Amid a rapid growth in the mega boxship fleet, and nearly a year on from the opening of the new expanded locks of the Panama Canal in June 2016, the fleet of giants surged by 29% y-o-y in TEU terms, Clarkson Research informs.
The 15,000+ TEU mega boxship fleet has expanded rapidly in recent years and at the beginning of May it stood at 76 ships of 1.4 million TEU.
Deployed solely on the Asia-Europe route, and representing 36% of capacity on the route at the start of May, up from 27% a year earlier, growth in the 15,000+ TEU fleet has caused cascading of smaller, but still relatively large, containerships off this trade.
The rising proportion of 8-12,000 TEU vessel capacity deployed on the Transpacific is owed in part to the displacement of these units from the Far East-Europe route and new deployment opportunities on Asia-US East Coast routes via the new expanded locks at the Panama Canal.
In May 2017, 8-12,000 TEU ships accounted for 54% of deployed capacity on the Transpacific trade, whereas the 3-8,000 TEU sector, including old Panamax ships, accounted for 32%. This compares to 52% and 40% respectively one year earlier.
From around mid-2016, the cascade of larger units onto Transpacific routes has also been supported by firm trade growth.
"The ongoing delivery of mega boxships, trade growth and infrastructure capability are all important drivers of deployment. These factors are shifting all the time, and to keep track of vessel sector trends market watchers must still keep a close eye on cascading," Clarksons said.
The shipping industry will have to commit to more ambitious policies, and fast, if it wants to get on track with the adoption of clean technologies and meet the energy efficiency design index (EEDI) requirements, the International energy Agency (IEA) said.
Namely, in its latest report titled "Tracking Clean Energy Progress: 2017” the agency said that the international shipping industry is not on track with meeting the 2°C scenario targets by 2025.
"Meeting the 2DS requires the global shipping fleet to improve its fuel efficiency per vehicle-km at an annual rate of 2.3% between 2015 and 2025. Yet, the EEDI of the International Maritime Organization (IMO), applying to new ships only results in a fleet average improvement of 1% to 2025," the report reads.
Despite the fact that the IMO has made progress in agreeing on regulations on reducing sulphur oxide (SOx) and nitrogen oxide (NOx) emissions from ships, its GHG policy is still under consideration, with an initial GHG strategy expected by 2018, which will be a stepping stone to the final strategy expected by 2023.
"Implementing IMO's final GHG strategy only by 2023 will have very little impact on the possibility of meeting 2025 2DS targets," the IEA stressed.
"Getting on track with the 2DS requires an annual efficiency improvement of 1.9% MJ per vehicle kilometre (MJ/vkm), and 2.3% MJ per tonne kilometre (MJ/tkm), between 2015 and 2025. This can be achieved by exploiting the efficiency improvement potential for new and current ships and the adoption of operational improvements. Efficiency technologies available today could roughly halve the average fuel consumption per vehicle kilometre of new ships (IEA estimate based on Smith et al., 2016). This will need to be complemented by the use of advanced biofuels."
As a result, for 2017 the agency has recommended several steps for the sector to up its game on the matter including strengthening of enforcement mechanisms for emissions from ships and the EEDI, including inspections, sanctions and legal frameworks, to ensure compliance with IMO measures.
In addition, the IEA believes that the industry should stimulate the engagement of ports in encouraging GHG reductions in ships, e.g. with bonus/malus schemes supporting clean ships from fees applied to ships with poorer environmental performances, and introduce carbon taxes on shipping fuels based on their life cycle GHG emissions.
A global sulphur cap of 0.5% on marine fuels is scheduled to come into force in 2020. Meeting this cap will require significant changes in the fuel mix and may lead to higher maritime fuel prices.
According to IEA, heavy fuel oil (HFO) currently still holds the biggest portion in the fuel mix with 84% percent stake. In order to cut the C02 emissions this would have to be desulphurised or replaced by low-sulphur diesel, LNG, biofuels or other synthetic fuels. Alternatively, vessels will need to be equipped with scrubbers to reduce emissions of SOx.
Monaco-based tanker owner Scorpio Tankers revealed it has entered into definitive agreements to merge with Marshall Islands-incorporated petroleum products shipping company Navig8 Product Tankers and acquire Navig8's 27 operating vessels.
Under the agreements, Scorpio will acquire four LR1 tankers prior to the closing of the merger. The remaining 23 ships will be acquired upon the closing of the merger in exchange for the issuance of 55 million shares of Scorpio common stock to the Navig8 shareholders.
The fleet of 27 eco-design product tankers is comprised of 15 LR2s and 12 LR1s with a weighted average age of 0.9 years and a total carrying capacity of approximately 2.6 million dwt.
In connection with the LR1 vessel acquisitions, Scorpio said it will pay cash consideration of USD 42.2 million, which is net of assumed debt. This cash is expected to remain with Navig8 through closing and will form part of the balance sheet of the combined company, subject to the terms and conditions of the merger agreement.
What is more, Scorpio has launched an underwritten public offering of up to USD 200 million of its shares of common stock. Scorpio also intends to grant the underwriters a 30-day option to purchase up to USD 30 million additional shares of its common stock. Scorpio Services Holding Limited, a related party of Scorpio, is interested in purchasing at least USD 20 million of Scorpio's common stock in the offering, according to the company.
As disclosed, the net proceeds of the offering are expected to be used to provide cash to further strengthen Scorpio’s balance sheet and enhance liquidity, for the payment of costs related to the merger, to fund the purchase price of the LR1 vessel acquisitions, and the remainder, if any, for general corporate purposes.
Based on Scorpio's closing price on May 22, 2017, the consideration reflects a total equity value for Navig8 of approximately USD 228.8 million and a total enterprise value of approximately USD 1.1 billion, including the assumption of debt.
The merger has been unanimously approved by the board of directors of Scorpio as well as by the board of directors of Navig8.
The completion of the merger, which is expected to close in the second or third quarter of this year, is subject to the completion of the offering and relevant conditions, Scorpio said.
Following the completion of the merger which would provide Scorpio with "substantial economies of scale", the company’s operating fleet will consist of 105 owned or finance leased tankers with a weighted average age of approximately 1.9 years, and 19 time or bareboat chartered-in tankers.
In addition, Scorpio has six newbuilding MR product tankers under construction which are slated for delivery throughout the remainder of 2017 and first quarter of 2018. Scorpio has also entered into an agreement to sell two MR product tankers, which is expected to close in June 2017.
Carriers' overall on-time and transit time reliability decreased in April as the great migration of vessels ensued amid launching of the mega ocean shipping alliances, 2M, OCEAN Alliance, and THE Alliance on April 1.
Namely, the on-time reliability in April decreased to 59% from 63% in March 2017, according to the latest data provided by intelligence provider CargoSmart.
During the six-month period, January experienced the lowest reliability of 56%, while November had the highest reliability of 70%.
South Korean shipowners have placed orders for the construction of thirteen vessels at Chinese shipyards so far in 2017, with only seven ships ordered at domestic yards, Yonhap News Agency cited industry sources as saying.
In total, twenty ships have been ordered by South Korean shipping companies until now.
When compared to 2016, the country's shipowners ordered 26 vessels, 22 of which were placed at compatriot yards.
Contrastingly, China's shipping firms decided to award all of their orders to domestic shipbuilders. In addition, shipyards in Japan secured orders to construct four out of six ships for compatriot shipping firms.
However, compared to last year's weak ordering streak, South Korea's top three shipbuilders, Hyundai Heavy Industries (HHI), Daewoo Shipbuilding & Marine Engineering (DSME) and Samsung Heavy Industries (SHI), seem to have made a major comeback to the shipbuilding scene as owners rushed to avail of attractive VLCC prices.
Yonhap reported earlier that South Korean shipyards surpassed their Chinese rivals in April. Referring to Clarkson Research Institute's data, Yonhap informed that Korean yards won orders worth a combined 340,000 compensated gross tons (CGTs) to build twelve ships during the month. On the other hand, yards in China received in April orders estimated at 260,000 CGTs to construct 13 vessels.
Despite being the preferred option for responsible ship recycling when compared to South Asia's shipbreaking yards, Turkey's Aliaga-based breaking yards still face considerable challenges including high accident rate.
Furthermore, there is a low level of awareness of occupational diseases at the Aliaga yards, according to NGO Shipbreaking Platform.
"NGOs and local labour rights groups, including Platform partner Istanbul Health and Safety Labour Watch (IHSLW), are concerned about the high accident rate and the low awareness of occupational diseases at the Aliaga yards. As in South Asia, trade union organisation remains weak in Aliaga," the platform said.
What is more, as explained by the NGO, the landing method which is used in Turkey "also poses environmental challenges as the risk of slag and paint chips falling into the water is high."
However, the platform pointed out that through engagement with NGOs and labour rights groups, the Turkish Ship Recyclers Association remains attentive to constantly improving the industry practice.
To that end, several of the yards in Aliaga have applied to be on the upcoming EU list of approved ship recycling facilities.
"In order to make it on the EU list, the yards will be subject to critical assessment of their environmental and social performance," the platform added.
In 2016, Turkey dismantled 92 ships, including several drill ships and platforms. In comparison to South Asia, Turkey dismantles smaller vessels, many of them either EU-owned or EU-flagged. Aliaga is also a preferred destination for EU navy vessels, the platform's data shows.
Greek shipowners placed the highest number of newbuilding orders so far this year, as these companies ordered a total of 35 new bulkers and tankers since the start of 2017, according to VesselsValue.
Globally only 119 orders have been placed. Greece leads the way, followed by the US with 14 new contracts and Singapore on the third place with 10 new ships on order. Additionally, Norway has contracted eight and the Netherlands six new ships.
Greek Chartworld Shipping placed the majority of orders with 14 newbuilding contracts, 12 of which are for bulk carriers and two for tankers. The country’s Enesel SA, TMS Tankers, Capital Maritime and Trading each ordered four tankers, followed by Maran Tankers which ordered three ships of the kind.
Additionally, Neda Maritime, and Metrostar Management Corp ordered two tankers each, while M Maritime Corp placed orders for two bulk carriers.
"Many in the shipping industry are worried that there is an imbalance of supply and demand between the number vessels currently on the water and the amount of cargoes. This situation does not look to improve in the near future as there is just under 66 million dwt of tankers and bulkers to be delivered during the rest of 2017, representing 47% of the current bulker and tanker order book," VesselsValue informed.
Over the last five years, a major source of finance and investment in the newbuilding market came from the private equity sector. Today the preference from the private equity sector is to invest in tonnage already delivered and on the water so that an immediate return on their investment can be realised, according to VesselsValue.
This led to a lack of newbuilding finance available and resulted in a gap in deliveries at the major shipyards and therefore increased appetite from them to take orders.
"As we progress through 2017, yard capacity has reduced but continued buying demand from the private sector remains. This is one of the major factors that has led to the increase in newbuilding prices over the past 5 months," VesselsValue said.
The outlook for the global shipping industry is stable, given that — after excluding M&As and spinoffs — the aggregate EBITDA of rated shipping companies will remain at similar levels in 2017 as last year, according to Moody's Japan K.K.
Unlike 2016, when the industry saw double-digit EBITDA declines, the operating environment has bottomed and earnings will remain stable, although at a low level during 2017, the rating agency said. However, a material level of industry-wide earnings growth will be beyond the 12-month horizon.
Moody's further notes that the continued scrapping of Panamax-class vessels driven by the expansion of the Panama Canal and of older ships driven by tightening environmental regulations are likely to continue, partly offsetting global capacity expansion, a credit positive.
As explained, further driving the stable outlook for the global shipping sector are signs of a recovery in the dry bulk and containership segments.
"Market conditions are still weak, but are unlikely to worsen from the levels seen for both segments in 2016, and we expect that supply growth will exceed demand growth by less than 2%, or within our parameter for a stable view. Freight rates in these two segments will also gradually increase," Moody's said.
For the dry bulk segment, the view is stable amid improvement of freight rates on the back of a decrease in order books combined with continuous demand from China.
"Our view on the containership segment is also stable, as supply growth will continue to outpace demand growth in 2017, causing freight rates to remain low, but higher than last year's levels," the agency pointed out.
Meanwhile, the agency's outlook on the tanker segment is negative, reflecting high supply and low freight rates. Namely, the segment faces very high levels of scheduled deliveries for 2017 and 2018, a credit-negative development because it will keep freight rates low over the coming 12 months.
"For the shipping industry generally, we would consider changing the outlook back to negative if we see signs that shipping supply growth will exceed demand growth by more than 2% or that aggregate EBITDA will decline by more than 5% year over year. Downside risks remain high.
Conversely, we would consider a positive outlook if the oversupply of vessels declines materially and aggregate year-over-year EBITDA growth appears likely to exceed 10%," Moody's concluded.
Recovery in the crude tanker shipping market is not expected until 2020 as weak trade growth and a bloated orderbook limit any rate recovery, shipping consultancy Drewry said.
The timing of recovery will depend on the extent of scrapping activity, is expected to gather momentum towards the end of 2017, once the International Maritime Organization's (IMO) ballast water convention is implemented.
Since some owners might bring special surveys forward, the real impact of the IMO regulation will not be seen until 2018, according to Drewry.
In the existing fleet, there are about 20 million dwt of vessel capacity aged 19 years or more, for which the fifth special survey is due during 2017-22, all of which could be scrapped during the period, as unattractive freight rates, poor employability and the additional cost associated with complying with the regulations will force owners to scrap them.
Additionally, there are about 367 vessels of 67 million dwt for which the fourth special survey is due during 2017-22. As these vessels are currently in the age range of 14-19 years, owners will have to decide whether to scrap them before they are due for their next survey as the owners will have to incur the additional cost of fitting ballast water treatment systems (BWTS) as well as scrubbers required to comply with IMO regulations on sulphur limits.
If about a third of these vessels are demolished during the forecast period, the recovery in tanker freight rates will not start until after 2019. However, the extent of actual demolitions will be a crucial factor for deciding how quickly the market recovers.
"We expect the market to start a gradual recovery from 2020. For any recovery before 2020, demolitions need to be strong enough to keep fleet growth slower than demand growth," said Rajesh Verma, Drewry's lead analyst for tanker shipping.
The outlook for dry bulk shipping remains positive as the gap between supply and demand is set to continue shrinking over the next five years, while charter rates are expected to improve gradually, shipping consultancy Drewry informed.
With high demolition activity and low deliveries the fleet would grow at a slow annual rate of 1% over the five-year period, while tonne mile demand will grow at a faster pace of around 3% per annum.
The Chinese government's stimulus package in 2015 supported steel production last year and is likely to aid the steel industry over the next two years. The relative cheapness of imported coal (cfr) over domestic coal makes room for increased coal imports, supporting the rally in rates for the rest of the year.
However, the declining cost of producing energy from renewable sources and the general acceptance that COP21 may reduce the use of coal as a major energy source are threatening the dry bulk shipping trade. Although the share of renewables in total energy production is quite low for most major economies, any shift away from coal could hamper the dry bulk trade over the medium term, Drewry said.
Looking at demand, Drewry has identified three concerns that might impact dry bulk shipping rates in the near future. First, the National Energy Administration of China plans to increase coal consumption by only 0.7% annually over the next four years, and plans to meet its energy production targets by making coal use more efficient.
China also plans to cut down on excess steel capacity by 100 million tonnes over the next five years by shutting down illegal, sub-standard, steel-making units. The combined efforts of China and India to increase the share of renewables in their energy mix could bring down the dry bulk market to an era of negative growth in the short to medium term.
Additionally, India plans to increase its thermal coal power generation to 236 GW in 2022 from the current 186 GW, a rise of 4% annually. To produce 236 GW thermal coal power in 2022, India will require 159 million tonnes of imported coal, meaning an annual fall of 1.8% in imports.
"The rationale for using demand to create scenarios finds its logic in the fact that the dry bulk market has become more demand-dependent than ever before," said Rahul Sharan, Drewry's lead analyst for dry bulk shipping.
"However, for the time being the impact of renewables on coal trade is not likely to be significant as its share of the global energy market remains very low," Sharan said, adding that Drewry expects its base case to prevail which will see the dry bulk shipping market continue to improve, "albeit at a moderate pace."