The shipping industry is looking for ways to return to faster expansion in volumes as the slowdown in volume growth since the financial crisis focussed the industry's thoughts on potential barriers to healthy long-term trade growth, according to Clarksons.
From 1988 to 2008, growth in world seaborne trade averaged an estimated 4.2% pa, a fairly robust level underpinning long-term demand for ships. The markets at times felt the impact of oversupply but sustained weakness of demand growth wasn't generally the problem.
However, since 2009, the growth rate has slowed, averaging 3.2%, and just 2.8% since 2013. This still equates to significant additional volumes – 1.8% growth in 2015 added 194 million tons – but it's still enough to get market players worrying, Clarksons said.
The current cycle certainly feels like it has dragged on as it's now more than eight years since the onset of the financial crisis, Clarksons noted.
However, there are interesting historical comparisons. Between 1929 (the year of the Wall Street Crash) and 1932, the value of global trade dropped by 62% and didn't get back to the same level until the post-war years.
Today perhaps some of the anxiety is amplified by the seemingly wide range of factors that look threatening to seaborne trade's supportive historical record. Protectionist tendencies, whether they be from the Trump presidency or the UK's Brexit vote, slowing growth in China, "peak trade", robotics and 3D printing – nobody really knows how things will pan out but everyone’s watching closely for anything to allay at least some of the fears, Clarksons explained.
Six months ago, Clarksons reported that seaborne trade appeared to be showing a pick-up and this time round things are still looking positive. The 3-month moving average shows a generally upward trend since autumn 2015 with an average of 4% in the second half of 2016, hinting that the bottom of the demand cycle may finally have been passed. The current projection for overall seaborne trade in 2017 is still less than 3% with plenty of scenarios possible, but both market sentiment and the momentum right now feel a little more positive than that.
While it's quite right to try to assess the range of factors which appear to be lining up against a return to more robust levels of trade growth, it's also far from incorrect to look for signs of a turn in the trend.
"Cycles in shipping can be long and sometimes it can take a while to identify them," Clarksons pointed out.
Carriers in the Asia to West Africa container trade could be dragged through another woeful demand story as the container traffic on the route continues decreasing in 2017, according to shipping consultancy Drewry.
The traffic in the trade dropped by around one-fifth since 2014. After southbound container flows into West Africa dropped by 10% in 2015 to 1.3 million TEU, the number further decreased by 12% in 2016 to 1.2 million TEU, and early 2017 numbers "are even worse".
Drewry said that the figures for January 2017 "do not suggest that trend is going to reverse any time soon." Southbound volumes for the month were down by 18% year-on-year, which has lowered the rolling 12-month average to 95,600 TEU/per month, down by 12.5% year-on-year.
With no immediate expectation of a demand recovery, carriers are trying to restrict the amount of capacity available through void sailings, although the cascade of bigger ships from other trades continues to undermine the effectiveness of that practise.
Despite the weak demand, spot rates along this route made a surprising upturn at the end of last year although some of the momentum dissipated in February. Average Asia to West Africa rates fell by around 12% month-on-month in February to reside at around USD 1,600 per 40ft container.
"With ships barely half-full on the southbound voyage it does not seem likely that carriers will be able to arrest the decline in the next few months," Drewry said.
There are numerous risks of technical nature not being considered when opting to construct the ever bigger containerships that are being overshadowed by the luring economies of scale, the Nordic Association of Marine Insurers warns.
According to the association, apart from the commercial challenges in operating these vessels such as upgrade of port facilities and fairway infrastructure, the Cefor Technical Forum has identified a number of technical risk elements "that are of particular concern from an insurer's perspective and that should have more focus when ULVCs are being designed and brought into service."
"Our concern is further accentuated by industrial rumors talking about 24,000 TEU vessels, although such vessels have, as far as we know, not yet been ordered," the association said.
There are 69 Ultra Large Container Vessels (ULCVs) now sailing featuring bigger tonnage than 14,501 TEU and including all known newbuildings, the sum adds up to 148 vessels.
The concerns are being voiced just two days after South Korean Samsung Heavy Industries (SHI) held a naming ceremony for the largest containership built so far, the 20,150 TEU MOL Triumph.
The growing popularity of these giants of the seas due to their cost-efficiency has downplayed various concerns, the association stressed, including dangers of fire incidents and groundings which are very challenging, if not impossible to handle at the moment.
"Box-cargoes often contain a wide range of hazardous and toxic substances, and it can take time to identify and locate dangerous cargoes that are particularly vulnerable to fire. Because of wrong declaration of dangerous goods, crew may end up applying an incorrect strategy for handling a specific fire scenario on board," the association said.
In particular, if the fire is burning within a container, it is often allowed to burn out in a controlled manner, leaving more or less all containers in hold with heat and smoke damage as there are no other methods of fighting a container ship fire below deck.
And as vessels increase in size, cargo holds and the number of containers accommodated in each hold are equally increasing, subsequently endangering more containers to damage in the event of fire, Cefor added.
In the event of a grounding involving a larger container vessel, equipment to lightering such a vessel can hardly be found. The size of the container vessels overtook years ago the salvage capacity.
An illustration is the 3,351 TEU Rena grounding near Tauranga, New Zealand on 5 October 2011 carrying 1,368 containers. After heavy weather in January 2012, the stern section sank completely on 10 January 2012. By June 2014, 77% of the initial carried containers had been salvaged.
"It was not that efforts were not done to save at least the containers, but the coast was simply too exposed and the equipment available for the salvage operations far from sufficient. Imagine if a similar accident had happened to a vessel carrying 10 to 15 times the number of containers that was loaded on board Rena," the association pointed out.
Additionally, the number of repair yards worldwide that are able to accommodate the ultra large container vessels in dry dock facilities are very limited. This is not a concern in the event of scheduled dry-docking, but could pose a problem if one of these vessels experience a damage or general average situation far away from repair facilities, Cefor further noted.
Among the issues to be taken into account are also the material availability of steel plates which are normally only produced on demand, along with damage due to bank effects in canals.
The members of Cefor engage in hull and machinery insurance, protection and indemnity insurance (P&I), cargo insurance, legal defence, war risks insurance, energy and offshore insurance.
The dry bulk shipping industry remains well on target for profitable freight rates in 2019 if the projected fleet supply growth rate of 0% in 2017 continues, according to international shipping association BIMCO.
In 2016, the supply side grew by 3% and the demand side grew by 2.4%, which resulted in a worsening of the fundamental market balance.
The handymax segment may even see profits in 2018 as demand may go beyond 2% in 2017, before reverting to 2% in 2018 onwards.
However, as the original "Road to Recovery" in May 2016 projected an even worse fundamental deterioration in 2016 – we are today, in a relatively better position than anticipated nine months ago.
"Estimating a return to profitability in the dry bulk industry remains a moving target, and one that differs from one company to the next. But by projecting a course for profitability, everyone in the industry can use it as a reference," said Peter Sand, BIMCO's Chief Shipping Analyst.
"The fact that the first half of February 2017 was a troublesome period came as no surprise and it makes the strong comeback in the following month stand out as even more remarkable. During that time, the BDI went from 688 to 1,147," added Sand.
BIMCO said that this lift in freight rates is positive, but added that there is still work to be done on the supply side, coupled with a significant level of demolition activity.
"In total, freight rates will be slightly higher than originally projected for the coming years. Combining the relatively better freight market, with a 10-year-low OPEX level in 2016 – the dry bulk industry remains on the road to recovery," BIMCO informed.
Amid the current muted shipbuilding market the Japanese orderbook has shown its endurance and recently surpassed its South Korean counterpart in size for the first time since 1999, according to Clarksons.
While the orderbook is shrinking for all of the Big Three builder countries, the Japanese orderbook is undergoing the slowest rate of decline. This month's Shipbuilding Focus takes a look at the development of the Japanese orderbook.
As of start March 2017, the orderbook at Japanese yards stood at 775 ships of a combined 18.9 million CGT, the second largest globally. This was its lowest monthly level since January 2014 in CGT terms.
However, the Japanese orderbook has experienced the smallest year-on-year decline amongst the top three builder nations, 23% in CGT terms compared to a 28% and 36% decline in China and Korea, respectively.
In addition, Japanese yards' forward cover is currently at 2.7 years in CGT terms, surpassing 2.5 years at Chinese yards and much higher than Korean yards' 1.5 years.
"Japanese yards are backed by a strong domestic owner base and the orderbook is becoming more diversified across the major vessel sectors, with orders for larger vessels securing a longer backlog of work," said Clarksons.
"Whilst the fortunes of Japanese yards will depend on the changing shipbuilding environment, they currently have the second largest orderbook globally in CGT terms and in today's tough newbuild contracting market, this appea rs to be relatively resilient."
The heads of Maersk Line, Mediterranean Shipping Company (MSC) and Hyundai Merchant Marine (HMM) signed an agreement on March 15 thereby officially launching the parties' strategic cooperation on East-West trades.
This strategic cooperation between 2M and HMM, has a length of three years with an extension option, includes a series of slot exchanges and slot purchases on East-West routes, as well as Maersk Line and MSC taking over a number of charters and operations of vessels currently chartered to HMM.
"We are very proud of our strategic cooperation with Hyundai Merchant Marine, Korea's leading container shipping company," said Robbert van Trooijen, Maersk Line's Asia-Pacific Chief Executive.
"We believe this strategic cooperation to be a win-win for all parties. Maersk Line's customers will have greater options on Trans-Pacific trades and HMM's customers will be able to leverage Maersk Line's strong Asia-Europe products," added van Trooijen.
The deal was signed some three months after the parties agreed to enter the strategic cooperation.
The strategic cooperation will enable the company "to enhance our 2M network and presence in the important Transpacific trade, " said Søren Toft, Chief Operating Officer, Maersk Line.
The Asia-Europe trade route is bound to experience further rate turmoil during 2017 as carriers from three new alliances are set to phase additional vessel capacity into the trade starting from April, according to Alphaliner.
The three new alliances, including 2M-HMM/HS, OCEAN and THE Alliance, will provide 17 weekly strings between Asia and North Europe, one more than currently offered by the four existing alliances 2M, G6, CKYE and O3.
With these changes, the total weekly capacity to North Europe will increase by 9.6%, compared to the services offered now.
Alphaliner said that the biggest increases are to come from the 2M, which will not only fully upgrade its existing loops to the 18,000-20,000 TEU scale, but also mount a sixth weekly string from April. The 2M carriers’ average capacity on the Asia-North Europe route will thus increase by some 23%, from 83,500 TEU to 103,000 TEU.
The 2M's capacity increase is partly motivated by the extra volumes to be brought by HMM and Hamburg Süd, who will take about 6,000 TEU and 4,000 TEU, respectively, of weekly slots on the alliance's services from April 1. These slots account for 12% of the capacity increase, while Maersk and MSC will still see their net weekly capacity increase by some 11%.
The two other new alliance groups – OCEAN and THE Alliance – will offer six and five weekly strings, respectively, with a combined weekly capacity of 155,000 TEU. They will provide the same total number of weekly sailings as that offered currently by the G6, CKYE and O3, while total weekly capacity is increased by about 9%.
Sulfur regulations are not getting a lot of attention from shippers at present but that should change given that the cost impact of 2020 is expected to dwarf that of 2015, according to Norwegian shipping company Wallenius Wilhelmsen Logistics (WWL).
The decision by the International Maritime Organization (IMO) to set 2020 as the start date for the 0.5% global sulfur cap has been widely welcomed for demonstrating that shipping and its regulator are prepared to make tough choices. However, the IMO has set the shipping and refining industries a tough technical challenge of producing and sourcing the fuel necessary to meet the 0.5% sulfur maximum, WWL said.
The far greater challenge is what happens when the resulting costs become properly understood.
"As we have seen from the experience of Emission Control Areas (ECAs), these are not costs the industry will be able to absorb," said Anna Larsson, Global Head of Sustainability at WWL.
As explained, a pattern is emerging, similar to that seen in the lead-up to the 0.1% sulfur limit of 2015 within ECAs. The industry conversation was dominated by technical considerations of how carriers would manage.
Fuel accounts for between one and two-thirds of the total cost base for most shipping companies and some reasonable assumptions about the premium compared to heavy fuel oil put the increase at anywhere between 40-70% for low sulfur fuel.
As such it is hard to avoid the conclusion that even if shippers have not felt the effects of sulfur regulation until now, they are more likely to feel it in 2020, Larsson further argued.
"One of the biggest challenges leading up to 2020 is the uncertainty: we simply don't know what kind of fuel or other compliance options will be available or what the cost will be," Larsson stressed.
"To handle this uncertainty, we have chosen to spread the risk and increase flexibility. The WWL 'four-stream' approach accepts that there will not be a one-size fits all solution."
From a shipper perspective, the worst situation would be working with a carrier who doesn't see what the fuss is about and has done nothing to engage with the issue.
Vessel owners that simply "wait and see" not only put shippers at a disadvantage but also increase the risk of supply chain disruption.
Starting the conversation early means having the best possible chance of mitigating the regulatory impact, Larsson concluded.
The global marine freight industry is forecast to return to 2014 levels by mid-2019 and hit a value of about US$210bn by 2021, according to MarketLine.
"The recovery in the industry is expected to be fueled primarily by a return of global demand as oil prices increase, and while it will take some time for the industry to reset to pre-2015 levels, the shrinking of industry value is short-lived. The players who survived 2015 are likely to have learned from this episode and to incorporate greater efficiency and cost-saving mechanisms in their businesses," explains Tom Hawthorn, Analyst at MarketLine.
The industry had been suffering from a negative compound annual growth rate (CAGR) of 3.3% between 2012 and 2016 amid an increasing oversupply and a collapse of global demand.
The economic growth slowed across most of the world over this period, particularly in China, which has recently been the source of much consumer demand. This resulted in a fall in demand for transportation services in general, which forced prices down and led players to invest in their capacity to keep costs low.
"Given how old and well-established the industry is, it is a wonder that major players did not anticipate this situation. Freight prices have been declining for several years, and rather than tightening operations to cut costs, players have decided to invest in capacity increases.
"Of course, costs are now lower per unit than they once were, but it makes little difference as few firms are managing to fill their ships. The important thing is that increase in supply relative to demand has resulted in greater downward pressures on prices, forcing many firms to operate below cost level," added Hawthorn.
Spot container freight rates from North Europe to China have hit a four-year high as they jumped by 45% last week, according to shipping consultancy Drewry.
The market reading on the route from Rotterdam to Shanghai came in at US$1,076 per 40ft dry container on March 9, from US$740 registered a week earlier.
"Our sources reported that ships are currently full and that carriers have demanded much higher rates – only some prior rate agreements remain in place," said Philip Damas, head of Drewry's logistics practice.
Drewry informed that it is "highly unusual" for the route from Europe to Asia, where vessels normally have load factors of less than 70%, to see such spikes in rate levels and capacity shortages.
The reason for such an increase could be the capacity crunch, boosted by cancelled sailings in China following Chinese New Year, which has now reached Europe.