Danish shipping company Maersk Line plans to set up a new service between Asia and the United States West Coast, the TP1 service, effective Sept. 15, 2016.
As part of the service, six vessels with a capacity of 4,000 TEU would be deployed per week.
The TP1 service will be part of the 2M alliance's network of services.
The TP1 Eastbound service will cover Yantian, Shanghai (China), Busan (South Korea), Los Angeles/Long Beach (US), while the port rotation of the TP1 Westbound service will be Los Angeles/Long Beach, Yantian, Shanghai, Busan.
"We are responding to increased demand in the Transpacific. With supply chains disrupted, many customers are approaching us for transport solutions for their cargo. The TP1 service is a stable, long term solution to meet our customers' needs," said Klaus Rud Sejling, head of Maersk Line's East-West Network.
Severe overcapacity in the container shipping market and recently agreed contract rates on the transpacific trade lanes are keeping pressure high on the liner companies, according to BIMCO.
Overall container demand grew around 2% in the second quarter of 2016 compared to the same period a year earlier, BIMCO said, adding that a minor and slow, but above all positive, development can be seen.
In the key trade lanes into Europe, primarily from East Asia, demand grew by 1.4% in the first five months of 2016 compared to the same month in the previous year.
The weak demand growth in Europe hit spot freight rates on transatlantic services, but more importantly on services out of Shanghai, which was hit hard during the first four months of 2016.
Since then successive general rate increases have lifted freight rates above the US$1,000 per TEU mark after hitting an all-time low during March and April where rates hovered around US$250 per TEU. Freight rates for Shanghai to Europe have not stayed above US$1,000 per TEU for more than one week at a time since Jan/Feb 2015.
"Unfortunately, the effect of a positive demand growth has been crippled by carriers deploying too much tonnage into the trade lanes," said BIMCO.
The container shipping fleet has now passed 20 million TEU. Total fleet growth year-to-date in 2016 stands at 1.5% by Aug. 9, as 85 units with a combined capacity of 598,000 TEU were delivered, while 92 units representing 303,000 TEU left the fleet to be demolished.
Due to this high pace in demolition activity, BIMCO adjusted its estimate for a full year demolition of capacity in 2016, which now stands at 400,000 TEU.
The tough market conditions mean that nominal fleet growth does differ somewhat from active fleet growth. According to Alphaliner, the idle fleet totalled at 1.01 million TEU by Aug. 8, while 91% of the idled capacity was of ships below 7,500 TEU, controlled by non-operating owners.
"Such a high level of idled ships as we enter the peak season of the year (Q3) has not happened since 2009. A very positive development and a sure sign that reality has hit home. This adds to another extremely positive trend, that of almost no new orders being placed," BIMCO said.
Until mid-July, just 39 ships at an average size of 2,058 TEU had been ordered in 2016. Following an order of five 14,000 TEU ships, the contracting activity doubled to reach a total of 150,000 TEU by Aug. 10.
"For the full year to balance out between supply and demand growth, we need demand to grow in Q3 and Q4. Year-to-date the balance has worsened. Demand has been slow, part of the idle fleet has been reactivated and new ships have outstripped the number of ships being demolished," BIMCO concluded.
The sluggish tanker charter market and declining asset values have seen S&P deals in the sector slide this year, according to data compiled by brokers Alibra Shipping.
"S&P transactions for tankers have almost halved so far this year (Jan 1-Sept 2)," the broking house noted in a recent report.
This year, Alibra has tracked 191 tankers changing hands, compared to 303 at this point last year. Some 15 VLCCs have been sold this year, compared to 42 during the 2015 period. This year, four VLCCs have been sold as resales compared to 20 this time last year.
"The tragedy of the S&P market really snaps into focus," Alibra noted, "when we look at the average price at which resale VLCCs were sold: during the 2015 period, it was $98.9m per vessel. This year to date, the figure is just $84.25m."
At the other end, the average price at which a 15-year-old VLCC changed hands during the 2015 period was $32.23m – not too much above $31.47m, the average price at which 15-year-old VLCCs have been sold this year.
Lower growth rates for refinery throughput and drawdowns on swollen oil stocks has impacted the seaborne tanker market negatively, according to BIMCO.
The refiners and traders, primarily in Asia, have reduced their appetite for crude oil as margins and profits have diminished. Global oil prices came down from a mid-2015 level around US$60 per barrel to bottom out just below US$30 per barrel by mid-January 2016. Only to rise again and float around US$50 per barrel from June onwards.
Seasonality and record high global stock levels of crude oil and oil products have brought an end to the strong freight market enjoyed since the second half of 2014.
Back in January 2016, BIMCO warned that "a 'correction' in demand may be fairly steep once it arrives." The factors mentioned back then, are the same ones that matter today.
For the oil tanker market, which has had the highest supply side growth in the last six years, a reversal of fortunes was inevitable, BIMCO said.
BIMCO added it reduced its forecast for crude oil tanker demolition in 2016 from 5 million dwt to 3 million dwt. By mid-August, only 0.76 million dwt of crude oil tanker capacity proved to be in such poor condition that it could no longer be traded in the strong freight market.
"This lack of demolition means the supply of new tonnage weighed down the market, making the shift to a fundamental imbalance quicker and harder felt. Especially as the growth rate on the demand side is coming down from last year"s peak," BIMCO said.
Overall, the delivery pace has been quite steady in the first eight months, seeing 12.5 million dwt of crude oil tanker capacity delivered, leading to a fleet growth of 3.2%. For the final four months, BIMCO expects the delivery pace will pick up as more than 10 million dwt of new capacity is set to enter the market, bringing crude oil tanker fleet growth up to 5% for the full year.
BIMCO reiterates that, for the mid-term, the supply side for tankers is on the heavy side, which is expected to have a negative impact on freight rates as it is likely to exceed the growth of the demand side.
In spite of a decisive reduction in freight market rates, BIMCO expects that average VLCC earnings in 2016 will still sit above those of 2014. But the foreseen market changes have proven to be slightly harder than expected with a negative impact on freight rates in all other oil tanker segments. BIMCO now sees average earnings for all other oil tanker segments (Ex VLCC) below those of 2014.
Spot container freight rates on the major routes from Asia soared up to 42% on Sep. 1 following the collapse of South Korean container carrier Hanjin Shipping, showed data provided by Drewry's World Container Index.
Rate assessment increased 42% to US$1,674 per 40ft container on the Shanghai-Los Angeles route, by 19% to US$2,151 on the Shanghai-New York route and by 39% to US$1,826 on the Shanghai-Rotterdam route.
"Unpredictable freight rates are not new phenomenon in the container industry, however a major upheaval of supply like this is likely to cause extreme short-term price volatility. Shippers should expect increasing freight costs and tight allocation for several weeks at least," said Richard Heath, general manager of WCI.
"The Hanjin bankruptcy means a shock to the market – some of our shipper customers are making contingency plans and asked us to assess the impact of this on their supply chains," said Philip Damas, director at Drewry, which jointly owns WCI alongside Cleartrade Exchange.
The first half of 2016 has revealed that the dry bulk market is nowhere near balanced as there was a strong demand growth from China, while the devastating freight rate levels over the same period remained strong, according to BIMCO.
BIMCO's data on seaborne iron ore imports into China, shows a growth of 9.6% for H1-2016 as compared to H1-2015. With seaborne coal volumes shipped into China during H1-2016 being on par with H2-2015, this represents a 5.0% growth on H1-2015. A continued surge in thermal coal imports seems limited, as hydropower electricity generation due to heavy rainfall is likely to squeeze coal consumption yet again.
The devastating freight rates have left asset values for dry bulk ships battered. A 2010-built capesize ship was valued by VesselsValue.com on Aug. 1, 2014 at US$49.75m. Two years later, that same ship had lost 57.3% of its value and is now worth only US$21.25m. The pain is felt across the fleet; worse for older ships and slightly less severe a drop in value for newer ships.
As 31 million dwt of new capacity has entered into the fleet since the beginning of 2016, the order book is slowly emptying. Currently standing at 110 million dwt, the order book is now down at a level not seen since late 2006, BIMCO said.
"Forget about the order book-to-fleet ratio being at a 13-year low, that ratio is irrelevant. What matters is that the fleet will not stop growing unless an equal amount of capacity is demolished at the same time," according to BIMCO.
So far in 2016, 23 million DWT has been taken out of the fleet and sold for scrap. This means the fleet, year to date, has grown by 1.1% by early August. This level of scrapping is as expected. Nevertheless, it is still worrying that the level of demolition is not higher. The dry bulk industry is faced with the lowest earnings ever, with overcapacity being the main problem and demolition the silver bullet.
Positive demand growth rates across the board for dry bulk commodities are high, and there is one that is ruling them all – iron ore. In H1-2016 we saw a volume growth of 42 million tonnes of iron ore going into China, compared to a combined volume growth of 12 million tonnes for coal, soybeans and steel products on other Chinese trades.
Increasing demand for iron ore is strong on the best trade lane of them all – Brazil to China, according to BIMCO.
Shipments on that trade were up by 24% to reach 98 million tonnes in H1-2016 compared to H1-2015. Such a development used to mean much higher freight rates, but as 2015 passed, spot rates for capesize ships were only modestly buoyed by volume growth on this trade. BIMCO believes that a significant part of the iron ore has been transported on "Vale's conveyor belt of Chinese-owned VLOCs".
If this continues to remove cargoes from the open market, volume growth on the Brazil to China iron ore trade will no longer affect the spot market on this trade nor the general freight market significantly.
For the coming months from September to November, BIMCO expects transported volumes to stay put, as the high volumes transported in recent months may have run ahead of underlying demand.
"Expect the freight rates to move up, down and sideways before moving up again in the fourth quarter of the year," BIMCO said.
As the shipping industry saw an abundance of vessels leading to overcapacity in the shipping industry, accompanied with depressed freight rates which signified a tough market, a number of shipowners opted to dispose of their vessels selling them for scrap.
The second quarter of the year saw a total of 212 end-of-life ships sold for demolition during the period, while 182 of these vessels ended up on the South Asian beaches. The number represents 86 percent of end-of-life vessels which reached the shores of Bangladesh, India and Pakistan, showed data provided by the NGO Shipbreaking Platform.
In light of the increased shipbreaking activity, , to find out more about the current situation in the demolition market, as well as the environmental factor related to dismantling vessels at South Asia's beaching yards.
The general sentiment is that scrapping activity is expected to increase on the back of declining freight rates resulting in an increasing number of idle vessels, especially container ships, which are forecast to be introduced into the scrap markets during the fourth quarter of 2016, accorindg to Dr. Nikos Mikelis, Non-Executive Director GMS, a cash buyer of ships for recycling in Bangladesh, India, Pakistan and China.
Due to the current crisis in the global shipping industry, GMS has already concluded more than 75% of the total volume that the company negotiated during 2015. However, Mikelis said that the overall profitability in the industry has suffered a great deal given the "maddening volatility" in the industry that has led to a decline of over 50% in the value of scrap vessels over the last 18 months alone. Current prices for vessels in the sub-continent range from US$ 250/LDT for dry bulker vessels to US$275 – US$280/LDT for containers / tanker vessels.
Although prices have moderately recovered, they are still far lower than the highs of US$500/LDT seen over 18 months ago, according to Mikelis. Notwithstanding that, industry pundits seems to agree that current prices are the new norm and few expect any major shifts for the rest of the year, especially considering a volume of tonnage that is expected to be introduced during the fourth quarter of the year. This surplus is expected to keep prices in check as the economics of demand / supply come into play.
He added that the figures for 2015 show that the largest volume of ship recycling has taken place in Bangladesh, while the current numbers for 2016 show that Bangladesh and India are competing neck to neck.
When asked about the indications that the practice of reflagging vessels prior to selling them for scrap is becoming more popular, as the shipowners aim to avoid scrapping vessels at certified yards, Mikelis said that the reason why vessels that are sold for recycling need to be reflagged "is not because the shipowners wish to avoid scrapping vessels at certified yards."
He continued that the true reason behind this is the fact that when a vessel is sold on an 'as is, where is' basis, the original owner has to deregister it from the flag registry where after the new owner (the buyer) has to re-register it under his ownership so that the vessel can perform its international voyage to the agreed recycling yard. Otherwise, an international voyage cannot take place – the new buyer is obliged to change the flag once the purchase has been concluded.
Moreover, numerous owners who execute agreements with buyers mandate that the vessel will only be recycled at certified yards, sometimes narrowing the choice down to just yards that are specified in the agreements. So the belief that the practice of reflagging ships happens in order to circumnavigate such requirements is simply not true, said Mikelis.
In light of recent reports on incidents at the South Asian breaking yards, Mikelis said that there is continued progress being made towards the training of workers, so that their working conditions are increasingly safer at the ship recycling facilities.
"This has been achieved over the last few years at numerous yards located in Alang, India, as is Chittagong, Bangladesh making meaningful progress in this direction," Mikelis said, adding that "it is our ethical obligation to assist ship recycling yards to eliminate risks in the workplace, including the mitigating risks arising from workplace accidents. For this purpose, GMS conducts workshops at a number of yards in Alang, where workers receive relevant training on: the handling of hazardous wastes / materials, working in confined spaces and at heights, correct use of protective equipment, emergency evacuations and rescue plans, fire prevention and maintaining environmental awareness year-round. Our eventual goal is that all ship recycling yards employ safe work methods during the ship recycling process and provide adequate training to the yard workers for the prevention of accidents."
Volatility in container shipping freight rates is expected to remain very high as long as over-capacity and carrier industry instability continue, according to shipping consultancy Drewry.
Drewry's Global Freight Rate Index, a weighted average of spot container freight rates across all major routes except intra-Asia, swung back in July by 13% to hit US$1,403 per 40ft box. The global spot rate index had dipped to a record low of US$1,113 per 40ft container in April.
The 26% jump in the global rate index between April and July follows the recent tendency of ocean carriers to increase rates and to discontinue some unprofitable services on a number of routes.
Among the North-South trades, dismally low rates on the Asia-West Africa and Asia-South Africa routes are registering signs of reversal, with the start of the peak season. Rates from Shanghai to Lagos rose by 11% between May and July. A major reversal from rock bottom rates was registered on the Asia- South America trade, after carriers reduced the number of weekly services to three since May, causing a 243% increase in rates during March-July.
"At least on four of the 100+ routes monitored through the Container Freight Rate Insight platform, rates have bottomed out. In some cases, higher volumes generated by the peak season in Asia have contributed to the upwards correction of rates," said Drewry.
However, a number of major routes are still priced at rates which are 20-50% lower than the average of the last three years. These include the routes from both the US and Europe to Asia, the eastbound Transatlantic route and some intra-Asia routes.
On those five routes, rates generally remain in the range of US$500-1,000 per 40ft container, including Terminal Handling Charges at both ends. This means that the base ocean rate is often only US$100-500 per 40ft container.
"The bottoming out trend simply confirms that the earlier, extremely low rates were not sustainable, and that some carriers have changed their practices to reduce losses. But it does not mean that this is the beginning of a long upwards trend of rate increases, because chronic over-capacity has still not been addressed fully by the container shipping sector," Drewry added.
During the second quarter of 2016, the dry bulk market saw some improvements from the first quarter of the year, which was the worst quarter in the Baltic Supramax Index's (BSI) history, according to Norway-based dry bulk operator Western Bulk Chartering.
The index followed a remarkably similar pattern to last year albeit at much lower levels.
Rates ended the quarter around US$6,500/day, which was an improvement of 30% from the beginning of the quarter. As rates hovered around the US$6,000/day mark for the majority of the quarter, volatility levels dropped again.
The Atlantic basin was the main reason for the BSI uptick, with an increase of 88% to end at US$8,000/day. The Pacific basin was more subdued but still added 22% after a slow April and May, ending at US$5,850/day. The rates were helped by an increase in volumes of most commodities in the second quarter of 2016.
Volumes for major bulk improved with increased demand from China for iron ore and coal as a first quarter credit expansion in the country started to take effect. Global volumes for iron ore are up 5.3% quarter on quarter and 5.6% ahead versus year-to-date.
The world's Supramax fleet grew by approximately 0.8% net of scrapping in the second quarter of 2016. The annualized growth currently stands at 5% which is down from 6.6% at the end of the previous quarter. Supramax scrapping equaled 1.5 million dwt removed from the market as rates remained unattractive especially for older members of the fleet. Deliveries of new vessels came in at 3 million dwt delivered and order activity for new vessels remains virtually non-existent.
Although there were some improvements in the market during the second quarter, Western Bulk Chartering reported red ink with a net loss of US$11.4m in the period, against a net profit of US$1.6m seen in the same quarter a year earlier. For the first half of 2016, the company's net loss stood at US$18m, compared to a net profit of US$3.1m reported in the first half of 2015.
The company said that the Bulk Invest ASA bankruptcy in March had a negative effect on WB Chartering's ability to arbitrage the market in the second quarter of the year, thus putting a strain on the net time charter margin. The net TC result in the quarter was US$-5.4m for an operated fleet of 109 vessels, down from US$6.3m reported in the first quarter of the year for a fleet of 131 vessels.
In addition, the continued weak dry bulk market made it particularly challenging to find good opportunities in the spot market, according to Western Bulk Chartering.
The company said that the supply and demand balance is expected to remain challenging with a large number of vessels being delivered during 2016, adding that the near term outlook is a continued challenging market.
"The delivery of new vessels is expected to slow down from 2017, as ordering of new vessels has halted and the order book is rapidly declining with the new deliveries this year. Hence, the medium term outlook is a gradual improvement in rates, as long as the demand growth and the recycling of vessels are at a reasonable level going forward," said Western Bulk Chartering.
A steep rise in refinery capacity in the Middle East could diminish oil trade growth and with it prospects for tanker shipping, according to shipping consultancy Drewry.
The global crude oil trade, which surged last year on the back of strong growth in oil demand and stocking activity, is forecast to continue to expand strongly over the next 18 months supported by an anticipated rise in US imports.
But once US crude oil production stabilises and import growth recedes, the global oil trade will be heavily dependent on demand growth in Asia, where refinery capacity is scheduled to expand in the coming years. However, the bulk of refinery growth is expected to take place in the Middle East, accounting for as much as 70% of worldwide capacity uplift over the next few years.
With oil importing countries raising refining capacity at much slower rates, it leaves little growth prospects for seaborne trade. A recovery in US domestic shale oil extraction, which is a likely scenario from 2017, could dampen tanker shipping tonnage demand further.
As a result, Drewry forecasts that global seaborne crude oil demand growth will slow to an annual rate of 1.2% in 2019-21 from 3% currently.
"Slower trade growth by 2019-21 will negatively impact tonnage demand, which in turn will keep freight rates under pressure despite the expected slowdown in fleet growth," said Rajesh Verma, Drewry's lead analyst for tanker shipping.