South Korean shipping major Hyundai Merchant Marine (HMM) saw a 77 percent surge in its Asia-US west coast (USWC) volume in June 2017, compared to the same month a year earlier.
HMM’s Asia-USWC handling cargo rose year-on-year from 7,953 TEU per week to 14,055 TEU per week at the end of the month, the company said citing PIERS Data. Additionally, the shipping firm improved its rank, reaching the fourth place in terms of market share, up from 12th in the previous year.
The company’s Asia-all US route cargo handling also rose by 49 percent year-on-year from 11,626 TEU to 17,291 TEU per week in June 2017.
HMM’s USWC market share reached 7.4 percent, up by 3.4 percent from the same month last year, while all US route market share grew to 5.8 percent, up by 2 percent year-on-year.
The company’s cargo processing at Busan Port, the largest sea gateway in Korea, increased by 91 percent last month from a year ago. Its volumes at Busan port jumped from 78,039 TEU to 148,950 TEU per month in June 2017, the second-largest volume after Maersk.
The total includes 76,376 TEU per month of imports and exports cargo, an increase of 83 percent compared to the same period a year earlier, and 72,574 TEU per month of transshipment, representing a 100 percent rise.
“HMM’s volume has dramatically increased, as it has regained customer trust through a successful restructuring and has expanded shipping networks through ‘2M+H strategic cooperation’ and ‘HMM+K2’ consortium,” HMM official said.
Recent developments in the crude tanker market, such as the delay in the IMO Ballast Water Management Convention and the OPEC meeting on Monday, are expected to add downwards pressure to the ailing sector.
The OPEC meeting at St Petersburg on Monday, Saudi Arabia declared that they would cap crude oil exports at 6.6 mm/d in August, marking a six-year low, Ocean Freight Exchange (OFE) said citing JODI data.
The effect of the drop in exports is already being felt in the VLCC market as charterers start covering the August program, with meagre fixing activity seen so far. Charterers seem to be withholding cargoes in an attempt to further pressure rates downwards, which have been languishing around w50 for an AG/Japan voyage, OFE said.
While Nigeria was previously exempt from the production cuts, they voluntarily agreed to limit or even cut their output from 1.8 mmb/d.
The market is currently facing a perfect storm of tonnage overcapacity, low demolitions, OPEC oil output cuts as well as seasonal summer lull in demand.
As reported by Reuters, Nigeria’s crude production has been averaging 1.7 mmb/d recently. While the bulk of Nigerian crude exports are loaded on Suezmaxes and VLCCs, the production cap “may not have much impact on the tanker market as volumes often fluctuate due to unplanned outages.”
“Assuming the Saudis continue their strategy of cutting medium/heavy crude production, refiners in Asia are expected to continue importing crudes of similar grades from the US and Latin America to meet demand,” OFE said.
Although newbuilding orders for tanker and bulkers increased during the first half of 2017, the overall number of orders placed has more than halved when compared to the same period in 2015, according to data provided by VesselsValue.
A total of 245 new orders were placed so far this year, against 594 new ships ordered in the first half of 2015. When compared to the same period in 2016, the new contracts slightly decreased from the 254 new ships ordered a year ago.
Owners’ appetite for tankers was apparent as this type of vessel was in the lead with 145 orders out of the 245 newbuilding deals. Tankers were followed with 70 bulker orders, while LPG ships took the third place with a mere 16 orders. The containership market saw 10 new orders, while only four vessel orders were added to the LNG sector.
In comparison, bulkers were in the lead during the first half of 2015 with 229 orders, followed by 181 new tankers deals. Containerships took the third place with 90 new orders. The LNG sector was more active in 2015, with 26 new ship orders placed during the first half, followed by the LNG sector with 18 new ships.
The plunge in shipbuilding orders was also noticeable in the offshore sector. There were 50 offshore vessels ordered in the first half of 2015 compared to a complete lack of offshore orders during the first six months of this year.
Reviewing schedule reliability by trade, nine of the 12 trades improved from May 2017 to June 2017, according to the latest data from intelligence provider CargoSmart.
The three trades with decreasing schedule reliability were Asia-Africa, Europe-South America, and Europe-Oceania, decreasing by 13.7%, 6.6%, and 1.1%, respectively. The Europe-Middle East trade experienced the largest improvement in reliability, improving by 10.4%, from 60.7% in May 2017 to 71.1% in June 2017. The North America-Oceania trade had the highest reliability with 96.1% in June 2017.
Most of the carriers experienced varying degrees of improved schedule reliability from May 2017 to June 2017. As shown in Figure 3, CCNI, OOCL, Wan Hai, Alianca, and Hyundai showed the most improvement in schedule reliability with 11.9%, 11.5%, 10.7%, 10.1%, and 10.1% from May 2017 to June 2017.
The top five most reliable carriers in June 2017 were CCNI, MCC, OOCL, Evergreen, and CMA CGM, with an average on-time performance of 86.5%, 80.3%, 77.4%, 76.3%, and 76.2%, respectively.
From the port of discharge by region perspective, the Oceania region continued to rank the highest with 94.2% reliability in June 2017. Africa had the lowest reliability of 37.3% during the month, while the Middle East region experienced the largest improvement in reliability, improving by 12.3%, from 61.4% in May 2017 to 73.8% in June.
Additional phasing in of ultra-large container vessels (ULCV)– with a nominal capacity in excess of 18,000 TEU-on the Asia to North Europe trade lane could double their capacity share on the trade by next year, market intelligence provider in the container shipping industry SeaIntel says.
There are 58 ultra-large vessels currently in operation, with 47 to be delivered – predominantly in 2017, and 2018.
The mega container ships currently have a 35% deployment share of the trade, as carriers have been phasing in their 18,000 TEU+ sizes on Asia-Europe string as they eyed benefits of economies of scale. This has resulted in cascading of ships from the Asia-Europe trade since the launch of Maersk Line’s E-class ships 11 years ago.
The yet to be delivered 47 newbuilds are expected to also be phased into the Asia-North Europe trade lane, according to SeaIntel.
“If the capacity deployed on this trade lane grows by 5% annually for the next two years, we will see the share of ultra-large vessels jump to 61% by the end of 2018 – double of what it is today,” SeaIntel said.
The injection of larger vessels brings with itself a number of complications. Firstly, it will serve as a dampener on the future freight rate levels, as they to a significant degree will be influenced by the low slot costs offered by the ultra-large vessels.
Secondly, it will increase the load on the ports and terminals although the number of containers that need to be handled won’t change.
“The ultra-large container vessels lead to an increase in massive bursts of containers to be handled at once, rather than being spread across the week, which can pose a major challenge to ports and terminals, and downstream on the hinterland,” SeaIntel CEO, Alan Murphy said.
Thirdly, assuming that the Asia-North Europe trade lane can only absorb an additional 5% capacity per year, the new mega-vessels being delivered will push out vessels currently in deployment, and as these vessels are too young to be considered for scrapping, they will have to be cascaded to other trade lanes, pushing the excess capacity to other markets.
Despite falling freight rates for floating storage regasification units (FSRUs), investment returns at current asset prices and charter rates are higher compared with standard LNG vessels, according to Drewry’s LNG Forecaster report.
The global FSRU fleet has grown at a CAGR of 21% over the last five years, and currently, there are 24 FSRUs operational with an aggregate LNG import capacity of 82 mtpa. An additional 74 mtpa FSRU import capacity is under construction or in the planning stage. FSRUs are attractive because of various advantages they have over land-based terminals, such as low cost, quick commencement, and flexibility.
However, of late rates for FSRUs have come under pressure and are currently around USD 100,000pd, markedly lower than USD 120,000-130,000pd in 2013-15. There are several reasons for this, Drewry says.
First, the number of players in the FSRU segment is growing, which is creating competition for the business. Secondly, falling asset prices of FSRUs is making it possible to charter out vessels at lower rates. Third, several old LNG vessels are looking to get an FSRU conversion contract, which adds to the pressure on charter rates.
Despite falling rates, owning an FSRU gives a better return than an LNG vessel. Drewry has calculated the rate of return on a newbuild FSRU to be 16% that currently costs USD 250 million and earns a long-term (20 years) charter rate of USD 100,000pd. Meanwhile, the rate of return on a newbuild standard LNG vessel is just 13% that currently costs USD 185 million and earns a long-term charter rate of USD 70,000pd. Therefore, despite falling charter rates, FSRUs are proving to be a better investment option than standard LNG carriers.
“We expect long-term charter rates for LNG carriers to improve in the coming years as the market is expected to tighten. However, we do not believe that charter rates for FSRUs will significantly change because of increasing competition and a growing understanding of FSRU technology. We expect charter rates for FSRUs to stay in the range of USD 90,000-USD 100,000pd for the next three to four years, still higher than equivalent LNG charter rates,” said Shresth Sharma, Drewry’s lead LNG shipping analyst.
In the first five months of this year, North European exports to North America registered a rise of 5.7%, according to statistics from PIERS and CTS, shipping consultancy Drewry said in a weekly Container Insight.
Broken down, loads bound for the US rose 4.9% to 890,000 TEU; Canadian imports were flat at roughly 260,000 TEU, while inbound Mexican volumes continued to soar, rising by nearly 20% to just under 180,000 TEU.
Some carriers are hopeful that this current rate of growth will continue throughout the year, but Drewry is more skeptical.
“In our opinion westbound Transatlantic volumes are likely to soften in the second half of the year and the annual growth rate will probably end up closer to 3%. The key factors that have brought us to this conclusion are the Brexit effect and a slowdown in new car sales in the US,” Drewry said.
The outcome of the Brexit referendum, which was held now over a year ago, caused the value of the sterling pound to fall to a 30-year low against the dollar, and this had the immediate effect of boosting British exports to America.
According to one British forwarder, exports out of the UK in the first quarter on Transatlantic vessels were running 8-10% above what was being shipped a year ago. Much of the increase was concentrated in the food and drinks sector, but pharmaceuticals, motor vehicle spares, aircraft machinery and lighting equipment were also said to be moving in larger quantities. Come the latter half of 2017, however, the Brexit effect might not be so pronounced when making year-on-year comparisons.
The second factor that could dampen growth on the westbound leg is the cooling of the new car sales market in the US. The movement of automobile parts – predominantly from Germany – is the largest commodity block in the trade and has enjoyed two extraordinary years of growth, coinciding with the boom in car purchases in the States.
If there is a growth story in the coming months, then it will be the flow of components that are being despatched to the numerous suppliers that have sprung up in Mexico to support the new breed of car assembly plants in the country, Drewry pointed out.
The return leg of the trade has been pretty much static, which is where it landed last year. Were it not for greater exports out of the diminutive Mexican market, eastbound volumes would have been in decline after four months of the year.
US exports were down by 0.5% year-to-date to 457,000 TEU, Canadian exports fell by a similar margin to 154,000 TEU, while Mexican shipments jumped 9% to 113,000 TEU thanks in the most part to enhanced movements of car parts and beer. Subsequently, total North American exports to North Europe were up by 0.8% after four months to 724,000 TEU.
According to Drewry, there seem to be no drivers that might generate any meaningful growth in the eastbound trade, either now or in the foreseeable future. The dollar remains strong and American exporters are focusing on new markets in the Far East.
Well over 40% of the backhaul volume is composed of goods for the UK, but, with sterling weakened even further by the result of the country’s snap election in early June, North American exporters face an uphill struggle to gain any new traction in the British market.
Only minor changes on the supply side lay ahead for this trade, which should help maintain trade stability. Effective capacity has been creeping up, primarily due to a few upgrades in ship sizes of 2M’s TA2 and Ocean Alliance’s Liberty Bridge Express, while ACL has taken delivery of its final 3,800 TEU containership to replace the much smaller and older ro-ro ships on its North Atlantic service.
“Further ahead, we expect to see more upgrading via the cascade; replacements including two MSC ships (8,089 TEU) in place of 7,400 TEU ships on 2M’s TA3/NEUATL3 loop, two 7,450 TEU ships in place of 6,600 TEU ships on 2M’s TA2/NEUATL2 loop and one 6,500 TEU in place of one 4,200 TEU on Ocean Alliance’s Victory Bridge/EUG/ATG1 service,” Drewry added.
Westbound spot rates have moved very little in recent months. However, when some of the BCO contracts and forwarder FAK agreements came up for renewal in April, the carriers were able at least to recover the USD 100 or so they had given away on a 40ft loads back in 2016.
As disclosed by Drewry, one forwarder source suggested that because space on the North Europe-Asia eastbound trade was so tight during this period, the carriers were able to extract some improvement in revenue in the Transatlantic market. There were a few isolated instances reported where shippers, desperate to get their goods to Asia, actually despatched parcels across the Atlantic and switched them to Transpacific westbound loaders at a US terminal.
In conclusion, Drewry believes that westbound demand growth will probably taper off as the year progresses, but even so spot rates will continue to be relatively stable.
The OPEC-led production cuts are having negative implications for crude tankers, particularly very large crude carriers (VLCCs), where earnings saw a significant drop since the start of the year.
Although no major changes have been seen in the absolute volume of spot VLCC fixtures out of the Middle East, this coupled with the ongoing rapid expansion of the trading fleet, forced spot earnings down to around USD 17,500/day in recent months, from over USD 40,000/day at the start of the year, a report from Gibson Shipbrokers shows.
“The dilemma faced by OPEC does not inspire much optimism for the crude tanker market, hoping to see increases in Middle East crude exports. If production cuts are extended through 2018, the only hope for owners will be continued strong gains in long haul trade, persistent floating storage and slowing fleet growth,” Gibson said.
In contrast to the developments in the crude tanker segment, so far to date the impact of production cuts on oil markets has been rather muted.
Although global OECD oil stocks have moved to lower levels relative to the five-year averages, they still remain at highly elevated levels.
For 2018, the International Energy Agency (IEA) expects to see a healthy growth in world oil demand at 1.4 million b/d, however, further gains are projected in non-OPEC supply. By far the biggest increase is anticipated in US oil production, which is forecast to rise year-on-year by 1.05 million b/d. Smaller gains are also expected elsewhere, most notably in Brazil, Canada and the UK, together accounting for a further 0.6 million b/d increase.
Although output in a number of other countries is expected to see a minor decline, the overall picture is that all of the forecasted increase in demand is likely be met by increases in Non-OPEC supply (crude, NGLs, biofuels, processing gains).
“If the forecast is correct, this leaves almost no scope for increases in OPEC crude output in 2018 from current levels. If OPEC decides to abandon its restraint, there is likely to be another build in global inventories and further downward pressure on oil prices,” according to Gibson.
Tankers sold for demolition in SouthEast Asian scrapyards has accelerated over the course of the past few days, despite the fact that the monsoon season, means that scrapping activity is usually slower. In its latest weekly report, GMS, the world’s leading cash buyer of vessels, said that “the supply of tankers into the Indian sub-continent recycling markets continued at pace for another week as several more high profile sales materialized (including two VLCCs). This follows on from the recent aframax and suezmax sales at ever-improving numbers as the sub-continent markets look to get back on their feet following an awkward phase where prices deteriorated by about USD 50/LT LDT due to a combination of negative budgets and declining local steel plate prices”.
According to GMS, “now that the Bangladeshi budget has finally been withdrawn and clarity has emerged on the Pakistani budget as well, the ongoing reticence from ship recyclers has turned into a renewed aggression to acquire fresh units and some of the empty plots are swiftly being booked with choice tonnage. Pakistan remains closed for tankers after the tragic accidents on an uncleaned FSU and LPG earlier this year, which subsequently resulted in numerous (avoidable) fatalities. Yet, rumors persist of an imminent reopening to tankers, albeit with far greater restrictions / guidelines on tanker cleanliness (to hot works standards like India and Bangladesh) prior entry into Gadani. This would be an ideal opportunity to remind tanker owners that gas free for hot works standards means that all cargo / cargo residues, slops and sludges would have to be completely cleaned from all cargo and slop tanks, right down to the ladders, handrails and cargo pipelines. Indeed, the rules for cutting a wet ship in India and Bangladesh are far more stringent than many of the international gas free standards and it is worth those owners seeking to deliver their vessels ‘gas free for hot works’ clean, consult with a reliable cash buyer to ensure that the appropriate safety standards are met and deliveries remain timely and smooth”, GMS said.
In a separate report, shipbroker Clarkson Platou Hellas said that “it certainly is a difficult market to see through at the moment in terms of pricing and local sentiment but the one clear factor is that more tanker units are coming into the market. Clients of NITC have sold two VLCC’s this week and in addition, placed another two in to the market place. Another suezmax has been committed this week, as reported below, and again an intriguing price was achieved. Whether these sales achieve a profit for the cash buyers in question remains to be seen but at the time of writing, it is believed these units sold this week are still waiting to be resold to the actual ship recyclers (breakers). The lack of tonnage is certainly continuing and it remains unclear as to when future tonnage availability will come to fruition from Owners in view of the summer holidays that are now in play. The supply of tonnage is significantly reduced from this time last year and current statistics show that for all dry units, we are down by almost 50% and even more alarmingly is the supply of Capesize units where 67 were sold at this point last year compared to a mere 19 so far this year. The supply on the ‘wet’ side tells a different story, being around 10% only down from this time last year. However with rates under pressure, and evidenced by recent sales and market proposals, we can foresee tanker sales increasing in the months ahead”, Clarkson Platou Hellas concluded.
Similarly, Allied Shipbroking noted that “there was a fair amount of speculative buying taking place this past week, with price levels seeing a strong boost across the Indian SubContinent. Part of this has been fueled by the renewed interest and appetite being noted from Bangladeshi breakers, while most of the boost noted seems to have gone towards higher spec units with larger LDT especially for tankers and containers. This seems to be a momentary rally and we are likely to see the upward momentum fall back once again, since we are still within the monsoon season and breaking activity is still holding at a significantly slower pace. At the same time the fact that we are still seeing a minimal amount of demo candidates coming to market means that the supply side has played its part in boosting competition and helping push for the renewed improvement in offered prices”, the shipbroker concluded.
Malaysian port operator Westports Holdings Berhad saw a 5 percent decline in its total throughput volumes during the first half of 2017, mainly attributed to the ongoing changes in the container shipping industry.
Namely, the company said it handled 4.66 million TEUs during the first half, compared to 4.9 million TEUs recorded in the corresponding period a year earlier.
The Intra-Asia segment constituted more than half of the total containers handled, and this segment saw a favourable growth of 7 percent, while Westports continued to facilitate domestic economic activities as the gateway volume increased by 5 percent in the first six months of this year.
However, due to the formation of new global alliances and re-constituted service offerings and port of calls, as well as mergers and acquisitions, the total transhipment containers handled were lesser at 3.3 million TEUs.
As for conventional cargoes, Westports handled 5.4 million tonnes of throughput with higher volume recorded in the dry bulk segment.
“At Westports, we experienced the transition from the phasing-out of Ocean 3 services to the gradual phasing-in of Ocean Alliance services. We have also secured a service from THE Alliance. The industry’s recent and ongoing mergers and acquisitions could also affect our container volume handled, especially of transhipment boxes, as the enlarged and merged entity, may select to re-assess their service offerings and port of calls,” Ruben Emir Gnanalingam, the Chief Executive Officer of Westports, said.
“Due to all these ongoing changes, we expect our container throughput to be lower for this year when compared to the previous year,” Gnanalingam added.