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.
Already at the start of the second quarter of 2017 Asia's crude tanker market finds itself flooded with a flurry of newbuilds that hit the water over the last quarter, according to a report from Ocean Freight Exchange (OFE).
New tonnage delivered hit 15 million dwt in the first quarter and is expected to stand at 8.7 million dwt in the second quarter, OFE cited data from Lloyd's List Intelligence.
The gradual but steady unwinding of floating storage in global hotspots due to a flattening Brent futures curve is likely to release a constant stream of tonnage into the market, exacerbating the situation of oversupply.
The negative impact of unusually heavy refinery turnarounds in Asia as well as OPEC production cuts seems to have been offset by increased ton-mile demand from a surge in long-haul shipments, which has put a floor under tanker spot rates.
Amidst such bearish factors, a recent spike in long-haul trades from the Americas has provided a much-needed boost to the Asian very large crude carrier (VLCC) market. Around 27 VLCCs are headed to Asia in April, with not all cargoes confirmed.
"We might see some recovery in VLCC rates at the end of Q2 as peak turnaround season comes to an end and a slowdown in newbuild deliveries takes place," OFE said, adding that lower cargo flows from Iran and Iraq are expected to add downwards pressure to the Suezmax market in the second quarter of the year.
Despite the freight rate improvements that followed the collapse of Hanjin Shipping in late August, the average operating margins of 13 main container carriers remained negative in the second half of 2016, according to Alphaliner.
Due to the tough operating environment, only three carriers recorded positive operating results for the full year 2016, while the remaining ten carriers ended the year in the red.
After slumping to -9.2%, the average carrier operating margin of CMA CGM, China Shipping Container Lines, EMC, Hanjin, Hapag-Lloyd, Hyundai Merchant Marine (HMM), K Line, Denmark-based Maersk, Japan’s Mitsui O.S.K. Lines (MOL), NYK Line, Wan Hai Lines, Yang Ming Marine Transport, and Israel’s Zim Integrated Shipping Services (ZIM) stood at -1.2% in the fourth quarter of 2016.
South Korean carrier HMM recorded the worst operating results among the main carriers in 2016, as its container shipping business chalking up operating losses of KRW692bn(US$595m) for a full year operating margin of -18.5%.
HMM was therefore forced to undergo a financial restructuring exercise involving a debt-equity swap of KRW1.1tln, extension of the bond maturities of KRW0.8tln and charter rate adjustments of KRW0.43tln, as well as the disposal of various assets, Alphaliner informed.
The company will continue to rely on state support, including a government program to acquire and charter back HMM's ships with the loss from the sale to be recovered by HMM through capital injections by the Korean government.
Another container carrier, the Taiwan-based Yang Ming, also had to rely on state support after posting operating losses of TWD15.16bn (US$470m) for a negative margin of -13.1% in 2016.
The Taiwan government's National Development Fund (NDF) took a 6.4% stake in Yang Ming under a recapitalisation program in February 2017 that raised TWD1.69bn (US$54m) from six investors headed by the NDF. Alphaliner said that the NDF is expected to continue to support Yang Ming's subsequent capital raising programs.
Dry Bulk orders in China are beginning to proliferate - the cheap prices proving too tempting for many.
Chartworld Shipping has placed another kamsarmax order, signing a contract at Penglai Jinglu in northeast China for four 82,000dwt vessels, due for delivery in 2018 and 2019. The owner also ordered four 82,000dwt kamsarmaxes at Jiangsu New Yangzijiang in March.
At the same time, Torvald Klaveness has extended its existing series at Jiangsu New Yangzijiang, ordering an 83,563dwt kamsarmax, due for delivery in the final quarter of next year.
Hong Kong-listed Sinotrans Shipping has announced it has been informed by its parent, Sinotrans & CSC, that the strategic reorganization between China Merchants Group and Sinotrans & CSC has been completed.
Sinotrans & CSC has officially become a wholly-owned subsidiary of China Merchants while Sinotrans Shipping has become a listed subsidiary of China Merchants.
The merger aims to create economies of sale and synergies between the two groups in various sectors including shipping, logistics, energy, port and marine and offshore engineering.
China Merchants Port Holdings has announced that it has reached an agreement to transfer its entire 24.53% equity share in China International Marine Container (CIMC) to China Merchants Industry Holdings for about HK$8.54bn (US$1.1bn).
The move is part of plan to consolidate the two offshore yard businesses, a plan which according to a source close to the matter the two have been working on for a long time.
Splash reported last year that China Merchants Group and CIMC were in talks to merge their offshore businesses.
Li Jianhong, who used to serve as chairman of both China Merchants Group and CIMC, quit CIMC in December 2015 to focus on China Merchants. Li has led a number of mergers and acquisition deals for China Merchants, including the takeover of state-run Sinotrans & CSC.
Li said in a government conference earlier this year that China Merchants Group will accelerate the process of mergers and acquisitions, in a response to the central government’s plan to reform state-owned enterprises.
The merger could create one of the largest offshore yard groups in the world. CIMC operates three offshore bases in Yantai, Longkou, and Haiyang in Shandong and China Merchants Industry runs two offshore yards in Shenzhen and Haimen.
When contacted by Splash, spokespeople at both China Merchants and CIMC declined to comment on the issue.