Oil tankers experienced a tough start to 2017 as freight rates for all crude oil and oil product tankers continued their decline following the brief lift at year-end, according to international shipping association BIMCO.
Although average earnings stood at US$18,853 per day by April 7, 2017, down from US$63,284 per day reported on December 16, 2016, the very large crude carriers (VLCCs) may not yet have bottomed out.
Looking at the supply side, the 2016 low demolition trend seems to be changing. Namely, last year 2.6 million dwt was sold for demolition, while a total of 0.9 million had left the fleet for recycling at shipbreaking facilities by the end of March 2017.
Although slightly busier than 2016, this has been a slow start to what BIMCO expects will be "a busy year for tanker demolition".
As cargo volumes are not expected to grow that much in 2017, the increase in demand must come from longer sailing distances, and changes to the volumes from one country to the next, BIMCO informs.
China rules the crude oil tanker market, as in many other shipping markets, having been solely responsible for the incremental crude oil tonne mile demand growth since 2010. The country is set to do it again in 2017.
However, BIMCO said that "the US could spoil the party." As supply cuts from OPEC dropped from their highest supply level ever at 33.9 mb/d in October 2016, the US witnessed an increase of supply. This lifted US crude oil stocks to their highest level ever, while global stocks sidestepped.
"A continuance of that could prove difficult to uphold. 2016 was an abrupt break of trend that has seen US seaborne crude oil imports drop consistently since their peak in 2005," BIMCO said.
The shipping association added that 2017 "is proving to be a year of change for oil tankers, as was indicated during 2016 with freight rates coming down. After two years of solid demand growth, 2017 is a year of tepid demand growth around 0–2%. As fleet expansion is also slowing down, though still at a higher growth rate than demand, the shipowners have their work cut out."
Alongside shipping of grains, China's import of iron ore is set to continue to be a key driver for the demand growth in 2017 for the dry bulk shipping industry, according to international shipping association BIMCO.
During the first three months of 2017 the industry experienced an accumulated growth rate of 9.5% compared to the same quarter of 2016, marking the highest imported amount of seaborne iron ore for a first quarter.
The growth rate of Chinese imported iron ore in 2016 was constant throughout the year, as the annual volume broke into landmark territory, BIMCO said, adding that both the total iron ore import and total seaborne iron ore import volumes for 2016 exceeded 1 billion tonnes for the first time ever.
"Despite a growth of 7.5% in total imported iron ore for 2016, the growth in Chinese steel production remained limited at 1.2%. The reason for the increase in imported iron ore originates from China substituting domestically mined ore of low iron content for imported ore of much higher iron content and thereby, squeezing more domestically sourced iron ore out of the market," said Peter Sand, BIMCO's Chief Shipping Analyst.
China imported 71.3 million tonnes of iron ore more in 2016 than the previous year, representing an increase of 7.5% compared to 2015. While the total Chinese import of seaborne iron ore achieved a growth rate of 7.7%, imports of iron ore by land dropped 4% in 2016 compared to 2015.
"This is the best possible scenario for the dry bulk shipping industry, as land borne sources are being substituted for seaborne providers," according to BIMCO.
Brazil has grabbed a larger share of the growth in the Chinese iron ore import, as they have exported 12.1% more in 2016 compared to 2015. The growing Brazilian iron ore export to China has clawed market share from Australia, as Australian iron ore exports to China increased by 5.4%.
As the longest iron ore voyage, the Brazil-China route has brought an increase of 8.5% in tonne-miles in 2016.
The global very large crude carrier (VLCC) and Suezmax fleet completed 4.6% less ton miles during the first quarter of the year compared to the fourth quarter of 2016, according to VesselsValue.
The fleet's reach was over 2.5 trillion ton miles in the first three months of 2017, with a reduction in VLCC work done being the major contributor at -5.42%.
The Arabian Gulf, which covers over 50% of seaborne demand for crude exports, recorded a drop of 14% in export ton mile demand during the first quarter on the back of the promised OPEC production cuts.
Although evidence shows that Arabian Gulf exports are down, "the slack is being met elsewhere," VesselsValue informed.
Namely, exporters of crude in the North Sea saw seaborne demand for VLCC and Suezmax cargoes jump 14% in the quarter, representing their strongest quarter ever.
Also filling the gap is the United States of America, where ton mile demand rose above 70 million ton miles. The surge, recorded over the last two quarters, represents an increase of 145%, with a number of these journeys comprised of VLCC cargoes over Suezmax on the long-haul from US to locations such as China and Singapore.
"The last quarter has shown that world VLCC and Suezmax ton miles have decreased; as have exports out of the Arabian Gulf. However, smaller producers have worked to meet the gap in demand," said William Bennett, Senior Analyst at VesselsValue.
With the launch of the new carrier alliances on the east-west trades on April 1, 2017, the demand for vessels and the final tally of containership tonnage is set to increase by 5% in TEU capacity and by 4% in vessel count compared to March, according to Alphaliner.
Compared against the peak season deployment of summer 2016, total vessel capacity planned for this summer on the revamped Asia-Europe, Transpacific and Transatlantic routes will be 2% higher.
At the same time, the number of deployed ships is set to fall as carriers continue upgrading services to larger vessel sizes.
"The tonnage removed as a result of Hanjin Shipping's withdrawal from the eastwest trades in September 2016 will be fully restored with the new services launched on April 1 by the 2M+HMM, OCEAN Alliance and THE Alliance, as well as various independent carriers including newcomer SM Line who kicked off its new transpacific service last week," Alphaliner said.
Of the 913 ships to be deployed on the east-west services, carriers have secured most of the required tonnage, with some seven ships still to be named, according to Alphaliner's data.
An analysis of the vessel deployment by size range showed increases in the 14,000-20,000 TEU segment as well as the 5,500-10,000 TEU size segment, while the 10,000-13,300 TEU sector shrinks together with the smaller 3,000-5,100 TEU sector.
Demolition activity at Alang yards in the Indian state of Gujarat decreased by 34 percent from January to March 2017, according to data from NGO Shipbreaking Platform.
During the quarter, only 69 ships were sold to Indian shipbreaking yards, compared to 105 sold in the same period last year, NGO Shipbreaking Platform told World Maritime News.
The main reason for the decrease is that Bangladesh and Pakistan are paying more for vessels due to their dependence on recycled steel, Indian news site Business Standard reported.
Another reason is a higher Baltic Dry Index (BDI). When the index is high, fewer ships are sold for demolition.
In addition, hefty declines in local steel plate prices were seen at all locations in the Indian subcontinent last week, according to GMS weekly report.
Ship prices declined by at least USD 10/LDT across the board (except Turkey).
As such, it left a dampener on proceedings moving towards the third quarter of the year and the traditionally quieter/lower-priced monsoon season, GMS said.
However, India is still the most bullish and the highest placed sub-continent market, with both Pakistan and Bangladesh struggling somewhat with travails of their own last week.
"Adding to this is the fact that only Bangladesh and India can take tankers with a total ban on the beachings of wet units still in place in Pakistan, after the fatal accidents that took place there late last / earlier this year," GMS further said.
The latest available report on shipbreaking activity issued by NGO Shipbreaking Platform shows that 122 end-of-life ships were sold for breaking in India, Pakistan and Bangladesh in the third quarter of 2016. India was the preferred final destination, with a total of 61 vessels sent to the country's yards during the observed period.
National Shipping Company of Saudi Arabia (Bahri) revealed plans to re-flag 32 of its very large crude tankers (VLCCs) and five of its mid-size carriers under the domestic flag by the end of 2017.
The move comes amid a positive shift the country’s transport sector has witnessed. In addition, the initiative is another achievement of the Public Transport Authority under the national transformation program, according to Bahri.
Ibrahim bin Abdul Rahman Al Omar, Bahri’s CEO, explained that the registration of the company’s 37 VLCCs under Saudi Arabian flag is aimed at enhancing the Kingdom’s position in the International Maritime Organization’s (IMO) global rank lists and at increasing the size and efficiency of the Saudi Arabia’s fleet.
The company said it continues to implement the plan to register the remaining 18 tankers in its fleet under the domestic flag.
Oil tanker Amjad was the last VLCC to join Bahri’s VLCC fleet. The 300,000 dwt vessel was handed over to the company in February 2017 and registered under the Saudi Arabian flag.
Although the recovery of bulk carrier earnings has fired sale and purchase activity, values and new orders, market faces an uncertain outlook for the balance of the year, according to research and consultancy firm Maritime Strategies International (MSI).
MSI has forecast a positive short-term outlook for dry bulk freight rates but has cautioned on prospects in the second half of the year.
In recent weeks, there has been "a persistent and positive shift" in dry bulk market sentiment, with most Baltic indices at their highest point of the year.
Capesizes led the charge with spot rates rising to almost US$20,000/day in late March – more than five times their levels of just a few weeks earlier, although they have since fallen to US$15,000/day.
Meanwhile, Panamax rates have risen above US$11,000/day for the first time this year, having averaged US$7,500/day during February. In addition, Handysizes are now over US$8,000/day, up almost 50% since February.
Supporting the better spot rates are pockets of stronger underlying fundamentals, such as Brazilian iron ore exports and Chinese coal imports. This is partly explained by a recovery in industrial activity in China, MSI said.
"MSI is more positive on the near-term outlook for Capesize spot earnings, partly driven by the latest data for Chinese steel and iron ore import demand," Will Fray, MSI Senior Analyst, commented.
"However we do expect this support to wane in Q2/Q3 and are still mindful of large port stockpiles of iron ore and evidently we are more negative than the FFA market for June and September periods," he added.
Better rates have brought the S&P market back to life with an increased pool of potential buyers supporting a noticeable rise in the number of transactions taking place. Some 190 second-hand vessels were sold during Q1, up 86% on the same period of 2016.
Values have risen sharply too – 10-year-old Capesizes and Panamaxes rose in value – by 21% and 25% respectively – from February to March, to reach their highest level since late 2015. There are signs of life in the newbuilding market too, with four Kamsarmaxes and two Handysizes contracted in March, according to the consultancy firm.
Stronger rates have also been the key driver behind weaker demolitions, with just 4.4 million dwt scrapped in Q1, compared with 14 million dwt in Q1 2016.
The combination of a dearth of vessels being offered for scrap and robust steel prices has led to an increase in prices being offered by Indian and Bangladeshi breaking yards, which have risen by about USD 50/LDT in the past month to US$360-390/LDT for bulkers.
MSI has also lifted its Panamax rate forecast for 2017, with rates broadly similar to March's average for June and September. In the Handy/Supra sector, a revived Indonesian ore trade and stronger Latin American grains exports should support spot rates for smaller geared bulkers in Q2.
However, MSI's forecasts are again relatively weaker towards the end of this year, partly due to weaker US grain exports.
China's shipbuilding industry has experienced a 25.4 percent plunge in newbuilding orders during the first three months of 2017 compared to the same period a year earlier, according to data provided by the China Association of the National Shipbuilding Industry (CANSI).
Namely, the country's shipbuilders managed to score only 5.54 million dwt of new orders in the first quarter of the year.
However, the report shows that Chinese yards saw a surge of 87.7 percent, compared to the same quarter in 2016, in completed vessel capacity as a total of 15.67 million dwt of vessels were constructed during the period.
The yards' order backlog dropped by 26.3 percent to 88.65 million dwt, when compared to the same period a year earlier, and by 11 percent when compared to the order backlog seen at the end of 2016.
In addition, Cansi informed that the 53 major shipbuilders secured 36.1 percent less of new orders which stood at 4.42 million dwt at the end of the three-month period, and completed 13.37 million dwt of vessel tonnage, representing a rise of 71.6 percent.
The report shows that the completed newbuild value at 80 of China's yards was down by 7.5 percent year-on-year to RMB85.87bn (US$12.4bn).
During the first three months of 2017 the 80 yards reported a drop of 9.7 percent in total revenue which stood at RMB62.4bn, while their total profit fell by 63.5 percent to RMB250m on the back of a slowdown in the shipbuilding industry.
Westbound Asia to Mediterranean volumes have been disappointing thus far in 2017, but shipments heading in the opposite direction are surging, according to shipping consultancy Drewry.
Similar to the Asia-North Europe trade, the backhaul market is currently on top in the Asia-Mediterranean/North Africa route. Eastbound shipments increased by 16% year-on-year in the first two months of 2017, massively overshadowing a 3% drop in the westbound leg.
The same CTS numbers confirm that container traffic from Asia to the Med grew faster than to North Europe in 2016, rising by 2.5% versus 0.3%. However, despite the sluggish start to the year Drewry’s latest forecast for the westbound Asia to Med trade is for a slight improvement in the growth rate. Most of the impetus for growth this year is likely to come from the Western section of the Med with the Eastern economies on less firm ground.
“The westbound trade should return similar growth as seen in 2016 this year, of between 2-3%. The West Med region has more upside than the East Med but freight rates will continue to be pressured by the entrance of bigger ships,” Drewry said.
On the capacity front the shake-up caused by the alliance restructuring will see westbound slots increase by May to their highest level since August last year, the shipping consultancy informed.
Subsequently, carriers will need to see the expected seasonal lift in demand over the coming months if they hope to achieve load factors close to 90% to support rates.
Drewry said that, despite a slew of missed sailings in February to cater for Chinese New Year, it was not enough to prevent westbound ship utilisation falling to 64%, which was the worst level in nearly two years.
The service provided by container shipping lines is rated as poor to average and has deteriorated in the past year, according to a survey conducted by Drewry and the European Shippers' Council (ESC).
Several hundred of exporters, importers and freight forwarders from all over the world were contacted in March 2017 and asked how satisfied they were with 16 price and non-price related attributes of the services provided by ocean carriers. The survey also looked into areas most in need of improvement and how quality varies by type of carrier.
On a scale of 1 (very dissatisfied) to 5 (very satisfied), the survey participants on average did not rate carriers higher than 3.3 for any of the 16 service attributes, the survey showed.
The three areas of service or price in which shippers and forwarders were the most dissatisfied with were carrier financial stability, quality of customer service and reliability of booking/cargo shipped as booked. At the other end of the spectrum, the three areas where they were the most satisfied were price of service, accurate documentation and quality of equipment (containers).
"We see that shippers want to be treated not only as customers, but also as partners, when discussing their container transport requirements. In times when supply chains are becoming more and more complex, partnership is of key importance and unfortunately it is missing," said Fabien Becquelin, Maritime Policy Manager at ESC.
"Shippers and forwarders clearly see the necessity for the carrier industry to invest in IT and to balance the needs for cost competitiveness and for more predictability and reliability," said Philip Damas, head of the logistics practice of Drewry.