Danish shipping company Dampskibsselskabet Norden A/S has trimmed down its expectations for the adjusted results for the year to USD -20 to 20 million.
Specifically, the company said it anticipates its dry cargo business results to post a loss ranging between USD 5-25 million and its tanker segment performance to range between USD -15 million to USD 15 million.
The expectations were narrowed from USD -20 to +40 million in the first quarter as the company relied on the recovery of dry cargo market.
Nevertheless, the combination of high coverage and a strong spot market has resulted in a weak start to the year in the dry cargo market, making it unlikely that the higher part of the expectations range can be achieved, Norden said.
For the tanker market, the outlook remains unchanged, as challenging market fundamentals prevail amid low demand for tankers and continuing pressure from strong deliveries over the past year.
“Norden still expects a gradual recovery into 2018 for product tankers as supply growth continues to decrease and inventories of refined products are normalized. Strong fleet growth for crude tankers could have a negative impact on rates for product tankers, but the effect is not expected to prevent rates from improving compared to the rate levels in 2017,” the company added.
However, for the rest of the year, the company said rates are expected to further weaken.
“The inventories of refined products are adjusting fairly slowly, and while the delivery pace of product tankers is slowing, supply growth from the last 2 years still has to be absorbed.”
In the second quarter, Norden booked a loss of USD 3 million, a somewhat smaller loss when compared to corresponding period of 2016 when the loss was USD 4 million.
During the period, Norden’s tanker business stayed in the black, posting an adjusted result of USD 3 million, compared to USD 7 million in the second quarter of 2016.
The generated TCE earnings for MR and Handysize stood at USD 14,871 per day and 12,800 per day, respectively.
The company’s dry cargo activities generated an adjusted loss USD 7 million, also trimmed down from USD 11 million loss from Q2, 2016.
During the quarter, Norden entered into 3-5 year charter agreements which include 2 MR tanker newbuildings and 3 Handysize tankers on long-term charter agreements. The 2 MR tankers are scheduled to be delivered in mid-2019 and early 2020, while the 3 Handysize tankers were delivered in July 2017. Additionally, the company took advantage of the market to acquire 2 secondhand MR tankers with delivery in the second half of 2017.
At the end of the second quarter of 2017, Norden had 2 dry cargo newbuildings held for sale scheduled to be delivered in the second half of 2017 once completed at the yard.
In its latest weekly report, shipbroker Intermodal noted that “during the summer’s peak, and with the markets remaining relatively quiet, we can argue that most markets have built solid foundations to enjoy a strong Q4 and healthier rates compared to last year”.
According to Intermodal, “in order to put things into perspective, it would be enlightening to perform a mini review of some indices, values and commodities compared to August last year. Average earnings for Capes were at around $5,500/day a year ago, whereas currently are above $11,500/day. Concerning the average dry bulk asset prices for 5-yr old vessels, all values across all segments are up when compared to August 2016, while the BDI today is above 1,000 points compared to the low 600s it was faring a year ago”.
The shipbroker’s Research Analyst, Mr. George Panagopoulos said that “moving on to the Tanker market, T/C rates have decreased compared to a year ago, especially for the crude carriers, while average asset prices for 5-year-old vessels have overall followed a similar direction. On the new-building market we have gone from the non-existent dry bulk activity of last year to a relatively decent number of orders here and there throughout 2017, while even during the traditionally more quiet summer months there is still a bit of contracting volume reported as well. On the tanker side, the trend is even stronger, with sectors like VLCC and MR seeing a lot of activity since almost the beginning of the year”.
Meanwhile, “in the demolition market, forecasts had predicted that demo activity would be higher, as in September last year Finland was the last member state that rectified the Water Ballast Convention that was scheduled to enter into force this fall. Recently however, the IMO and IOPP agreed to extend for two years the time for compliance, which means that the new date is now September 2019” Panagopoulos said.
He added that “regarding some of the main cargoes for both dry bulkers and tankers, it would be interesting to take a look at the commodity market’s performance year on year. Iron ore has moved from around $50/t in August 2016 to over $70/t today and despite some recent downward correction the upward movement has once again resumed, with iron ore futures also suggesting an optimistic market ahead”.
“Coal has at the same time gained around 40% over the past twelve months, although in this case forecasts are mixed on the commodity’s future as India is closing down a number of mines. Focusing on other commodities; industrial metals such as aluminum have also been moving north. Agricultural products have shown a mixed picture, with some like soybean for example remaining into similar levels and other like corn having moved upwards. In the oil market, prices have been moving in a rather tight range for the bigger part of the past twelve months despite the extension of the OPEC production cut. To conclude, it is a fact that everyone will enjoy their summer holidays with less concerns from last year. In general, all markets show some signs of stability, with some pressure being applied on the tanker market, but even there we sense some optimism for the remainder of the year”, Intermodal’s analyst concluded.
57 percent of ballast water management (BWM) systems installed on vessels were being operated, while the rest were either deemed ‘inoperable’ or considered ‘problematic’, according to a survey conducted by classification society ABS.
To form an accurate picture of the current progress with BWM compliance, owners and operators with installed BWM systems were surveyed and invited to participate in ABS’ workshop. Survey results from some 30 owners and operators were aggregated to help identify trends and understand common practices while maintaining anonymity.
The report reveals that some of the major challenges that shipowners and operators face with BWM systems are related to software, hardware and the crew’s ability to operate the systems correctly.
System operators have had to develop plans to keep up with hardware maintenance and maintain an inventory of spare parts on a vessel. A recurring concern expressed by many owners relates to the chemical consumables used for determining residual oxidants in the ballast water. Proper storage and handling is critical to the operation of systems employing total residual oxidant (TRO).
Another major takeaway from the workshop was the importance and necessity of maintaining an effective training strategy to ensure crew members can operate these systems properly and safely. Improved training methods and system manuals will decrease the number of issues that stem from operational errors, according to the classification society.
“This comprehensive report, based on feedback from our workshop, is an important assessment of the readiness of industry when it comes to ballast water compliance,” Thomas Kirk, ABS Director for Environmental Performance, said.
The report, which provides insights into how industry is progressing with BWM systems, covers a range of topics, including installation, commissioning and operations of BWM systems.
The cyber attack that hit Danish-based A.P. Moller – Maersk on June 27 is expected to damage the company’s business performance by up to USD 300-million in the upcoming quarter.
“Business volumes were negatively affected for a couple of weeks in July and as a consequence, our Q3 results will be impacted. We expect the cyber-attack will impact results negatively by USD 200-300 million,” Maersk group’s CEO Søren Skou said.
The vast majority of the impact of the cyber-attack was in Maersk Line, according to the group, with a huge blow on July revenue.
Maersk was one of many global companies to be hit by a malware later known as NotPetya, distributed through a Ukrainian accounting software called MeDoc, which is used for filing tax returns in Ukraine.
The MeDoc software contained backdoors into the networks of users of the software, which were used by the malware to enter via the software’s automatic update system.
As a result, Maersk shut down infected networks to contain the impact. However, the group’s container related businesses Maersk Line and APM Terminals took a major blow, with the latter being forced to close some of its terminals and divert ships.
“These system shutdowns resulted in significant business interruption during the shutdown period, with limited financial impact in Q2, while the impact in Q3 is larger, due to a temporary loss of revenue in July,” Maersk said.
Maersk Line, Damco and APM Terminals restored normal operations during the week of 3 July to 9 July.
Rising long haul exports of crude oil from the US and Nigeria will not be sufficient to push tanker shipping freight rates higher given lower anticipated Middle East output and surging tonnage supply, according to the latest edition of the Tanker Forecaster, published by global shipping consultancy Drewry.
Although a slight slowdown in global oil demand growth and inventory drawdown because of the ongoing production cut by OPEC is capping global the oil trade, the impact of lower OPEC output is partly counterbalanced by rising long-haul trade. With the lower supply in the Middle East, Asian refiners have increased their imports from the US, Brazil and Nigeria, where production is rising.
Rising US production this year is leading to a surge in the country’s crude exports against the earlier trend of a decline in imports with the rise in production. US oil exports have surged higher to 0.9 mbpd this year, compared to 0.5 mbpd last year, whereas imports have remained stable. As US production is expected to climb higher in the coming years and majority of it is likely to move to Asia, a long-haul trade, this will positively affect the tonne-mile demand for tankers. Similarly, the expected increase in long-haul exports from Nigeria and Brazil to Asia will also be supportive for tonne-mile demand. Nigeria’s crude production is expected to increase to at least 1.8mbpd from the current 1.6 mbpd. However, the expected increase in long-haul trade will not prove enough to push rates higher as the global oil trade will be capped by the inventory drawdown and a slowdown in oil demand growth. Moreover, the recent two-year postponement of Ballast Water Management regulations will dampen scrapping, keeping fleet growth strong until 2020.
“While global oil trade is expected to increase by around 6% during 2017-19, tonne-mile demand is expected to increase relatively faster by 7% due to an increase in long-haul trade. As the supply is seen surging by more than 13% during this period, freight rates will decline further,” commented Rajesh Verma, Drewry’s lead analyst for tanker shipping.
Norwegian dry bulk operator Western Bulk managed to shrink its net loss in the first half of the year to USD million from USD 10 million reported in the same period in 2016.
Western Bulk said that the net result also exhibited “a very positive development” during the first half of 2017, increasing from the first to the second quarter, yielding a positive net result for the second quarter of 2017.
Net time charter result improved from USD 1.3 million in the first six months of 2016 to USD 15.1 million seen in the first half of this year, aided by an improved dry bulk market, market volatility, improved customer relationships, better operational performance and an increased fleet.
The first half of 2017 saw the Baltic Supramax Index 58’(BSI) perform better than many expected, particularly in February and March after the end of the Chinese New Year, before falling back again during during May, Western Bulk informs.
As a whole, the first half of 2017 ended more or less where it started at USD 8,500/day, but with variations from the low level of 6,430/day on February 6 to the higher level of 10,090/day on April 20.
“Rates are still low in a historical perspective, but considerably higher than the previous 2 years in the same period,” the company said, adding that “volatility in rates also improved, particularly in Q1-17, as rates increased sharply before falling off in Q2-17.”
The strength of the BSI in the first half of the year and particularly the first quarter “was better than many expected, and goes some way to showing that the market is slowly recovering and gradually closing the oversupply gap.”
The order book for new tonnage is slowly decreasing. Provided demand increases in line with expected development in GDP and trade volumes, the market is expected to gradually improve, Western Bulk said.
With tonnage oversupply in the tanker market already on the cards, ship owners are increasing looking towards demand in order to find some silver linings. In its latest weekly report, shipbroker Charles R. Weber said that “key forecasting agencies, the US Department of Energy’s EIA and the Paris‐based IEA, are both forecasting a new milestone for crude oil demand during the latter half of 2018: demand exceeding 100 Mnb/d. Despite the milestone’s positive connotations, 2018’s projected global oil demand growth rate of 1.5%, as derived from the average of the two agencies’ projections, is hardly much cause for optimism among crude tanker owners. Indeed, it follows a moderately higher rate of growth presently projected for 2017 of 1.6% and comes against our projected crude tanker capacity growth rates of 6.8% and 3.8% during 2017 and 2018, respectively”.
According to CR Weber, “annual demand growth swung violently before and after the global financial crisis with high oil prices and the market crash causing demand destruction during 2008 and 2009 before the recovery and resurgent oil‐intensive development in emerging markets propelled 2010 to the highest demand growth rate of the decade so far. Since 2011, demand growth has oscillated between 0.8% (2011) and 2.1% (2015) with the average between 2011 and 2016 pegged at 1.5%”.
The shipbroker added that “these agencies have a bit of a history of revisions as the forecasted period draws nearer – and quite often well after the fact. This is due to the inherent limitations of forward forecasting – and a lack of transparency in historical trade and consumption data (particularly in outside of the OECD). We note that for the developed world, projections made at the end of 3Q16 underestimated the extent of demand growth during 2016 amid lower fuel costs, declining unemployment and rising consumer sentiment. Simultaneously, demand growth in the non‐OECD world was downwardly revised. Total world oil demand was upwardly revised by nearly 900,000 b/d. It would seem that the regular negative revisions of the years following the global financial crisis have given way to positive revisions. Tanker owners will certainly be hoping that the latter remains the norm”.
CR Weber added that “of course, trade patterns can skew the implications of demand growth for tanker fundamentals strongly. Despite 2016’s positive y/y growth, a migrating of crude trades towards shorter distances meant that VLCC ton‐miles declined by 4%, y/y. Applying adjustment factors to ton‐miles to account for diversification and efficiency of trades, demand contracted by 4%. Simultaneously, during 2015, when world oil demand grew by 2.1%, VLCC ton‐miles grew by a much larger 7% and adjusted demand grew by a massive 21%., the shipbroker concluded.
Meanwhile, in the VLCC market this week, CR Weber said that “rates in the VLCC market were softer this week on a pullback in demand in the Middle East market, sending average earnings to fresh multiple‐year lows. In the Middle East, there were 15 fresh fixtures reported, representing a 35% w/w decline. One‐third of this week’s regional fixture tally were concluded under COAs, making demand there seem lower than it was. In the West Africa market, there were nine fixture reported, representing a tripling of last week’s tally”.
The shipbroker added that “with 100 Middle East August cargoes covered thus far, there are an estimated 22 outstanding. Against this, there are 53 units available; once accounting for likely West Africa draws, the implied end‐August Middle East surplus stands at 24 units, or the highest surplus since the conclusion of the May program. A week ago, the surplus looked set to stand at 19, illustrating a fresh disjointing of supply/demand. As such, rates remain in negative territory and will struggle to find much positive impetus once participants progress into what is widely expected to be a busier September program. In isolation, rates in the Caribbean basin were stronger this week on declining in‐ bound USG tonnage, and a fresh round of activity following a prolonged lull”, the shipbroker concluded.
Given the weak freight rate outlook for LPG shipping over the next twelve months, there is more downside risk to the second-hand values of very large gas carriers (VLGCs), according to shipping consultancy Drewry.
Shipping analysts have been bearish on the VLGCs market since the beginning of the year and rates so far have been in line with expectations. Vessel earnings in the spot market are currently below operating cost.
Drewry said that it maintains a bearish outlook and believes that the next twelve months “will continue to be tough for VLGC owners due to strong fleet growth. The recovery phase will not start until the second half of 2018 as fleet growth slows as a consequence of weak ordering over the past 18 months.”
One anomaly in the current market is that second-hand VLGC values have not come down as sharply as the freight market and are trading at a high multiple to vessel earnings.
“Considering our weak freight outlook for the next twelve months, we expect there is more downside risk to second-hand values of VLGCs. Therefore, we expect second-hand prices of VLGCs to correct by another 5%-8% over the next one year,” Shresth Sharma, Drewry’ senior analyst for gas shipping, said.
Further consolidation in the container shipping market seems to be imminent and is likely to result in the survival of five or six top carriers, according to the Chief Executive Officer of AP Møller Mærsk A/S, Søren Skou.
In an interview with the Financial Times, Skou is cited as saying that “the consolidation trend in the past 24 months that has seen eight of the top 20 container shipping groups be acquired or go bankrupt would continue” in the upcoming ten years.
The market has already seen CSAV being acquired by Hapag-Lloyd, NOL/APL by CMA-CGM and the two major Chinese lines merging. This was followed by the financial collapse of Hanjin Shipping which marked the sector’s biggest casualty in 30 years.
Aside to the tonnage overcapacity in the sector that pushed down freight rates causing financial woes to many carriers, Skou said that the consolidation push has also been driven by “the withdrawal of many governments from the sector” such as in the Middle East, Singapore and South Korea.
Maersk’s container shipping arm, the world’s largest, Maersk Line is in the process of buying German rival Hamburg Süd, a part of the Oetker Group, for EUR 3.7 billion (USD 4 billion) on a cash and debt-free basis.
The bolstering of ranks among container carriers has been prompted by the need for further market equilibrium aimed at restoring sustainable financial recovery for carriers and bridging the gap between tonnage demand and supply.
Once the top-five container shipping companies complete consolidating their market position through mergers and acquisitions, their market share is likely to be around 57% in 2018, up from 45% in 2016, according to Fitch Ratings agency.
As stressed by Fitch earlier this year, merger and acquisition deals are the preferred option to alliances, as “they are the most likely route to restoring the supply-demand balance in container shipping.”
The latest push in this direction saw China’s COSCO Shipping Holdings made a bid to acquire all issued Orient Overseas International Lines (OOIL), the world’s seventh largest container shipping line, for a total of USD 6.3 billion.
The rebound of the dry bulk market could be in sight, despite looming signs that its momentum is about to slow down moving on to the final weeks of the third quarter and onto the fourth quarter of the year. In its latest weekly report, shipbroker Allied Shipbroking noted that “the bullish ride continues on for the iron ore market, with most in the market now eyeing the possibility for further gains to be had as Chinese steel prices continue to surge once more. It seems as though the iron ore market has now hit what many claim to be a “sweet spot” in terms of prices, with the US$ 60-70 range considered to be good enough to provide the market with enough support for miners to be seeing their profitability ratings go up, but not so high to be pushing back in idle capacity and allowing for a renewed interest in new mining projects to take off.
According to Mr. George Lazaridis, Head of Market Research & Asset Valuations with Allied Shipbroking, “at the same time steel producers have been seeing their inventory levels being driven to low levels, encouraging most firms to raise their output levels and in turn bolster iron ore demand. The problem with this however, is that in part this has been explained by the anticipation held that a curb on Chinese steel production in the winter months could lead to supply shortages, as such driving many consumers to increase their inventories so as to avoid any supply chain disruptions. This curb in production is part of the Chinese governments call on steel producers to halve output in four northern provinces (Hebei, Shangxi, Shandong, Henan) as well as Beijing and Tianjin during the peak heating months (around late November to late February), in order to reduce emissions in each of these respective regions. This in turn leaves the question as to how demand will trend during the winter months, with an increase in stockpiles likely to push for softer demand levels in the final quarter of the year”, he noted.
Allied’s analyst went on to say that “for the moment, it seems as though the recent rally has started to level off, with the freight market already showing more moderate day-to-day increases compared to what we were seeing in the first half of last week. With August typically a slower month in terms of freight performance, we could well see things start to slow down once again and stay that way up until the first weeks of September”.
Lazaridis added that “for now, the upward momentum for Capes and Panamaxes continues to endure, though in the case of both it has slowed down considerably now. We have however surpassed the psychological barrier of 1,000 points on the Baltic Dry Index, something that will surely play its role in feeding another round of optimism amongst owners and even possibly drive renewed interest in the secondhand market as owners look to bolster their position while prices still hold at relatively low levels”.
“We have already started to see hints of such a development, with activity in the secondhand market already pointing to a slight improvement in asset prices. The almost four months high reached on Friday evening for iron ore prices has been a significant step and with the dry bulk fleet having seen its growth rate slow down considerably compared to what we were seeing in the first quarter of the year, we may well find some improved support in the freight market during the final months of the year. Earnings overall have seen a considerable improvement during the first half of the year and this may well have led most to hold high expectations for the final quarter. However, given recent developments, even if the final quarter ends up disappointing compared to what most in the market were hoping to see, it seems as though the improvement in the market is still insight and on track. Given that we have one of the smallest orderbook to fleet ratios that we have seen in modern times and based on the fact that we have already started to reach some moderate supply/demand balance, there is plenty of reasoning for further such market rallies to take place”, Lazaridis concluded.