Archives for posts with tag: Shipping Intelligence Weekly

In last year’s half year shipping report, we reported on an industry that “must do better”. With the ClarkSea Index averaging $10,040 per day in the first half (up 2% y-o-y but still 14% below trend since the financial crisis) there are still many subjects (sectors) struggling for good grades as our Graph of the Week shows. But are there some that are showing a bit more potential?

Don’t Rest On Your Laurels!

A year on from record lows, bulker earnings remain below trend (defined as the average since the financial crisis) but are showing signs of improvement. Capesize spot earnings moved from an average of $4,972/day in 1H 2016 to $13,086/day (75% below trend versus 33% below trend). Indeed, based on the first quarter alone, Panamax earnings moved above trend for the first time since 2014 and we have certainly seen lots of S&P activity. The containership sector has responded to the Hanjin bankruptcy with another wave of consolidation (the top ten liner companies now operate 75% of capacity) and some improvements, albeit with lots of volatility, in freight rates. Improved volumes, demolition and the re-alignment of liner networks, helped improve charter rates and indeed feeder containerships rates have moved above trend for the first time since 2011. Although some gains have been eroded moving into the summer, fundamentals for both these sectors suggest improvements in coming years but it may be a bumpy road!

Dropping Grades!

After solid marks in last year’s reviews, the tanker sectors tracked here have moved into negative territory compared to trend, with the larger ships feeling the biggest correction as fleet growth, particularly on the crude side, remains rapid and oil trade growth slows. Aside from a small pick-up in the LNG market in recent weeks, the gas markets remain weak, with VLGC earnings 42% below trend. Some increased activity, project sanctioning and investor interest has not yet taken offshore off the “naughty step” .

Still Top Of The Class?

The only sector significantly above trend for the first half is Ro-Ro, with rates for a 3,500lm vessel averaging euro 18,458/day, 42% above trend. There also continues to be strong interest in ferry and cruise newbuilding (the 2 million Chinese cruise passengers last year, now 9% of global volumes, is supporting a record orderbook of USD 44.2bn, as is the interest in smaller “expedition” ships). We must also give a mention to S&P volumes that are 60% above trend (51m dwt, up 50% y-o-y) and to S&P bulker values which improved 25% in the first quarter alone.

Showing Potential?

Upward revisions to trade estimates have been a feature of the first half, and we are now projecting full year growth of 3.4% (to 11.5bn tonnes and 57,000bn tonne-miles). Although demolition has slowed (down 55% y-o-y to 16m dwt), overall fleet growth of 2.3% is still below trend but an increase on 1H 2016 (1.6%). While there has been some pick-up in newbuild ordering to 24m dwt (up 27% y-o-y), this remains 52% below trend. Last year we speculated on an appointment with the headmaster – still possible but perhaps this year extra classes on regulation and technology? Have a nice day.

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“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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Shipping is a cyclical industry and for shipyards the current trough in newbuilding orders has put further pressure on capacity. While the scale of the current surplus appears huge, this is not the first time that the shipbuilding industry has grappled with excess capacity. Looking back to the past, and specifically the shipbuilding cycle of the late 1970s, what can be learnt from previous experience?

Enjoying The Highs

The shipbuilding industry has a habit of ramping up production capacity rapidly. In 2010 shipyards broke all previous delivery records, outputting 53.2m CGT (in dwt and GT terms deliveries peaked in 2011). Compared to 2004, early into the most recent ordering boom, this was a 122% increase in deliveries. Looking back to the mid-1970s, there was a similar burst of activity as strong newbuild demand saw yard output double between 1972 and 1976 to 10.2m CGT.

What Goes Up…

As in the late 1970s, economic downturn and its impact on the shipping markets led to a significant fall in yard deliveries after their peak in 2010. The initial decrease in output was faster and sharper in the 1970s, with deliveries declining by 64% between 1976 (Year 0) and 1979 (Year 3). The current cycle has seen a more gradual fall in deliveries, declining 34% between 2010 and 2014 with 178 yards reported to have completed delivery of their orderbooks in 2012 (Year 2).

…Must Come Down

Shipyard output is still in decline. Though the surge in ordering in 2013 has helped support delivery volumes, current estimates are for an 18% fall in shipyard output in 2018. Many anticipate that the current delivery cycle will dip around 2019 (Year 9), suggesting a shorter cycle than before. It also seems unlikely that delivery levels will fall by as much as in the late 1980s, as the same pattern would imply a further 47% reduction in output from 2018 estimates to around 15m CGT.

Time To Recover?

After the 1970s crash, it took over a decade for shipbuilding output to recover. Today, following one of the weakest levels of newbuild contracting on record in 2016, the overcapacity which has characterised the global shipbuilding industry in recent years is even more prominent. While 353 shipbuilders currently have a vessel (1,000 GT or above) on order, almost half of these shipyards have failed to win a contract since the start of 2016.

If the current shipbuilding cycle were to follow the same pattern as in the 1970s, we would only be 7-8 years in, with a full recovery still some way away. However, the situation will improve if contracting levels increase. Trade growth, the replacement of older, less efficient ships and stricter environmental regulation could support yard capacity in the future through a recovery in newbuild demand.

Looking back at the shipbuilding cycle of the 1970s, it is clear that the industry has faced similar challenges in the past. It seems unlikely that we have reached the bottom of the current cycle, and pressure to remove capacity remains. Shipbuilders will be hoping that newbuild demand drivers come through quickly to stem the duration of this particular downturn.

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In the ‘Three Card Trick’ or game of ‘Find The Lady’ beloved by hustlers everywhere, the aim is to track the movement of one item amongst three, but blink and you’ll miss it! Shipping’s orderbook appears to have its own version of this pastime, with the three largest shipowning nations, in terms of the volume of tonnage on order, swapping places frequently.

Are You Watching Closely?

Today, Japanese owners account for the largest orderbook across all owner nationalities, with 488 ships (100 GT and above) of 28.2m GT on order. This year, the size of their orderbook has surpassed that of their Chinese counterparts, leaving Japanese owners on top of this particular pile. At the same time the Japanese own the world’s second largest fleet (164.2m GT) behind Greek owners (210.1m GT). This change is the latest in a recent set of switches in the leadership of ownership of the global orderbook.

Switch One

Following the boom in ordering preceding the global economic downturn, the orderbook stood at its highest ever level (416.6m GT) in October 2008. At this point in time it was Greek owners who accounted for the largest orderbook, and by some margin, 56.5m GT, ahead of the German owners in second place with 41.4m GT (today this has dwindled to just 3.3m GT). Since then, things have largely gone one way for the Greek orderbook. Today it stands at 14.7m GT, 74% smaller than back in October 2008, and it is the third largest in the world. The Greek fleet has meanwhile maintained a healthy degree of expansion, with net asset play gains adding firmly to deliveries.

Switch Two

By start 2011 the Chinese owners’ orderbook was the world’s second largest and across the period 2012-15 it vied with the Greek orderbook for pole position before pulling ahead last year. Ordering, often state-backed, and significantly at Chinese yards, propelled the Chinese orderbook to become the world’s largest by October 2015, and today it stands at 24.8m GT (17% of the Chinese fleet), still close to the largest in dwt terms (39.1m dwt).

Switch Three

The final switch came in December 2016 when Japanese owners took the lead in the orderbook stakes. The Japanese orderbook surged in 2015 as Japanese owners contracted 22.0m GT, often bulkers (42%) and largely at domestic yards (87%). The global orderbook is much smaller than it was back in 2009 (at 136.6 m GT), but the Japanese orderbook has held its own through 2016 and into 2017 to take top spot, and today is equivalent to 17% of the Japanese fleet.

Top Hat Trick

So, against the background of a declining orderbook since 2008, the Japanese orderbook has switched from third to first position. But it’s still close and the Chinese orderbook is just 3.4m GT smaller today. Contracting has been extremely limited last year and this year so far, but at some point it will come back in greater volumes and then it will be necessary to watch the movements in the orderbook even more intently. Have a nice day.

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The vast majority of the world’s trade in goods is moved by sea, and it has long been recognised how shipping is a critical element of the global economy, providing the connection between producers and consumers all over the planet. However, what is less frequently mentioned is the tremendous ‘value for money’ with which it does so; this is clearly worth a closer look…

Bargain Of The Century?

One US dollar doesn’t get you much in today’s world. On the basis of latest prices it would buy 0.025 grams of gold or 2% of a barrel of crude oil. Based on Walmart’s latest online pricing it would buy about half a litre of milk. That’s not a lot whichever way you look at it, in a world economy that is 75 trillion dollars large. But in shipping one dollar still gets you something very substantial. One way of looking at this is to take the movement of cargo in tonne-mile terms and divide it by the estimated value of the fleet. Here, to try to do this in like-for-like terms, the calculation includes crude and oil products, dry bulk, container and gas trade, and the ships that primarily carry those cargoes. On this basis, one dollar of ‘world fleet value’ at the start of May 2017 would have bought 110 tonne-miles in a year, based on 2017 trade projections. What an amazing bargain! One tonne of cargo moved more than 100 miles, per year, all for one little greenback!

What’s In A Number?

What drives this number? Well the essence of the value of course lies in the huge economies of scale generated by moving cargo by sea in vast quantities at one time over significant distances. The average haul of one tonne in the scope of the cargoes listed above is estimated at 5,016 miles and the average ship size at 58,706 dwt. Of course the amount of tonne-miles per dollar can vary over time, depending on changes in asset market conditions, the underlying cost and complexity of building ships and vessel productivity, speed and utilisation (rates of fleet and trade growth aren’t perfectly aligned most of the time). Across sectors the statistics can vary significantly too.

Buy In Bulk

One dollar of bulkcarrier and oil tanker tonnage accounts for 154 and 101 tonne-miles of trade per year respectively. For more complex, expensive ships the figure is lower: 20 for gas carriers. For boxships, despite their higher speed, the figure stands at 114. Vessel size (economies of scale in building) and cargo density (this analysis is in tonnes) play a role too in these relative statistics (which also don’t always capture the full range of cargo carried by each ship type).

Value For All Time

Nevertheless, whatever the precise numbers and changes over time, 110 tonne miles of trade each year for one dollar of asset expenditure just sounds like mighty good value at a time when a dollar doesn’t go very far. This underpins shipping’s ability to carry an estimated 84% of the world’s trade in tonnes and act as the glue holding the globalised economy together. Shipping’s famous volatility retains the ability to make and lose fortunes for asset players but the underlying economic contribution of each dollar invested may just be one of the greatest bargains of all time. Have a nice day.

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“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!

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In recent years, in generally difficult market conditions, it has been no surprise that many sectors have seen a significant removal of surplus tonnage. This has been particularly notable in the bulkcarrier and containership sectors, and in the case of the Capesizes and the ‘Old Panamax’ boxships, it has been a bit like the famous race between the tortoise and the hare but with even more changes in leadership…

At The Start

Back in 2012, Capesize demolition was on the up with the market having softened substantially in 2011 on the back of elevated levels of deliveries. Meanwhile, ‘Old Panamax’ containership demolition (let’s simply call them Panamaxes here) was also on the rise with earnings under pressure. Across full year 2012, 4.7% of the start year Capesize fleet was sold for scrap (11.7m dwt) and 2.6% of the Panamax boxship fleet (0.10m TEU). In both cases this was working from the base of a fairly young fleet, with an average age at start 2012 of 8.2 years for the Capes and 8.9 years for the Panamax boxships.

The cumulative volume, as a share of start 2012 capacity, of Capesize demolition remained ahead of Panamax boxship scrapping until Sep-13, by which time 7.3% of the start 2012 Panamax boxship fleet had been demolished compared to 7.2% of the Capesize fleet. In 2013 the Cape market improved with increased iron ore trade growth whilst the boxship charter market remained in the doldrums. In 2013, Cape scrapping equated to 3.2% of the start 2012 fleet (7.9m dwt); the figure for Panamax boxships was 6.0% (0.24m TEU). The fast starter had been caught by the slow burner.

Hare Today…

But by 2015, Cape scrapping was surging once more, regaining the lead from the Panamax boxships. By May-15 the cumulative share of the start 2012 fleet scrapped in the Capesize sector was 13.7% compared to 13.4% for the Panamax boxships. Iron ore trade growth slowed dramatically in 2015, whilst the Panamaxes appeared to be enjoying a resurgence with improved earnings in the first half of the year ensuing from fresh intra-regional trading opportunities.

…Gone Tomorrow

But the result of the race was still not yet clear. Today the Panamaxes are back in front again, thanks to record levels of boxship scrapping in 2016, including 71 Panamaxes (0.30m TEU) on the back of falling earnings, ongoing financial distress and the threat of obsolescence from the new locks in Panama. Despite a huge run of Capesize scrapping in Q1 2016 (7.5m dwt), the cumulative figure today for Capes stands at 22.3% of start 2012 capacity, compared to 25.4% for Panamax boxships, remarkably similar levels.


Where’s The Line?

So, today the old Panamax boxships are back in the lead, but who knows how the great race will end? Capesize recycling has slowed with improved markets, but Panamax boxships have seen some upside too, even if the future looks very uncertain. Hopefully they’ll both get there in the end but no-one really knows where the finish actually is. That’s one thing even the tortoise and the hare didn’t have to contend with. Have a nice day.

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