Shipping confidence improved for the third successive quarter in the three months to end-November 2016, according to the latest Shipping Confidence Survey from accountant and shipping adviser Moore Stephens.
In November 2016, the average confidence level expressed by respondents was 5.6 out of 10, equalling the highest rating since August 2015. All main categories of respondent were more confident than in August 2016, when the overall rating was 5.4.
Charterers' confidence rose by 2 points, to 6.8, the highest figure in the life of the survey for such respondents. The confidence of owners was up from 5.3 to 5.4, of brokers from 4.5 to 5.6, and of managers from 6 to 6.4.
Geographically, confidence was up in Asia from 5.5 to 5.7, in Europe from 5.2 to 5.4, and in North America from 5.8 to 5.9.
Moore Stephens informed that a number of respondents felt that the bottom of the cycle had been reached and that the only way was up. Particular concern was expressed about overtonnaging, insufficient recycling, and the cost of regulatory compliance.
"This is the third successive increase in shipping confidence recorded by our survey. So despite overtonnaging, weak freight rates, declining demand, insufficient recycling, Brexit, Syria, Trump, despite everything, shipping is still looking up, rather than down," said Richard Greiner, Moore Stephens Partner, Shipping & Transport.
The number of respondents expecting finance costs to increase over the coming year increased from 35% to 53%, the highest level for five years as "major investment will be required over the next few years to meet increasingly stringent environmental regulations," said a respondent.
"Many of our respondents felt that things can only get better. They are probably right. But for that to happen, freight rates will have to go up. Perhaps it is safer to say for the moment that, if we want things to stay as they are, things will have to change," Greiner said.
The number of respondents expecting higher rates in the tanker market over the next 12 months rose by ten percentage points to 33%, the highest figure since August 2015, while the number anticipating lower tanker rates fell from 37% to 24%. At the same time, there was a three percentage-point rise, to 41%, in the numbers anticipating higher rates in the dry bulk sector. In the container ship sector, the numbers expecting higher rates rose from 22% to 27%, but there was a five percentage-point increase, to 21%, in those anticipating lower rates.
Clarksons Research said that the global shipping market has experienced a particular blast of cold air during 2016, with few sectors escaping the frosty grasp of the downturn.
The shipping markets have in the main been pretty icy since the onset of the global economic downturn back in 2008. Since the start of the fourth quarter of 2008, the ClarkSea Index has averaged US$11,948 per day, compared to US$23,666 per day between the start of 2000 and the end of the third quarter of 2008.
Investor appetite for vessel acquisition has often added 'heat' to the market in the form of investment in newbuild or secondhand tonnage, even when earnings remained challenged.
According to data on historical newbuild and secondhand asset investment in terms of value, shipping appears to be as cold as back in early 2009. This year the 'Heat Index' has averaged 36, standing at 34 in fourth quarter of 2016, which compares to a four-quarter average of 43 between the same quarter in 2008 and the third quarter in 2009.
This, in part, reflects the earnings environment as the ClarkSea Index has averaged US$9,329 per day in the year to date and is on track for the lowest annual average in 30 years. In August 2016, the index hit US$7,073 per day, with the major shipping markets all under severe pressure.
"The investment side has seen the temperature drop even further. Newbuilding contracts have numbered just 419 in the first eleven months of 2016, heading for the lowest annual total in over 30 years, and newbuild investment value has totalled just USD 30.9 billion," said Clarksons.
Such weak volume sector markets, and a depressed offshore sector, have outweighed positivity in some of the niche sectors as 50% of the value of newbuild investment this year has been in cruise vessels.
Currently, the world's top five consolidated container fleets are worth US$33.4bn, accounting for 33% of the entire container fleet, showed VesselsValue data.
The top five fleets are respectively the Moller Maersk AS/Hamburg Süd, China COSCO Holdings Co, CMA CGM/ APL, Hapag-Lloyd/ UASC/ CSAV, MOL/ NYK Line/ K Line. Last week, Danish shipping giant Maersk confirmed it will purchase German container shipping line Hamburg Süd.
The acquisition is subject to final agreement and regulatory approvals. It is expected to complement Maersk's current business as Hamburg Süd holds a strong position in north-south trades.
Singapore-based Rickmers Marine Trust has recently sent a 7-year-old container vessel for demolition, according to VesselsValue.
The above-mentioned vessel is Panamax boxship named India Rickmers. It was built in 2009 by Chinese shipyard Jiangsu New Yangzijiang.
The 4,250teu vessel is valued at US$5.87m. The year 2016 saw the vessel drop 62% in value.
Mandarin Shipping Chairman Tim Huxley has recently expressed his views on the news.
He thinks that the chief culprit of the sector's destruction was the expanded Panama Canal.
BIMCO data show that 47% of the record 500,000teu recycled in the first ten months of the year have been in the sector of panamaxes.
He thinks that owners need to scrap a large number of ships to improve the situation. Also, he pointed out that owners have to stop the investment in the feeder sector.
Meanwhile, he asked fellow owners not to order newbuilds and encouraged them to go to the secondhand market.
High scheduled deliveries and low demolition prospects will drive unwanted fleet growth of very large gas carriers (VLGC) next year, putting freight rates under pressure, according to Drewry.
The fleet growth is anticipated to climb to 12% in 2017 with 64 additional ships due for delivery.
The recent Ballast Water Treatment System (BWTS) regulation requiring all ships to have an in-built BWTS or retro-fit by September 2017 or on their next survey has provided hopes of higher demolitions. However, Drewry believes that there is little scope for demolitions given the young age-profile of the fleet.
Drewry's senior analyst Shresth Sarma thinks that in a weak market, although the average scrapping age could drop largely in a weak market, they do not expect this to happen currently as there are no signs of panic demolitions yet.
Increased government intervention to provide financial support to struggling carriers could ultimately delay a much-needed restructuring of the container shipping sector, according to Alphaliner.
State aid might well delay the industry's recovery process, as shipping continues to grapple with the overcapacity problem.
Last week, the government of Taiwan approved a TWD60bn (USD1.9bn) funding package with preferential interest rates for Taiwanese shipping companies and it agreed to grant carriers reductions in various port dues. Yang Ming and Evergreen expected to be the main beneficiaries of these decisions. The move is part of a wider economic revitalisation plan, which also includes up to TWD500bn (USD15.7bn) in loans that are to be provided by local financial institutions.
The Taiwanese initiative follows the South Korean government's plan to establish a state-backed ship financing vehicle with an initial capital of KRW1tln (USD871m). Aiming to improve the financial health of Korean shipping companies, the new government outlet will in total provide financing of KRW6.5tln (USD5.7bn) to allow the country's shipping firms to acquire new vessels.
"The large amounts of financial aid which state-related entities in Taiwan and South Korea provided to protect the nations' ailing shipping lines, come amid a slump in earnings, while shippers have been spooked by Hanjin Shipping's bankruptcy," said Alphaliner.
The crude tanker market is expected to experience a limited winter upturn, as only the Very Large Crude Carrier (VLCC) segment showed sharp upward movements last month, with spot earnings on TD3 rising largely to approximately US$40,000/day, showed data from Maritime Strategies International (MSI).
Spot activity in other sectors mostly moved sideways, although one-year T/C estimates have seen some improvement in the sector. As a result, expectations of a relatively muted winter upturn remain intact but policy decisions are looming large.
According to Tim Smith, MSI Senior Analyst, Donald Trump's victory in the US presidential elections isn't likely to have a huge effect on the market in the near-term unless it destabilises the US economy.
He added that in the longer-term there is "clear risk to shipping should protectionist policies be imposed, whilst domestic energy production in the US could be further encouraged as red tape is removed."
For the fourth quarter VLCC upswing to be maintained, the market will need to see substantial draw from Asian demand. A renewed surge in Chinese buying implies further constructive conditions, but having attained levels close to its expected forecasts and given pressure from fleet growth, any major gains "are likely to be limited and brief."
Newbuilding orders during the January to October period have slumped to the lowest level seen since the 1980s, according to Clarksons Research.
In the first ten months, global shipbuilding orders booked 359 units of a combined 24.8m dwt (9.6m cgt), showing a 73% annual drop in dwt terms.
As of the end of October, Clarkson's newbuilding price index stood at 124.0 points, down by 6.1% from a year earlier.
After a steady fall in average daily TCE spot earnings in October, November saw an inflection point for Capesizes as the dry bulk market is sailing into a firm festive season, swiftly followed by a New Year comedown, according to research and consultancy firm Maritime Strategies International (MSI).
With rates soaring to over US$16,000 per day, the Capesizes saw their highest rates since mid-2015. Some of this strength has translated to the Panamax market, although Supramax and Handysize earnings have been broadly unaffected.
A basket of key commodity prices, including iron ore, coking and steam coal, have surged in recent weeks, with falls in domestic supplies in China a key driver. This trend is forecast to continue through the fourth quarter but weaker iron ore and coal trade will impact Capesize and Panamax demand in the near term.
"The Capesize market is demonstrating what might be termed 'frothy' characteristics with patches of strong chartering despite weak underlying fundamentals," said Will Fray, MSI Senior Analyst.
"On this basis it is difficult to build a reliable view on how long this freight rate uptick will last, but in any case we expect spot rates to fall back below operating costs in the New Year. This will be mainly as a result of weaker iron ore trade in Q1, but by Q2 we expect to see stronger Chinese coal production limiting coal import requirements," added Fray.
The MSI outlook for the Panamax market will be impacted by weaker coal demand to India, an effect magnified by the significant proportion of imports carried in Panamax vessels. Some improvement is expected towards the end of this year, but spot earnings are forecast to drop back again in early 2017 to below US$6,000 per day, with barely any improvement into the second quarter of the year.
The New Year is also likely to see rates fall in the Handysize sector, partly due to expectations of strong Ultramax deliveries in the first quarter. However, MSI's forecast of US$6,000 per day in January and US$7,300 per day in April is broadly positive, particularly when compared with the MSI outlook for Capesize and Panamax markets.
Over 100 more classic Panamaxes would need to be scrapped in the coming months to re-balance supply and demand, and reduce the total pool to less than 470 units, compared to 670 units four years ago, according to Alphaliner.
Only such a drastic reduction could elevate rates from their current all-time lows of US$4,200 – US$4,500 per day, with positive side effects on the 2,700 – 3,800 TEU size bracket as well.
Hard decisions have to be taken, such as scrapping ten-year-old ships on the eve of their second Classification Special Survey. Since many cash-short owners can't afford the survey-related costs, such vessels are being laid up, sold for scrap, or sold to bargain buyers at distressed prices.
Since the opening of the new Panama Canal locks on June 26, no fewer than 120 classic Panamax ships, referring to vessels of 4,000-5,300 TEU on a 13 row/32.30m beam, have been displaced from trans-Panama routes.
"The exodus is set to continue, with a further 30-40 classic Panamaxes to be removed from the trade over the coming months," Alphaliner said, adding that the total redundancies of vessels in this size range are expected to reach 150-160 units by the end of the first quarter of 2017.
Non operating owners (NOO) bear the brunt of these redundancies, as carriers keep re-delivering charter vessels at an unprecedented pace. As a result, NOO units form the bulk of the 4,000-5,300 TEU vessel idle pool. In spite of 50 sales for scrap so far this year, the count of unemployed classic Panamax ships currently reaches 96 units, 30 of which anchored at long term lay-up spots in Asia.