The emergence of the US crude export trade is a boon for crude tanker owners, as ton-mile distance has increased considerably. In its latest weekly report, shipbroker Gibson said that "one of the headlines in the international press in recent weeks has been the surge in US crude exports to record highs. Preliminary data from the US government agency EIA shows that the country's crude exports hiked to nearly 2 million b/d in the week to September 29, surpassing the 1.5 million b/d record set the previous week. This latest spike in shipments is likely to be temporary; however, the bigger picture is that US crude exports have undeniably witnessed a notable step up in volumes this year relative to 2016".
According to Gibson, "records from the IEA, the international energy watchdog, show that US crude exports averaged 0.93 million b/d during the 1st half of this year, nearly double the level over the same period in 2016. About one third of total exports was destined for Canada, while over 20% was shipped across the Atlantic to Europe. More importantly for the tanker market, long haul shipments to Asia Pacific increased rapidly, averaging over 0.3 million b/d between January and June 2017, versus just 20,000 b/d over the corresponding period in 2016. The analysis of trade flows using AIS tracking suggests that US crude exports remained at similar robust levels during the 3rd quarter of this year".
Meanwhile, "one of the reasons behind the sudden emergence of crude trade to Asia, is the Middle East crude production cutbacks, which translated into higher values for Middle Eastern barrels relative to Atlantic Basin benchmarks. Most of the US crude is shipped to Asia on VLCCs, although there is still plenty of Suezmax trade as well. Economies of scale dictate that VLCC shipments should be more practical; however, all VLCC loadings involve reverse lightering, which is expensive and can add up to 15-25% to the overall cost of freight to Asia. This situation is likely to change in the future, with at least two major ports in the US Gulf considering plans to accommodate VLCCs at their loading berths. In May 2017, an empty VLCC was successfully docked at the Corpus Christi export terminal. A few months later the port authority announced a dredging project for deepening the Corpus Christi ship channel to 54 feet, which in theory will allow the passage of a partloaded VLCC. Occidental Petroleum also plans to complete by late 2018 a project to install multiple loading arms at its Ingleside Energy Center facility at Corpus Christi to load VLCCs on a regular basis. The Louisiana Offshore Oil Port (LOOP) has a similar ambition, announcing in July 2017 that it is seeking shippers who would like to use its existing import terminal to export crude. The port's authority states that the facility would require only minor modifications to ship oil bi-directionally and that the loading service could become available in early 2018", said the shipbroker.
Gibson added that "although the eventual phase out of self-imposed production cuts in the Middle East is likely to affect the arbitrage negatively, the infrastructure improvements in the US to support direct VLCC loadings could help to offset that. Nonetheless, for US exports to continue to rise, the oil industry needs to see further robust gains in the US crude production. The country's output is on track to increase by 0.4 million b/d this year but will production continue its rapid ascent in 2018 and beyond?", Gibson concluded.
Meanwhile, in the crude tanker market this week, Gibson said that in the Middle East, "Chinese VLCC demand continued a-pace to close out October fixing upon an upbeat and upward footing, that is now spilling over into the fresh November programme too. Rates incrementally gained through the week to end in the low ws 70's to the East and high ws 20's to the West and if the momentum is maintained then further progress is possible. A slight counter to that is that older units remain in numbers and will continue to keep the bottom end of the range at a long arm's length. Suezmaxes plodded onwards, but then saw a little more late week activity to steady rates at around ws 80 East and ws 37.5 to the West with reasonable premiums still payable for Iran loadings. Aframaxes remained broadly at last week's improved 80,000mt by ws 120/125 levels to Singapore upon steady, sometimes stronger, demand and that should remain the case over the near term, at least", the shipbroker concluced.
Following a weaker performance in 2015, global seaborne trade growth illustrated its ability to bounce back strongly, and is now expected to reach close to 4% in full year 2017.
According to Clarksons Research, aggregate world seaborne trade is projected to grow by 3.9% in full year 2017, on the back of a 2.8% growth seen last year, which itself was a major bounce back from the sluggish growth of 2.1% registered in 2015.
"If this year does achieve the 3.9% mark, it would constitute the fastest year of seaborne trade growth for 5 years, since the 4.3% growth in 2012, a real bounce back to form," Clarksons said.
As well as representing a healthy bounce back, the rate of expansion this year holds up well in historical terms. The average since the downturn in 2009, when seaborne trade shrank by 4%, has been 4.2%. Excluding the year of 2010, which was a huge bounce back of 9.3% in its own right, the figure would be a more modest 3.4%. The average in the 2002-08 boom was not too much higher at 4.5%.
This year so far, the average year-on-year growth stood at 5% in Jan-Apr, whilst in May-Aug the rate averaged a slower 3%. However, both compare favourably to full year 2016; in reality the more recent months saw greater volumes in 2016 than the early months of the year, easing the year-on-year growth rate down.
"There have been lots of supportive trends this year: resilient dry bulk imports to China, a return to coal trade growth, robust intra-Asian box volumes, rapid transpacific container trade growth and burgeoning gas volumes. Of course, downward pressures exists too and the future is not without risk," Clarksons informed.
However, with seaborne trade projected to expand at a multiple of 1.1 times global GDP growth this year, "there's now a clear signal that some of the distress arising from much slower trade growth as recently as 2015 was actually more likely the passing of the low point in a cycle."
As has often been the case in the past, when the dry bulk market is experiencing good fortunes, tankers are suffering and vice versa. While this is mostly coincidental, it also serve as a testament that volatility in both sectors is more obvious in the past few years, than in the more distant past. In its latest weekly report, shipbroker Intermodal noted that "with the majority of second-hand tonnage transactions taking place in the dry bulk sector it's easy to lose sight of what is happening over at the tanker side and for a good reason. Things have been mostly quiet for the last seven months with the exception of short periods of increased activity during the summer months".
According to Intermodal's SnP Broker, Mr. Timos Papadimitriou, "the tanker market has evolved into a market that requires fast reflexes. Cycles are becoming shorter, usually lasting 16 to 18 months, thus creating a sense of uncertainty as far as when to off load a respective asset or invest in tonnage. Taking into consideration that tankers assets are depreciated differently compared to bulkers and how oil majors can influence trends as far as buying, selling and contracting tonnage, it is very common to witness price irregularities on the transactions within the same time period".
Papadimitriou said that "electric cars, MGO regulations, developing economies, clean and renewable energy policies and last but not least the "Paris climate Accord", all play a part on the everlasting and ongoing discussion of what the influence on tanker demand and supply will be. If you add to the mix the BWTS regulations that will eventually start being implemented even after the latest extension, then making an educated guesstimate on how to position one's self as an investor, demands nerves of steel and a strong stomach".
He added that "despite all of the above there has been some appetite for tonnage. Buyers do emerge from time to time looking for tonnage built anytime; from late ‘90s crude units up to 4-3 year old MRs and LRs. Of course the demand for tankers is not anywhere close to that for dry bulk tonnage, but there is no shortage of investors willing to buy especially on the product side. The MR segment was rendered doomed a few years ago due to a rather large order book, but overall the segment has demonstrated impressive resilience despite the current dip on hire rates. Now the same concern is raised for crude ships and for the same reason. Again time will tell".
Similarly, "regulations will have an effect on older tonnage where the cost of retrofitting the required equipment could defeat the purpose, eventually leading to the removal of ships from the water. Now considering that ordering has been in check for the last 2 years, the prospects of the next 2-4 years don't look so bad especially for the younger tonnage. As far as the near future is concerned and as it has been more than a few months that the market has remained under pressure, the expectation that better days will soon come doesn't appear very unrealistic. In fact the majority of market participants have been widely adopting the idea that signs of recovery will start being visible sooner rather than later", Papadimitriou said.
He concluded his analysis by noting that "this provides sellers the appropriate confidence to resist lowering their ideas. Buyers on the other hand don't feel that prices need to be a lot lower than where they are now. Overall at this stage buying tonnage does not seem as a bad move. After all investing in a slow market is never considered to be a hasty move".
Russia is looking to launch a direct shipping service to Syria, Dmitry Rogozin, Russia's Deputy Prime Minister, was cited by the country's news agency TASS as saying.
The launching of the new service comes as the trade turnover between the two countries increased by 42 percent during the first seven months of 2017 on a year-on-year basis.
According to Rogozin, Russian companies are expected to play a major role in the process of Syria's economic revival amid the ongoing Syrian Civil War.
"Direct shipping line between Russian and Syrian ports is being created in parallel," Rogozin said at the 10th meeting of the Russian-Syrian commission on trade, economic, scientific and technical cooperation held on October 10.
However, no other details on the planned shipping service were disclosed.
As informed, the agricultural goods are currently transported by Oboronlogistika, a company which acts under the jurisdiction of Ministry of Defence of Russia and is a subsidiary of Oboronstroy.
The company's fleet comprises three ships of RoRo\LoLo type with vertical and horizontal loading function for transportation of cargo in trailers and containers. Each of the vessels has a deadweight of over 6,000 tons and a loading capacity of vessel cranes of 60-350 tons.
The base case figure for projected uptake of how many ships will have exhaust gas cleaning systems (EGCS), or scrubbers, installed by 2020 may not be happening because current orders are slow.
The base case figure for projected uptake of scrubbers in the official availability study presented to the International Maritime Organization in 2016 "may be too optimistic," the study's lead author, Jasper Faber of CE Delft, told a forum hosted by IBIA during London International Shipping Week (LISW).
Faber added that the prediction was based in part on the anticipated "excellent" economic argument for installing abatement technology to allow continued operations on high sulphur fuel oil (HSFO) in 2020, when HSFO demand and its value relative to crude is set to drop sharply.
Only around 400 ships have been fitted with or placed orders for the technology to date, well shy of the CE Delft base case in the official availability study for the IMO, which predicted that 3,800 ships would be ready to comply with sulphur regulations by using scrubbers in 2020, burning some 36 million tonnes of HSFO accounting for 11% of total global marine fuel demand.
Faber said "we may still see" something closer to the lower level of EGCS uptake predicted in the model, which pegs the number of ships using the technology in 2020 at 1,200 which would burn 14 million tonnes of fuel accounting for 4% of total marine fuel demand.
Asked what might be different if CE Delft was to do the 2020 availability assessment for the IMO today, Faber said both the EGCS uptake figure and the projected uptake of LNG as a marine fuel by 2020 "were probably on the high side."
However, this would not change the study's overall conclusion that there will be sufficient refinery capacity to meet global demand for low sulphur fuels in 2020. Unexpectedly high or low investment in EGCSs and LNG ships would have to coincide with much higher transport demand than currently predicted to change that conclusion.
The CE Delft study's base case for LNG is that it will account for 3.22% of the global marine fuel market in 2020. Industry consultant and current IBIA chairman Robin Meech of Marine and Energy Consulting Limited (MECL) predicts that figure will be closer to 1% in 2020.
Meech told the IBIA forum that MECL's model currently estimates there are 400 ships with EGCS scrubbing some 4 million tonnes of fuel annually, predicting this figure could rise to 10 million tonnes by 2020 based on 1,350 ships having installed abatement technology by then. MECL predicts the scrubbed volume will then rise ten-fold by 2030 to just over 100 million tonnes.
"The predictions for uptake of alternatives to low sulphur fuels by 2020 is important for all stakeholders, but in particular for refiners and bunker suppliers that need to assess how much demand there will be for low sulphur fuels and HSFO to plan their market strategies effectively,” IBIA said.
The base case in the CE Delft study for 2020 assumes that some 13% of petroleum fuels will have a sulphur content of 0.10% or less, and that these will be mostly distillates, while 76% of petroleum fuels will have a sulphur content of between 0.10% – 0.50% which will consist of various blends.
Overall, the study concluded that global shortages are “improbable” although regional oversupply and shortages are likely, however they cancel each other out on a global level. Such regional supply and demand can be balanced by transport of products and changes in bunkering patterns as demand grows in areas where good availability allows for more competitive pricing, Faber said.
The fourth quarter of 2017 is currently slated for massive overcapacity, contrary to expectations, as the traditional seasonal culling of capacity has not yet been scheduled, according to data provided by SeaIntel Maritime Analysis.
When looking at the past five years, SeaIntel informed that 25 sailings will have to blanked on Asia-Europe, while Transpacific will require the blanking of 67 average-sized sailings.
Over the 2012-2016 period, the fourth quarter deployed capacity on the Asia-North Europe trade lane has on average contracted by -6.6% relative to the third quarter, but 2017-Q4 is currently scheduled to shrink by just -0.8% relative to 2017-Q3.
If the same seasonality is assumed, a total of 193,000 TEU would have to be blanked over the entire Q4 period, equal to the blanking of 13.5 average sailings, or roughly one sailing per week. SeaIntel said.
On Asia-Mediterranean, assuming the average 2012-2016 Q/Q contraction of -10.2% holds true, the trade lane is currently scheduled for an excess capacity 126,000 TEU in Q4, which would equate to the blanking of 11.5 average-sized sailings, or a little less than one per week.
Deployed capacity on Asia-US West Coast in 2012-2016 has seen Q4 on average contract by -4.5% compared to Q3, which would leave an excess of 184,000 TEU of capacity currently scheduled for 2017-Q4, equal to the blanking of a massive 25.1 average-sized sailings, or close to two sailings per week.
On Asia-US East Coast, deployed capacity is currently scheduled to grow by 4.1% over 2017-Q3, which would yield a Y/Y growth of a staggering 21.9%. This would mean an excess capacity of 247,000 TEU if the 2012-2016 seasonality is assumed, which would require the blanking of a staggering 32.0 average-sized sailings, or almost 2.5 sailings per week.
The insatiable appetite for bulker newbuilds continued into last week as brokers reported orders for at least 14 bulker newbuilds being ordered.
The Chinese shipyards were the preferred choice for owners, with Jiangsu Yangzijiang Shipbuilding Group scoring a huge chunk of placed orders.
Namely, aside to Navibulgar's order for up to six 45,000 DWT bulkers World Maritime News reported on last week, Yangzijiang has secured orders for up to six more bulkers.
According to Intermodal Research and Valuations, Japanese Lepta Shipping has ordered one 180,000 DWT bulker from the yard and has an option to add one more vessel of the same size to its ordering tally. In addition, Norwegian Kumar has placed an order for two firm plus two optional 180,000 DWT Capesizes at the yard.
The three orders will keep the yard busy for the following two years, as the new ships are slated to start delivery in 2019 and continuing into 2020.
Chinese shipyard Dalian COSCO KHI Ship Engineering (DACKS) has been linked to an order for two Ultramax bulkers of 61,000 DWT placed by Singaporean Eastern Pacific. The company is said to be paying USD 24 million per ship, scheduled to join their owner in 2019.
Two more bulker orders have been tied to Shanghai Waigaoqiao Shipbuilding (SWS). Based on the data from Intermodal, Chinese Foremost Group exercised options for two 180,000 DWT bulkers at the yard, which are also set for delivery in 2019.
Since the beginning of the second half of this year, shipowners have ramped up dry bulk ordering, bringing the newbuild count to 110 new ships from July to September 2017.
The number has almost doubled when compared to 63 newbuilding orders from the first half of this year, according to the data from VesselsValue.
The shipping industry should take protective measures to be 'cyber mature', particularly as personal, confidential and operational information is at risk, it was concluded at a panel discussion held in the framework of the Maritime Cyprus 2017 conference in Limassol.
As explained, shipping constitutes a target for cyber attacks since a lot of information and money is at stake.
"Cybersecurity sustainable investments should be materialiased and the level of cyber maturity should be continuously reinforced as the cybersecurity issue needs to be a continuous improvement process," it was highlighted at the panel.
What is more, panelists pointed out that cyber risk is here to stay for both companies and ships but cyber risk management is possible and achievable.
On novel ship design, it was mentioned that newly designed ships have additional and innovative equipment on board that makes them more efficient. This equipment will lead to decreased air emissions from such new ships. The role of the shipowners during the design stage and of the classification societies during the building stage of new ships was also discussed.
With regard to digitalization, it was emphasized that the industry needs to be ready to embrace its benefits and prepare for the threats it poses such as cyber security. The importance of preparing employees and crews for future technologies through training was stressed.
Autonomous ships will become a reality but we should not expect to see unmanned ships for many years to come since seafarers on board cannot be replaced by vulnerable digital systems, according to the panelists.
Panelists included Steffen Gau, Marine Business Development New Construction of Lloyd’s Register Marine and Offshore covering the discussion on novel ship designs, Cynthia Hudson, CEO of HudsonAnalytix covering the discussion on cyber security, and George Ward, Project Support Manager of ECDIS talking about digitalization.
As some of the shipping sectors are now moving into a new phase, Clarksons Research examined improvement indices for four main volume shipping sectors which indicate that bulkers and containerships are moving away from the bottom of the cycle.
As explained, a helpful measure of the progress of the cycle might be to look at how far a sector has progressed on its possible journey between the 'low-point' in the cycle and the historical average level as the percentage increase in earnings in each sector doesn't really capture the essence of the relative position in the market cycle.
Across September, earnings for a 2,750 TEU containership were up by 55% since Aug 2016, and Capesize spot earnings were up by more than 800% since March 2016. However, Clarksons said that this doesn't mean that these markets are in the rudest of health just yet.
Boxship charter earnings have increased in 2017 so far, with the earnings index averaging 61 in the last 12 weeks, up from 45 in December 2016 at the bottom of the cycle.
That equates to moving 29% of the way back to historical average levels, which seems like a fairly good guide to where the containership sector stands in the cycle, according to Clarksons.
Bulk carrier earnings have also improved this year with the earnings index averaging 70 in the last 12 weeks, up from 21 in February 2016, a record low for many segments in the bulk carrier sector.
That is equivalent to moving 61% of the way back to historical averages. This seems "a little aggressive", perhaps reflecting some additional seasonal impetus to the market recently, and the historically very low starting point. Taking the 2016 index average as the low point instead, earnings would be 51% of the way back, Clarksons said.
However, the story is completely different in the tanker and gas carrier sectors. In both sectors, earnings have in the main been easing back for some time now, and the most recent lows are very recent indeed.
The average tanker earnings and gas earnings indices in the last 12 weeks lie very close to the most recent market low points. The '% turn' at 9% and 13% respectively is not really the key feature of these sectors today.
This 'relative' approach can provide an idea of how far the markets have moved into the next phase of the cycle (or not). The ClarkSea Index, which topped USD 12,000/day for the first time since January 2016 in September, is 28% of the way back to historical average levels.
Although sentiment and earnings levels are looking more positive in some sectors, simple percentage gains don't tell the whole story. Volatility remains and there's likely to be some way and more re-balancing to go to arrive at potentially much happier times for investors, Clarksons concluded.
Schedule reliability for deep-sea carriers has positively impacted their financial results, according to a statistical analysis conducted by SeaIntel Maritime Analysis.
SeaIntel tested the hypothesis on whether the relative profitability of a carrier is independent of their reliability relative to their competitors. The correlation coefficient between relative profitability and reliability across 14 quarters was calculated for all of the major carriers that publish their financial results on a quarterly basis.
Taking into consideration data in the period Q1 2014-Q1 to 2017-Q2, SeaIntel said that, from a statistical perspective, the hypothesis that there is no link between profitability and reliability can be rejected with 94.3% confidence.
In less statistical terms, this means that carriers that are more reliable than their competitors are also more profitable than their competitors. What the data does not show is precisely where the added profitability stems from.
"It could be from a commercial upside related to higher rate levels or more loyal customers. But it could also stem from lower operational costs as more reliable services lead to less exception handling. And finally it should be noted, that correlation does not imply causality, and what we may be witnessing is in fact the reverse, that more profitable carriers are more likely to be on time," Alan Murphy, SeaIntel CEO, said.