the niche sectors (50% of the value of newbuild investment this year has been in cruise ships). S&P volumes have been fairly steady, but the reported aggregate value is down at $11.2bn. All this has led to the ‘Shipping Heat Index’ dropping down below its 2009 low-point.

Baby It’s Cold Outside

So, in today’s challenging markets the heat is once again absent from shipping. And, in fact, on taking the temperature, things are just as icy as they were back in 2008-09 when the cold winds of recession blew in. This year has shown that after years out in the cold, it’s pretty hard for things not to get frozen up. Let’s hope for some warmer conditions in 2017.

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As snooker players know, it’s hard to keep a good break going. In today’s conditions, the shipping industry needs supply-side re-positioning to help the markets back to improved health, and increased recycling in recent years has been a clear part of this. However, there’s still some way to go to better times, so it’s worth taking a look at how today’s ‘big break’ might leave the future potential scrapping profile.

The Big Break!

Since the start of 2009, a total of 206.6m GT of shipping capacity has been sold for recycling, compared to an aggregate of 63.1m GT in the previous seven years. This total includes 94.7m GT of bulkcarrier tonnage and 29.1m GT of containerships, helping to address oversupply in the volume shipping markets. But given such a prolific run of demolition activity, what does the future potential scrapping profile look like? Well, there are many measures that can be used to investigate this, including the metric featured in the graph. If the average age of scrapping is taken as a useful indicator of the current state of conditions facing owners in each market, then calculating the amount of tonnage remaining in the fleet at today’s average age of scrapping or higher might tell us something interesting, especially if ongoing market conditions persist.

What’s Left On The Table?

In the tanker sector, which up until fairly recently was backed by stronger market conditions, the average age of scrapping in the year to date remains relatively high, at 25 years for crude tankers and 27 for product tankers (bear in mind that not many tankers have been sold for scrap recently, and the average age may fall). Given that a lot of older single hulled tanker tonnage was phased out in the 2000s, the amount of tonnage above the average age today is limited. In the bulker and containership sectors, both under severe market pressure for some time now, the statistics are a little more revealing. Despite heavy recycling in recent times, the share of tonnage above the current average age of scrapping is 8% for Capesizes and 6% for Panamaxes. For boxships sub-3,000 TEU the figure is 10% and for those 3-6,000 TEU 12%. Of course if the average age of scrapping falls, then the picture changes again. In the 3-6,000 TEU boxship sector, the youngest ship sold for scrap this year was just 10 years old; around 50% of tonnage today is that age or older.

Cue More Demo?

What does this tell us overall? Well, using the sector breakdown shown in the graph, the statistics tell us that around 75m GT in the fleet is above the current average age of scrapping, 6% of the world fleet. At 2016’s rate of demolition, that’s another 2.4 years’ worth. And given the age profile of the world fleet, after another 2 years an additional 21m GT will have crossed the current average age mark and after 5 years another 77m GT.

Break Not Over?

So, what chance does the industry have of keeping the demolition pressure on? Well, obviously freight and scrap market conditions and regulatory influences will have a big say. However, it looks like, in today’s terms at least, the industry might be in a good position to keep the break going. Have a nice day.

SIW1242 Graph of the Week

New Zealand’s Rugby World Cup victory has further cemented the now long-held dominance of the All Blacks in international rugby. But the performance of the European nations in this year’s World Cup was disappointing, and over the long-term in shipping too, focus has gradually shifted from Europe to the other side of the world, with Asia the increasingly dominant player in many parts of the maritime industry.

Another Round Kicks Off

The rise of Asia and especially China as key drivers of seaborne trade growth has over recent decades turned maritime eyes increasingly eastwards. Across many aspects of the shipping industry, Asia has consistently been moving up the league tables, but having slipped behind in the game, how does Europe’s position look now?

A look at overall economic performance suggests not. EU GDP growth is certainly improving after falling to -0.4% in 2012 (see graph), partly owing to low oil prices and the weak euro. But this recovery is far from convincing – growth is expected to remain below 2% this year. As a team performance, the overall impression of regional growth is one of distinct patchiness, with a weak showing in Greece and in countries exposed to difficulties in Russia partly offsetting improved displays in others such as France, Italy and Spain.

Trade Struggles To Convert

The implication of these trends on seaborne trade is similarly mixed. After notably firmer volumes in 2014, European container imports have slowed in the year to date, with volumes on the Far East-Europe route down 5%. Imports even into countries showing improved economic growth this year have declined. Asia remains the focus of box trade expansion, with Europe’s share of global imports set to fall below 14% this year.

In the dry bulk sector, China’s leap up the leaderboard has squeezed the share of EU imports in global iron ore and coal trade to 12% last year. China’s dry bulk imports are now coming under pressure, but the EU has been unable to claw back lost ground. However, in the crude oil trade, Europe has stubbornly stayed in the game, keeping a share of around 24% in global crude trade since 2010. With EU imports set to grow 8% this year, 2015 could see the EU drive a greater share of crude trade growth than China for only the second time since 2005.

Tackling The Leader

Moreover, an apparent bounce-back is currently being seen in fleet ownership. Asia’s rapidly growing fleet had reduced the share of EU owners in the world fleet to 35.5% in 2013 (see inset graph). However, a 15% expansion in the Greek-owned fleet since start 2014 has helped the EU to begin to even out the scoreline, and the EU’s share of the world fleet is now rising for the first time since 2008.

But No Turnover

So, some elements of European shipping now seem to be driving forward. But economic difficulties linger on, and in reality improvements have generally been only limited in scope. For now, just as the All Blacks must be feeling secure at the top, in the world of shipping Team Asia still seems well ahead of the European pack.

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We’re not sure if you can buy a ship on Alibaba, but the way merchant ships get traded is one of the shipping industry’s most distinctive features. These assets fluctuate wildly in value, providing shipping investors with a unique opportunity to take a flutter in terms which consign most other gamblers to the little league.

Astonishing Volatility

Since 1985 the published price assessment for a 5 year old Panamax bulker has fluctuated between extremes of $5.5m and $92m. Few assets in the global economy offer this sort of extreme pricing, in a liquid market. Of course these extremes are now part of shipping folklore and they don’t happen every day. But it leaves shipping searching for turning points and wondering whether today’s prices are a good or bad deal.

Three Sources Of Asset Value

Lots of factors determine the price of a 5 year old ship, but three stand out. The anchor is the newbuild price which can set the ceiling. But the new ship is not ready for a couple of years, so the price also includes an assessment of short-term earnings. Also the newbuild price may include a discount or premium, depending on the market. So there’s an element of market sentiment on both sides of the equation.

Old Ships Versus New

The graph plots the price of a 5 year old ship as a percentage of the newbuild price over 25 years from 1990. The average comes to 80% for the Aframax tanker and 86% for the Panamax bulker, which with all other things being equal implies an expected life of 25 years for the tanker and 31 years for the bulker, reflected in the generally higher age at which Panamaxes have been scrapped. The tanker and bulker prices follow different cycles. In 2008 the tanker index stood at around 100%, so the 5 year old ship cost the same as a newbuilding. But the 5 year old Panamax price shot up to $89m, compared with a newbuild price of $55m, giving a ratio of 162%. So the market expected the ship to earn $34m by the time the newbuilding had been delivered. A difficult premium to justify and strongly influenced by market sentiment.

Cheap Bulkers, Dearer Tankers

Today the opposite is happening, though on a more modest scale. This time it was the bulker index which fell from 80% in June 2014 to 69% in August 2015, below the historical average of 86%. Meanwhile the tanker index rose from 67% to 87%, above the historical average of 80%.

Gambling On The Margins

So there you have it. This really is a highly volatile and big ticket market. However the long-term trends show that, like in all good casinos, the odds pretty much average out in the end. So maybe the message is that today’s tanker values have now edged above the historical trend, whilst bulkcarrier prices have moved in the other direction and are looking decent long-term value on the basis of this kind of analysis. Of course in the end it’s a matter of finding the right ship and the money to buy it. You could try Alibaba, but a shipbroker would be a safer choice. Have a nice day.

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