The expected expansion of the chemical shipping fleet in 2017, driven by the large number of orders placed in previous years, will continue "squeezing rates on major routes over the next two years," said shipping consultancy Drewry.
Time charter rates weakened in 2016, especially for larger tankers, and freight rates on major long-haul routes dipped. Although the trade volume from the US to Europe and Northeast Asia surged in 2016, the appearance of speculative vessels brought rates down.
Although the fleet will continue to expand, growth will be subdued compared to 2015-16, Drewry informed. While deliveries and ordering have reduced in 2016, there are still many ships scheduled to be delivered in the next five years because of heavy ordering during 2014 and 2015.
More demolitions are expected because of new regulations that will come into force in 2017. Coupled with the implementation of the Ballast Water Treatment System (BWTS) in September 2017, the adoption of the global 0.5% sulphur cap may potentially accelerate the rate of vessel demolition towards the end of 2020. However, "this is likely to have little impact on fleet supply," as most of the older ships are of less than 10,000 dwt, and thus, the capacity that can be scrapped will be a small percentage of the total fleet.
"We expect fleet oversupply to persist in 2017 and time charter rates for larger ships, especially MRs, to decline because of stiff competition. However, rates for vessels in the smaller categories are likely to remain stable in 2017," said Hu Qing, Drewry's lead analyst for chemical shipping.
"The chemical fleet grew by 5.2% in 2016 and is expected to expand by 3.3% to the end of 2017, which will continue squeezing rates on major routes over the next two years. New orders and deliveries are also expected to decline further because of the depressed market and financial woes of shipyards," Qing added.
The world merchant fleet rose by 3.1% in tonnage terms to hit a record high of 1.3bn gt.
"While annual fleet growth has dropped from a peak of 8.6% in 2010, today's fleet still represents 50% more tonnage in the active fleet compared to 2009 and the aftermath of the financial crisis," the London-based analysts said.
Also of note in the report is the following statistic: newbuild contracting activity fell to its lowest level in more that three decades, with just 542 orders of 19.3m gt reported, down 70% on an annual basis.
Scrapping volumes jumped 25% YoY last year to 29m gt, with strong container (7.6m gt) and bulk carrier recycling (15.8m gt).
The heads of Japan's three largest shipping lines addressed their employees today as the nation headed back to work. The mood among the three was decidedly sombre, albeit with a grim determination to transform their giant corporate structures to better serve a changed world economy. All three also spent much time outlining the rationale for the shock move announced last October to merge their boxship divisions to compete with other global liners.
"In no sense can we be optimistic about the coming year," Eizo Murakami, president and CEO of Kawasaki Kisen Kaisha (K Line), warned in his address.
Murakami said the planned box merger – due in 2018 – was down to the fact that "competitors cannot be defeated without significantly higher cost competitiveness".
"Our new containerships business strategy for the future will be as follows," Murakami explained, "To fight equally with overseas competitors that pursue economics of scale by applying cost competitiveness generated from the size of our combined fleets and integrated systems together with the sales competitiveness each of us has developed over the years."
Murakami's peer at Mitsui OSK Lines (MOL) also touched on the merger as well as outlining how he sees MOL positioning itself in the coming decade during his speech today.
"The integration of the three companies will give us a foundation to compete with the world's leading mega-carriers. That is why I expect the new company to pursue integration synergies and become a leaner, stronger business enterprise," said Ikeda.
Ikeda, who heads up the world's second largest shipping line by fleet size, said he felt both the container and dry bulk markets were bottoming out.
He proceeded to give employees a vision of how MOL will develop in the coming years.
"My vision of MOL 10 years from now is a group with a strong presence as the world's top logistics partner," Ikeda said.
"I believe that changes in the business environment, notably the slow trade phenomenon, are not short-lived trends," he elaborated, "They reflect a long-term structural change in global trade. Faced with structural changes in the world economy, we cannot break through this impasse by relying on the methods and strategies of the past and outmoded rules of thumb."
As a result Ikeda called for reforms at MOL with what he described as "bold, flexible thinking that breaks from the past".
"Please remember that the environment, ICT, and technological development hold the key to our future," he said, adding, "Corporations can rise above the competition only if they thoroughly analyze their customers' industries, venture into customers' value chains and identify unmet needs, explore how they can add value, and steadily propose solutions that deliver value."
For his part, Tadaaki Naito, the president of Nippon Yusen Kaisha (NYK), instructed his staff to get Japan's second largest shipping line back on a more even financial keel.
"We need to be fully aware of the fact that shareholders are very troubled with our decision to not pay a dividend for the first time in 52 years," Naito warned.
The welcome surge in dry bulk market's spot earnings at the end of 2016 is unlikely to last long into 2017, according to Maritime Strategies International (MSI), which predicts a depressed year for rates.
While iron ore trade undershot its expectations, coal trade overshot them with geographical imbalances playing a key role. However, MSI believes the short term support factors will have unwound in a matter of weeks.
Chartering of Capesize vessels for iron ore out of Brazil and Australia for January loading had slowed before year-end, dragging down spot rates. French nuclear power capacity is set to resume output in January, placing downwards pressure on Panamax coal demand, coinciding with a slowdown in grains trade from the US Gulf, MSI informs.
"In our Base Case there is little to suggest any significant changes to the market through the remainder of 2017 and it is MSI's view that freight rates will remain depressed. Overall, we forecast deadweight demand growth will broadly match supply growth at around 3-3.5% year on year," said Will Fray, Senior Analyst at MSI.
"On this basis we see little reason for freight rates to move meaningfully, other than for short-lived or localised spikes," he added.
In the longer-term, MSI forecasts for 2018 and beyond are still positive but have come down since the last update, mainly as a result of a slightly more bearish view of Chinese steel production, iron ore imports and European coal imports.
After 2016 brought a number of records, most of them of a gloomy nature, the year may well be seen as one in which the container shipping field started to tackle its problems head on, according to Clarksons Research.
The container shipping sector has spent much of the post-financial crisis era under severe pressure and, as many expected, 2016 proved no real exception, Clarksons noted.
Box freight rates in general remained weak, and the SCFI Composite Index averaged 18% lower in 2016 than in 2015. However, by late in the year it appeared that spot freight rates might be bottoming out on some trade lanes.
Against this backdrop, charter market vessel earnings remained extremely challenged, at bottom of the cycle levels. Nevertheless, sector fundamentals appeared a little more positive in 2016, according to Clarksons. Demand conditions improved, with global volumes expanding by an estimated 3% in the full year to 181 million TEU.
At the same time, containership capacity growth slowed significantly in 2016, reaching just 1.2% in the full year. Deliveries plunged to 0.9 million TEU from 1.7 million in 2015, while demolition surged to a new record of 0.7 million TEU.
However, given the level of surplus built up, and in particular the impact of the delivery of substantial capacity, much of it in the form of new megaships, "the improved supply-demand balance seen last year was not enough to generate any significant improvement in market conditions" as the idle fleet stood at around 7% by the end of 2016.
"Further recalibration still appears to be necessary to generate better markets," Clarksons said. However, 2016 might also be seen as the year in which the sector finally started to lay real foundations for a better future. Demolition hit a new record, and financial distress and regulatory requirements are expected to drive further recycling, while ordering of newbuild capacity dropped to just 0.2 million TEU during the year.
Fleet management has never been more important than now, argues Michael Paarups, the managing director of maritime software firm Logimatic.
"As the maritime industry faces changes and challenges, fleet management is more important than ever," said Paarups.
Logimatic is promoting Sertica, a software solution for maintenance, performance, procurement and HSQE. Sertica provides an overview of the entire fleet and secures a stable communication and data management between the main office and the vessels.
Paarups says that Sertica is probably the market's most dynamic and flexible solution for maintenance, performance, HSQE and procurement. It provides tailored modules to handle input data on-board vessels and synchronisation with the company office. It displays the data in user-friendly dashboards presenting graphs and trends to act upon. The software is complemented with on-going consultancy from experts who know and understand the maritime business.
When it comes to shipping's digital transformation, a hot topic on this site in recent months, Paarups reckons the sector is going through a "slow revolution", which he quips in the maritime industry is actually fast.
"Trends are moving towards cloud-based technologies. Faster internet access isrequested by crew and offered more and more as retention measures, but not needed for business – yet. Communication and IT in shipping must be able to cope with everything from no coverage in certain areas to full online connectivity at all times. Suppliers and customers must understand this," Paarups says.
While many column inches have been devoted to the topic of smart shipping of late, Paarups reckons the current dire freight rate situation means this transformative stage in shipping is still a way off.
"Shipowners are cost driven due to the market situation," he explains, adding, "They need to keep the OPEX down. Nice to have projects are not prioritised as it is presently a battle of survival. Depending on future regulations, frontrunners will introduce interesting features on an experimental basis as PR stunts, but it will take decades for the industry to change significantly."
Third country ship recycling yards should get EU recognition to raise standards worldwide and respond to demand, according to European Community Shipowners' Associations (ECSA).
In December 2016, the European Commission published its first edition of the EU list of approved ship recycling facilities, which currently features yards situated in Europe and reaches under 30% of the EU's own recycling capacity target.
The list includes 18 European recycling yards that are deemed safe for workers and environmentally sound, in accordance with the relevant requirements of the 2013 EU Ship Recycling Regulation. The Commission received applications from yards in third countries as well but these applications are still being reviewed. Site inspections will be conducted to check their credentials followed by a decision in 2017 on their inclusion in the list.
"Whilst the EU list can serve to raise ship recycling standards worldwide and respond to recycling demand, the current list clearly shows the need to include third country yards and especially those that already meet the international standards laid down in the Hong Kong Convention for safe and environmentally sound ship recycling," said Patrick Verhoeven, ECSA Secretary General.
"Approximately 150 container vessels were sent for recycling in 2016, the current EU list would cater for only 16 smaller container vessels, taking into consideration limitation of EU yards in terms of length and vessel draft. And that is just for one type of vessels. We thus strongly encourage the Commission to enlarge the list to non-EU facilities as soon as possible," Verhoeven added.
Spot container freight rates on the major East-West routes reached a 20-month high this week and have risen above the average of the last 5 years, according to shipping consultancy Drewry.
The latest weekly reading is US$1,770/40ft container for the composite index, reflecting increases on individual lanes to US$1,785 for the Rotterdam-New York index, up US$4 this week, US$2,210 for the Shanghai-Rotterdam index, representing a rise of US$257, while the Shanghai-Los Angeles index was at US$2,106, surging by US$545.
On the back of Jan. 1 general rate increase (GRIs), the World Container Index between Shanghai and Rotterdam increased by 13% to hit US$2,210 this week. Drewry expects the volume upsurge on account of an early Chinese New Year to support further increases next week.
The last time the WCI composite index exceeded US$1,700 per 40ft container was in March 2015, before the 2015/16 price war, according to Drewry.
The World Container Index assessed by Drewry composite index, an average of spot rates on 11 transpacific, Asia-Europe and transatlantic routes, has now increased by 62% since the bankruptcy of Hanjin at the end of August 2016.
"With 2017 contract rates at risk of double-digit increases, now is the time to use the latest e-sourcing tools and strategies to help mitigate cost increases and to avoid a repeat of carrier service failures," said Philip Damas, head of the logistics practice of Drewry.
Danish shipping major Maersk Line has partnered up with Chinese e-commerce giant Alibaba to allow users to book ship places online.
Maersk launched a pilot program on Alibaba OneTouch portal on Dec. 22, 2016, moving a step forward to "providing fully digitized customer solutions", a spokesperson of the carrier said in a statement.
"The initial launch will feature a … product that allows existing Alibaba OneTouch (registered) users to lock in the price of required cargo spaces on selected routes by pre-paying a deposit amount," added the spokesperson.
This service will be offered on selected routes and ports initially, according to the company.
During the process, the company plans to assess other potential third party portals and target customers.
Established in 2001, Shenzhen One-Touch Enterprise Service Limited is a provider of one-stop services for exporters in China. The company was acquired by Alibaba in 2010.
The multipurpose shipping market is forecast to see the first signs of recovery by the end of 2017, following in the steps of the dry bulk and container shipping markets, according to shipping consultancy Drewry.
Dry cargo demand is weak but strengthening with multipurpose shipping market share expected to grow at just under 2% per year to 2020. Demolition levels are up in both the multipurpose and competing sectors, while newbuilding ordering has waned, which will result in minimal aggregate multipurpose fleet growth to 2020, according to Drewry.
"Slow growth in supply, alongside better growth in demand, is expected to help multipurpose charter rates in 2017 and beyond, supported by a recovery in the dry bulk market, albeit a slow one. In particular, the oversupply situation, which has dogged this sector for many years, is expected to level out in the medium term," said Susan Oatway, lead analyst for multipurpose shipping at Drewry.
The new International Maritime Organisation (IMO) regulation on Ballast Water Management is likely to have a small effect on demolition levels in the multipurpose sector, and even more so for the bulk carrier sector. Meanwhile, any investment in this sector will be in project carriers producing fleet growth in this segment of almost 3% pa to 2020, whilst the general cargo segment will contract at around 2% pa over the same period, leading to overall MPV fleet growth of less than 1% pa to 2020.
"On the face of it, the supply-demand balance is levelling out, demand is growing faster than supply and the market is improving," Oatway said, adding that until rate increases are sustained in the bulk carrier and container ship sectors, "there will be little reprieve in their drive to obtain further market share."