Archives for posts with tag: world fleet

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.

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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!

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Recent economic news has been dominated by events in two countries. Headlines have focussed on Greece and its ongoing bailout woes and possible ‘Grexit’, as well as on China and the slump in its stock market and the impact on the wider economy. In the shipping sector, trends in the development of the world fleet are equally tortuous and, once again these two countries play a leading role.

World Leaders

In terms of ownership Greek and Chinese ownership interests are amongst the most prominent on the planet. The Greek owned fleet at 314.3m dwt is the largest in the world, and Greek owners also account for the largest orderbook today (48.5m dwt). Chinese owners meanwhile account for the world’s third largest fleet at 199.6m dwt and until very recently accounted for the largest orderbook (today 45.9m dwt).

Greeks Buy Gifts

Greek owners have long been shipping’s great asset players. As the graph shows their fleet is currently growing by just above 5% y-o-y. The expansion of the Greek fleet has been partly driven by newbuild investment, with delivery of 56.6m dwt since start 2012, 14% of the world total. But their acquisition of secondhand assets has also been key. Since start 2012, Greek owners reportedly accounted for ‘net acquisitions’ (reported purchases less reported sales) of 35.5m dwt, not far below the level of their delivered tonnage – a useful way to grow the fleet.

Chinese Take Away

Chinese fleet growth stood at a heady 15.8% y-o-y back at start 2012, but today stands at 3.6%. What’s been going on? Since start 2012, Chinese owners have taken delivery of 61.3m dwt, even more than Greek owners, but they have been much less pronounced ‘net acquirers’ of secondhand tonnage (5.0m dwt). Chinese owners have also been demolishing ships backed by the state scrapping subsidy which also encourages newbuilding. This is another way to renew the fleet, but growth has slowed. However, the Chinese orderbook is equal to 23% of its fleet, so expansion looks set to return.

A Third Way?

A third economy never far from the news is Japan, and Japanese owners remain today the world’s second largest owner of tonnage with 249.9m dwt. Japan’s fleet growth has clearly slowed, from 7.4% at start 2012 to 0.9% today. In this period, Japanese owners have been ‘net sellers’ by a huge 38.0m dwt. But this year they are also very nearly the world’s leading ordering nation, placing contracts of 5.5m dwt, 15% of the world total, so despite being a clear secondhand asset divestor, their fleet should be on the way to faster growth in the future once again.

More Headlines

So, focussing on the developments in these fleets shows that there’s more than one approach to being a pre-eminent owner nation. And today’s fleet and orderbook suggest that, whatever the state of their domestic economies, owners from these three countries will retain their position in the headlines for some time yet. Have a nice day.

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Shipping investors have to cope with violent swings of sentiment. Today tankers are enjoying a precarious euphoria, whilst bulkers embrace manic depression. A year ago it was the other way round. These sentiment swings are bad enough, but when you factor in the future things get even worse. Last week’s Economist leader was entitled “Watch out…it’s only a matter of time before the next recession strikes”.

Reality Or Disorder?

So, the real concern for investors is what lies ahead. Somehow they must separate reality from sentiment and today that’s tricky. The Economist thinks that while the world economy is in better shape, governments and central banks have stretched their policy instruments to such an extent that there is not much left to deal with another crisis. With interest rates hovering around zero there is little scope for dealing with future problems. But, says the Economist “sooner or later, policymakers will face another downturn”.

The Parallel In Shipping

Shipping investors face much the same quandary. Seaborne trade has recently been commendably positive, growing by 4.2% in 2012, 3.4% in 2013, and 3.3% in 2014. Estimates for 2015 suggest around 3% (though it has to be said there are plenty of question marks, so this could be subject to some downside). With heavy scrapping and fewer deliveries, the world fleet looks set to have grown by around 1.5% in the first half of 2015. So supply may be growing roughly at the same rate as demand. But many of the least attractive ships have been scrapped and shipyard output is edging up, so any sort of trade slump would be difficult to manage.

Spiky Sea Trade

Since 1970 there have been seven slumps in world seaborne trade, each initially triggered by a crisis in the world economy. The first three slumps in 1975, 1980-82 and 1986-87 were due to the oil crises of the 1970s. Between 1979 and 1985, crude oil trade fell by one third. The next four were mainly financial. No. 4 was the financial crisis in the US. No. 5 was the Asia Crisis and No. 6 was the “dot-com” crisis when overheated IT stock values collapsed. No. 7 was the 2007-08 Credit Crunch.

Dire Warnings

That works out to a crisis close to every 6.5 years. It is now 6.5 years since the Lehman Brothers collapse, so the Economist’s case for caution makes sense. And shipping faces some additional structural risk. China now imports over 2 billion tonnes of cargo and coal and ore trade may be peaking out. Meanwhile, energy (over 40% of seaborne trade) is back on the agenda, with the phasing out of fossil fuels under discussion and plenty of energy saving technology in the pipeline.

On The Beach

So there you have it. Like waves at sea, crises are just part of shipping scenery. Serious seafarers take them in their stride, and smart shipowners make sure their companies can navigate whatever big waves they meet. But it’s never easy, and the holidays provide a good time to reflect on the balance of shipping sentiment and reality, ready for whatever the Autumn brings. Have a nice day.

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SIW1054Imagine the intrepid crew of ‘Starship Enterprise’ staring out at a weird apparition approaching the ship. Spock makes his apocryphal observation “it’s life Jim, but not as we know it”. Then imagine the equally intrepid navigator of the ‘Bulkship Enterprise’ staring at the 2014 statistics as she sails into 2015, and observing “it’s a cycle, Captain, but not as we know it”. So what is it?

Alien Life Form

For the Captain, the problem of identification comes to bear because bulk shipping’s vital statistics in 2014 exhibit symptoms which don’t fit with the industry’s perception of how a shipping cycle ought to behave. For one thing, cycles are supposed to last 7 years. Well it’s now 6 years and 5 months since the great downturn started in August 2008 and the market is still relatively flat.

At the end of 2008 the ClarkSea Index stood at $13,654/day and it ended 2014 at $14,787/day. In the meantime, the annual average value of the index has wandered between $9,000/day and $16,000/day and currently seems to be going nowhere fast.

Fundamentally Floored

Another feature of this alien “cycle” is that it seems impervious to warning fire. Bulk trade (wet and dry) has grown by 21% since 2008, but bulk tonnage supply surged by 54% between end 2008 and end 2014. And it’s not just the big orderbook from the boom. Investors have been very active. Bulk orders of 142.4m dwt in 2013 and 86.5m dwt in 2014 are not so different to pre-crisis levels.

Meanwhile, secondhand prices, which it could be argued should be heading for distressed levels, have been surprisingly resilient. A 5-year-old VLCC costing $77m at end 2014, and a 5-year-old Capesize costing $39m, are both indicators of relatively firm prices. Yet despite high prices and the credit clampdown, the 75.1m dwt of secondhand bulk sales in 2014 was close to the highest on record.

Alien Market Mutation

Another puzzle for the navigators is the resurgence of tanker sentiment. Tanker demand has been hammered by the triple death ray of fracking, high oil prices (up until the astonishing downturn over the last few months) and the environmental agenda. So oil trade edged up only 0.4% in 2014, while the tanker fleet grew by 1.4%. Yet average weighted tanker earnings surged by 32% compared to the 2013 average levels, with crude carrier earnings booming and products earnings fairly flat. Meanwhile bulkers, much favoured for their umbilical link to Chinese and Asian demand, saw dry bulk cargo trade grow 3.7% and the fleet by 4.4%. Average weighted bulkcarrier earnings fell by 2% (and more in the larger sizes), which was not enough to deter investors from ordering 60m dwt of new capacity.

Beam Me Up, Scotty

Against this surreal background, it’s easy to see why some investors might be feeling a little disorientated. Tankers may be in vogue, but the fundamentals across the market remain tricky. Chinese growth appears to be slowing, Europe is struggling and the shipyards seem to be immune to everything the market throws at them. At the same time, the surplus tied up by vessels slow steaming appears to be undiminished.

It all adds up to something which doesn’t fit neatly into the usual cyclical pattern. No wonder some confused investors wish they could beam up to the deck of ‘Starship Enterprise’ and view this alien landscape from a safe distance. Have a nice day.

Last week’s Analysis highlighted the rejection of the ‘P3’ container shipping alliance plans by the Chinese authorities, and how it might relate to the movement of trade by national fleets or otherwise. This week the focus is shifted to examine how liner shipping, ‘P3’ or no ‘P3’, fits within the pattern of consolidation in the key volume shipping sectors.

How Does It Stack Up?

In reality shipping is a relatively fragmented business. Over 88,000 vessels constitute the world fleet across almost 24,000 shipowners, with an average of less than 4 ships per owner. Limiting the analysis to 10,000 dwt and above, the average is still less than 7 ships. When talk of the ‘P3’ first hit the container shipping news, concerns were raised about the potential level of consolidation in shipping. Does that really stack up?

In Bulk, But Not Consolidated

As the graph shows, there has been consolidation of ownership, but over the last 20 years it has actually been fairly gradual. Today the Top 20 tanker owners account for 30% of the tanker fleet compared to 26% in 1994. In the bulker sector the Top 20 owners account for 22% today compared to 15% twenty years ago. In general, larger entities such as industrials have increased their share of the bulk fleets. Both sectors saw a fair amount of consolidation between 1994 and 2004, before a drop in the share accounted for by the Top 20 owners since then. The downturn post-2008 looks to have led to some fragmentation as the distressed position many traditional owners found themselves in created opportunities for new entrants (and new money).

Ticking The Boxes?

Containership ownership, meanwhile, has always been dominated by large, fairly corporate, ‘liner’ companies and some substantial charter owner interests. With ‘strings’ of containerships needed to operate scheduled services, ownership has been consolidated amongst fewer entities, and in 1994 and 2014 the Top 20 owners accounted for just under 60% of overall capacity, a much higher share than in the bulk sectors.

Concentrated Liners

However, liner operation (rather than boxship ownership) is where volume shipping is most highly consolidated. Large liner companies have historically been afforded some protection, first by the conference system and then by the approval of a network of alliances, reflecting the capital intensive nature of running box shipping services and the associated infrastructure. Today the Top 20 lines operate 77% of container capable capacity globally, up from 66% in 2004 and 37% in 1994. This is clearly a highly consolidated part of shipping, ‘P3’ or no ‘P3’ (itself a proposed alliance, not a merger of operators).

Overall, shipping remains quite fragmented despite some gradual consolidation. However, liner shipping, with its heavy operational demands, is generally much more concentrated. It’s certainly not quite Coca-Cola and Pepsi, but even without the ‘P3’ alliance this is where volume shipping is by some distance already at its most consolidated. Have a nice day.

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Changes in the composition of the world fleet are nothing new, and have been a recurring theme throughout the history of the shipping industry. The twenty-first century has been no exception. At the start of 2000 the world fleet totalled 788 million dwt, but today’s fleet and orderbook combined total more than 2.0 billion dwt, and alongside this expansion the make-up of the fleet has also continued to change.

Bulk Boom Bulge

Clarkson Research tracks the world fleet and orderbook of over 90,000 ships. The Graph of the Week shows the difference in each vessel sector’s share of the total fleet in terms of both vessel numbers and dwt capacity, comparing start 2000 to today’s fleet and orderbook combined. It comes as no surprise that the clearest gain in share belongs to the bulkcarrier sector. During the ordering boom of the mid-2000s bulkers were often the investors’ ship of choice, spurred on by ramped up earnings and dry bulk trade growth averaging 7% during the period 2003-07. On the basis of today’s fleet and orderbook, bulkers account for a 11% greater share of world fleet dwt than at start 2000, and a 4% larger share of fleet numbers.

The tanker fleet meanwhile has seen its share of the world fleet decline over the same period; the overall tanker fleet saw its share of dwt capacity fall by 8%. Although 317m dwt of tanker tonnage was ordered in the years 2003-08, activity in other sectors has seen the tanker tranche slim down. Crude oil trade growth this century has been limited to an average of 1% per annum, although more positive growth in oil products volumes (5% per annum on average) has driven requirement for product tankers, helping maintain the tanker share of vessel numbers.

Liner Alignment

On the liner side, the containership sector has seen a significant growth in its share of tonnage. Robust trade volume growth of an average of 8% per annum this century has ensured a requirement for rapid growth in capacity. However, that has not been the only factor. In capacity terms container tonnage has also benefitted over the period from the increasing containerization of general cargo trade. Whilst the containership share of global tonnage has increased from 8% to 13%, the shares constituted by general cargo ships, MPPs, ro-ros and reefers have all decreased in dwt and number terms.

What’s Next?

The world fleet product mix continues to evolve. The consensus view seems to be that the more rapid growth in requirement for more specialised tonnage will see the share accounted for by, for example, gas, container and offshore units expand. In the period shown here, the offshore sector, led by the numerically strong OSV fleet, has already increased its vessel number share by almost 3%.

However ‘wildcards’ also come into play(few foresaw boxships as large as 18,000 TEU back in 2000) and ordering patterns are determined by a range of factors not just demand fundamentals. If prices look attractive, shipping investors often turn back to the sectors in which they are comfortable, and the composition of the fleet doesn’t always evolve as it seems it logically should. So, for the latest trends, watch this space. Have a nice day.

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SIW1101In the Financial Times last week Bill Gates gave the shipping industry a nice tribute. Asked to recommend a book for Christmas, he chose ‘The Box That Changed The World’. Explaining his choice he described shipping as “one of the cornerstones of globalization”, and said that since reading the book he “won’t look at a cargo ship the same way again”. A small but significant step along the road to wider public recognition.

Unsung Heroes

In 2013 the shipping industry will prove its worth by moving 10 billion tonnes of cargo. An amazing number and a reminder that whatever the state of the market, shipping companies must still deliver the goods. Another statistic that might impress Bill Gates is 1.5 tonnes of cargo delivered per capita. An astonishing number, which includes every man, woman and child on the planet. Of course some import more than others, and as this changes it will challenge shipping in the coming decades.

Must We Do Better?

All this is positive, but looking ahead the the focus is now on delivering more cargo with less carbon emissions. Doing this is hard enough, but how can the industry monitor its progress? One perspective is provided by tracking the tonnes of cargo delivered per dwt per annum. The industry’s performance over the last 20 years shows the complexity. Back in 1986, during a deep depression, the world fleet delivered 6.3 tonnes/dwt. But by 2004 this had surged by 30% to reach to 8.2 tonnes/dwt.

Ship to System Gains

This improvement was driven by a tightening market. With higher freight rates, charterers used ships more efficiently. Ships sailed faster, emitting more carbon, but logistical inefficiencies like multi-port discharge, dead-freight and waiting were squeezed out. For example the US Gulf-Japan grain trade, previously a 55,000 tonne parcel in a Panamax bulker for Panama Canal transit, was downgraded to Supramaxes loading a full cargo with no dead-freight.

Cheap and Cheerful

This performance surge did not survive the downturn. After 2009 the ratio fell to 6.6 tonnes/dwt and by 2013 to only 6.1 tonnes/dwt, lower than in 1986. Slow steaming driven by sky high bunker costs has played a big part in this reduction, whilst rock bottom freight rates encouraged charterers to use cheap ships less intensively. In fact the average global transport performance of the fleet may not be any better than 27 years ago; the flat trendline confirms this.

Living up to Bill’s Accolade

So there you have it. Bill Gates is impressed by shipping’s contribution to the global economy. But shipping is not delivering much more cargo per dwt than nearly 30 years ago. Could tighter logistics help it meet IMO’s carbon footprint target? How does 10 tonnes/dwt in 2030 sound? Certainly challenging, but is it theoretically possible? Now that’s a question worth a closer look. Have a nice day.