Product tanker orderbook has slumped to its lowest level in nearly 17 years as it was equivalent to 10.2% of fleet capacity at the start of February 2017, a low not seen since August 2000, according to Clarksons Research.
At the start of February, the product tanker orderbook of 10,000+ dwt vessels stood at 321 ships of 16 million dwt. This is the lowest number of product tankers on order since 2001, following a sharp decline in the orderbook in 2016 when it fell by 9.2 million dwt, a drop of 35%.
While orderbook trends have differed between vessel sizes, the shrinking orderbook is expected to lead to slower overall growth in the product tanker fleet in the coming years.
Overall, the heavy newbuilding investment in 2013-15 led to rapid growth in the product tanker fleet of around 6% in both 2015 and 2016. This year, with the orderbook at the lowest level for a number of years, product tanker deliveries are forecast to fall to 7.7 million dwt, with fleet growth projected to ease to 4%.
However, some segments of the fleet are still expected to grow rapidly, with LR2 fleet expansion projected to exceed 8%. On the basis of vessels already on order, 5 million dwt of product tankers is expected to be delivered in 2018, taking fleet growth to just 2% next year.
"The product tanker orderbook has slimmed down to the lowest level for years and is now more evenly balanced between the sectors. Overall, it seems that the product tanker fleet is now entering a phase of more moderate growth," said Clarksons.
Amid a huge gap between supply and demand in the container shipping industry, carriers seem to be reluctant to fully seize the opportunity to narrow the difference, according to shipping consultacy Drewry.
Namely, the shipping companies are not expected to take the advantage and delay gratification as they still want to get their hands on big new ships as soon as possible for the kudos, market share and slot cost advantages they offer.
However, the rewards for delaying in the form of a better supply-demand balance leading to higher rates might prove too tempting to resist, Drewry said.
Newbuilding deferral offers the container industry a golden opportunity to smooth out the capacity peaks in the coming years.
2016 was the worst on record for new contracts of merchant ships with data from Clarksons Research showing that only 4 million gross tonnes of new orders were placed, down from 25 million gt in 2015 and from the five-year peak of 56 million gt in 2013.
Drewry informed that slippage is expected to be broadly similar in 2017 as it was last year.
"The lack of new business will see yards around the world…with an ever shrinking pile of work, which will almost run dry after 2018 without a sudden reactivation of the orderbook," the shipping consultancy said, adding that yards will probably have to offer very big discounts to attract new orders.
The vulnerable position of the shipyards gives containership operator-owners a window of opportunity to smooth out the delivery of the newbuilds to which they are committed and to massage the supply/demand balance more in their favour.
Danish shipping giant Maersk Line recently decided to push back the delivery of nine 14,000teu units originally due for delivery at the end of this year from South Korean shipyard Hyundai Heavy Industries (HHI) to end-2018.
Following Maersk's deferral there is around 1.6 million TEU worth of new container ship capacity scheduled for delivery in 2017, which includes some carried over from 2016.
"To ensure that the nascent recovery of the market is not scuppered carriers need to follow Maersk's lead by smoothing the supply-side pressures as much as possible by deferring new ships and scrapping more existing units," Drewry said.
Global ordering activity has slumped to 26-year low this January, according to shipbuilding data from Maritime & Trade by IHS Markit.
Specifically, demand for bulk carriers and gas carriers has plummeted as there were no booked orders in January. The appetite of shipowners for tankers over 10,000 dwt has also subsided as there were only 6 recorded orders. This is much lower when compared to figures from 2016, which was an already dire year for newbuild orders, when 16 tankers were ordered.
The situation on boxship market was also similar, as there were only three orders placed for 2,150teu container vessels, also down from five ordered in 2016.
Owners and operators are refraining from new orders as they battle low freight rates prompted by oversupply in both container and bulk shipping. What's more, increased capacity of tankers resulting from the delivery boom in mid-to-late 2016 has exerted negative pressure on oil and gas shipping. This resulted in lower freight rates and significant competition between shipowners to attract good charters, Maritime & Trade Analyst Devlin McStay says in a commentary.
"Most orders being placed at present are for specialised, high-value ships," according to McStay. "For example, the three box ships ordered by Eimskip/Royal Arctic Line are for operation in Arctic conditions and, in principle, will operate outside mainstream, over-tonnaged markets."
As explained, the significant slump in shipbuilding orders comes as little surprise, given the prolonged period of over-tonnaging in many key shipping markets.
On the other hand, owners with substantial cash on their hand are availing of the attractive newbuilding prices brought about by the ongoing market downturn.
"The very few 'conventional' ship orders placed in January, such as a pair of VLCCs for Norwegian owner DHT, represent a savvy owner with a long-term viewpoint taking advantage of very low newbuilding pricing," McStay adds.
The shipping industry's total employment contribution has increased to 2.1 million people while the total GDP contribution is estimated to have been EUR 140 billion in 2015.
The European Community Shipowners' Associations (ECSA) update on the economic value of the EU shipping industry, commissioned from Oxford Economics, shows that the sector directly employed 640,000 people and supported an EUR 57bn contribution to GDP in 2015.
ECSA's report further indicates that, at EUR 89,000 per worker in 2015, productivity in the EU shipping industry remains above the EU average.
"The latest Oxford Economics figures underline that shipping remains a solid contributor to the European agenda of jobs and growth," said Patrick Verhoeven, ECSA Secretary General.
"Compared to 2013 figures, we see a modest increase in both employment and value-added figures."
The Oxford Economics report finds that around four-fifths of direct employment occurs at sea. Officers account for an estimated 42% of positions at sea, and ratings 58%. 40% of the 516,000 seafarers employed in the EU shipping industry are estimated to be EU/EEA nationals.
"Although it is an estimated figure, the percentage of EU/EEA seafarers appears to remain fairly stable," Verhoeven said, adding that this is a positive sign, given the challenging market circumstances most European shipping companies still operate in.
SK Shipping has become the latest korean line to announce a major restructuring.
South Korea's fourth largest shipping firm will split its shipping and non-shipping units from April 1. SK Maritime, a new entity, will take over SK Shipping's non-shipowning duties such as bunkering. SK Shipping is on track to post losses of over US$150m for the full year 2016. It is part of the SK conglomerate or chaebol that is also a big name in South Korean oil refining and telecommunications. The line has also revealed it has cancelled the period charters of 20 ships in recent months.
Despite calls from many luminaries in dry bulk for the sector to get back to scrapping, owners simply are not listening.
Clarkson Research notes in its most recent weekly report, for instance, that capesize recycling has dropped by more than 50% on an annual basis in tonnage terms with 2.1m dwt reported scrapped in 2017 so far.
"The improvement in freight rates in the dry bulk market in 2017 so far has been sufficient for owners to continue trading their oler vessels," Clarkson Research reported, suggesting bulker demolition is likely to remain "muted".
Nevertheless, very decent rates are on offer from south Asia. Lion Shipbrokers reports, for example, the Cape Tavor, a 1999-built ship, has just achieved a firm US$346 per ldt from recyclers in Bangladesh.
As containership deliveries slumped from the record 1.7 million TEU in 2015 to just 0.9 million TEU last year, the boxship sector could enter a new era of less robust fleet growth if deliveries remain at moderate levels, according to Clarksons Research.
The slowdown in boxship deliveries in 2016, alongside record levels of demolition, led to fleet growth of just 1.2% during the year, down from 8.1% in 2015. The volume of containership capacity delivered in 2016 was the lowest since 2004 and dropped by 46% y-o-y to 127 vessels of 903,662 TEU.
Deliveries in 2016 were concentrated in the larger sizes, with 89% of delivered capacity accounted for by the 8,000+ TEU sector, the highest level on record. However, delivered capacity in the 8-12,000 TEU sector declined 53% y-o-y, while deliveries in the 15,000+ sector dropped by 50%.
In the sub-8,000 TEU sector, deliveries declined 52% y-o-y to just 102,536 TEU in 2016, reflecting limited ordering in this size range in recent years, and overall in 2016 the sub-8,000 TEU fleet declined by 4.8% in terms of capacity.
Clarksons Research said that current projections suggest that deliveries in 2017 may accelerate from 2016 levels, boosted by the surge in mega boxship contracting in 2015. Deliveries in the 15,000+ sector this year are expected to be fairly similar to 2015 levels, which is likely to present continued challenges to operators managing capacity on the mainlanes.
However, overall delivered capacity is projected to remain below the 2015 level, with very limited deliveries projected in the mid-size sectors. Deliveries into the smaller sectors are projected to rise from a year earlier, although remain at a historically subdued level. In 2018, total boxship deliveries are forecast to remain relatively steady y-o-y, Clarksons Research said.
The number of cars carried by ferries increased by 1.7% from 8.6 million in 2015 to nearly 8.8 million in 2016, marking the fourth successive year of growth, according to Discover Ferries, the industry body for ferry operators.
Representing 11 ferry operators in the UK and Ireland, Discover Ferries reports that growth for car travel by sea is up by 473,000 in the past four years from just 8.3 million car crossings by sea in 2012.
The industry body confirmed that the biggest growth in ferry travel in 2016 came from an increase in domestic travel within the UK. Total passenger ferry journeys within the UK rose from 16 to 16.7 million and the number of car carryings increased from 3.7 to 3.9 million year-on-year.
Travel in Scotland, particularly in Western Scotland, performed well in 2016 as the number of passengers travelling by ferry increased from 5.9 to 6.5 million, together with 1.79 million cars.
The Isle of Man, with 557,000 passengers and 177,000 cars, and the Isle of Wight, with 8.8 million passengers and 1.8 million cars, also saw strong traffic. More than 300,000 people also visited the Channel Islands with 84,000 car journeys by sea last year.
Ferry travel between Great Britain to Ireland and Northern Ireland totalled 4.7 million passengers last year and 1.2 million cars, representing a rise of 1.3%.
3.6 million Cars to Western Europe
In total, ferry travel accounts for one in ten travellers to Western Europe. Up to 14.6 million passengers travelled between UK and France by ferry, while the Netherlands welcomed more than 1.8 million passengers by sea in 2016. Belgium and Spain both welcomed more than 310,000 and 320,000, respectively.
Last year, 3.65 million cars were carried on ferry routes between the UK and the near continent. More than two million of these cars travel via Dover, one million via Western Channel ports including Newhaven, Plymouth, Poole, Portsmouth and Weymouth and a further 450,000 cars are carried via Hull, Harwich and Newcastle.
"Over the past decade our ferry members and partners have constantly innovated and invested to ensure travel by sea is as superb experience and it's exciting to see the results of that work coming through in our 2016 results," said Bill Gibbons, director of Discover Ferries.
Clean product tankers are likely to benefit from the implementation of the global 0.5% sulphur emissions cap as of 2020 driven by the demand for new fuel oil, McQuilling Services brokerage and consultancy writes in its industry note.
As disclosed, the forthcoming cap may materially alter trade flows of fuel oil and middle distillates in 2020 and beyond as a new bunker fuel blend containing fuel oil components and gasoil is expected to enter the market.
"Assuming this new fuel will be classified as a clean product, we anticipate a material rise in ton-mile demand for product tankers, with a bias towards larger tankers (LR2) for expected long-haul transportation requirements," said the consultancy firm.
Considering the current global refining complex, East of the Suez markets are likely to be self-sufficient and meet regional demand while Western markets with less complex refining systems (Europe, Latin America and FSU/Russia) will likely switch and become net importers of the new bunker fuel.
The Middle East is projected to produce 2.81 million b/d of gasoil by 2020/21, which is 34% more than regional demand; thus McQuilling foresees this region as being a large export center for gasoil, boosting tanker demand.
"In fact, we are likely to see Middle East exports rise substantially to Europe, as well as potentially to more distant markets in the Americas," added the firm.
However, there are still some uncertainties with regard to the implementation of the regulation and its impact on gasoil having in mind that some owners are still taking a "wait and see" approach and considering the use of scrubber technology on their ships.
"Increasing use of scrubbers will likely lead to higher demand for HSFO, as opposed to gasoil and relieve pricing pressure on HSFO, decreasing the spread between these two options. With a narrower spread there is less of an incentive to install the system, particularly for vessels with a shorter trading life on the horizon. As such, we expect the minority of these owners to actually follow through on scrubbers," the industry note further adds.
Furthermore, McQuilling anticipates an accelerated level of deletions/scrapping in the beginning of 2018 bringing some ease to oversupply and supporting freight rates.
2016 was a busy year for global ship recycling, especially when it comes to boxships and bulkers. What's more, shipbreaking is expected to remain at elevated levels this year as well, bringing some ease to the shipping industry plagued by oversupply, according to Clarksons Research.
In 2016, a total of 933 ships of a combined 44.4 million dwt were recycled. This was a year-on-year increase of 14% and equivalent to 2% of the start 2016 world fleet in dwt terms, Clarksons said.
Bulker and containership recycling activity was very strong in 2016 and accounted for 65% and 18% of total demolition respectively in terms of dwt. The 0.7 million TEU of boxships scrapped was 48% higher than the previous peak in 2013, while the 28.9 million dwt of bulkers scrapped in 2016 was the second highest yearly total on record.
Demolition activity reached firm levels despite continued downward pressure on steel prices from cheap Chinese steel exports. The Indian Sub-Continent (ISC) guideline scrap price for Handysize bulkers stood at US$290/ldt (light displacement tonnage) at the end of 2016, 28% lower than the end of 2012, when total scrapping peaked, Clarksons data shows.
The proportion of tonnage sold for scrap to ISC breakers jumped to 79% in 2016, the largest share in the past decade. ISC breaking yards recycled 656 vessels of a combined 40 million dwt in 2016.
Indian breakers experienced a resurgence after a comparatively slow 2015, with 340 ships of a combined 12.5 million dwt recycled in 2016. This led their share of total demolition to rise from 20% in 2015 to 28% in 2016 in dwt tonnage.
Recycling volumes at Pakistani breaking yards were steady year-on-year in 2016, with 117 vessels of a combined 8.9 million dwt recycled. However, a number of fatal incidents at yards towards the end of the year caused temporary closures.
On the other hand, Bangladeshi breakers saw their share of world demolition decrease from 35% to 31% over the same period. However, taking into account dwt tonnage, they still represented the largest share of demolition activity, scrapping 199 vessels of a combined 13.6 million dwt in 2016.
In addition, Chinese breakers recycled 111 ships of a combined 4.9 million dwt in 2016, 11% of the world total and a year-on-year decrease of 25% in dwt terms. Green recycling facilities in China have benefited from the domestic scrap subsidy introduced in 2013, with domestic owners accounting for 87% of tonnage recycled at Chinese yards. However, domestic scrapping fell 31% year-on-year in 2016 to 4 million dwt.
Turkey scrapped the most vessels of any other nation in 2016. A total of 84 ships totaling 0.9 million dwt were recycled at Turkish yards, representing 2% of global demolition.
Looking ahead, increased pressure to ensure safer and greener ship recycling may have a future impact on the breaker landscape, Clarkson predicts. However, with around 40 million dwt currently forecast for demolition in 2017, scrapping activity is likely to remain high.