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.
Out of the 144 end-of-life ships which were sold for breaking in the third quarter of 2016, 85 percent ended up on South Asian beaches, showed data from the NGO Shipbreaking Platform.
This percentage of shipbreaking activities in Bangladesh, Pakistan and India made this quarter "one of the worst in the last years in terms of the small percentage of ships recycled in non-beaching yards," said the Platform.
Out of 122 vessels that reached the shores of India, Pakistan and Bangladesh this quarter, bulk carriers counted the highest number, adding 41 ships to the total of 293 bulk carriers broken so far this year. India was the preferred final destination between July and September 2016.
EU-based shipping companies were the last beneficial owners of 52 ships sold to South Asia in the third quarter of 2016. For the first time, German owners topped the list with 25 ships sold to South Asian breakers, followed by Greek owners that sold 17.
Chinese and South Korean owners also rank high on the list all selling several vessels to Bangladesh.
Whilst grey and black listed flags, such as Comoros and St Kitts and Nevis, continue to be particularly popular for end-of-life ships, also ships registered under the flags of Germany, Malta and Sweden ended up on the South Asian beaches.
The new EU Regulation on Ship Recycling will prohibit the dismantling of EU-flagged ships in substandard yards. However, by flagging out to a non-EU flag before selling the ship for scrap, ship owners can easily circumvent EU law, NGO Shipbreaking Platform said.
40 ships, including two Cyprus flagged ships, one German and one Greek flagged ships, changed their flag just weeks before hitting the beach.
During the three-month period, three fatal accidents and one injury were recorded in Chittagong. Another fatal accident occurred at a yard in Alang, India, when a worker fell into a tank, according to the Platform.
However, November was marked by an explosion at Pakistan's Gadani shipbreaking yard, which took the lives of at least 26 people, while over 60 workers were injured. Following the incident aboard an oil tanker which was being dismantled at the yard, all shipbreaking activities were suspended in Gadani while investigations are underway.
Weakness in freight rates will increase tanker shipping demolitions over the next two years, with the trend accelerating in later years as a result of the IMO regulation on ballast water, according to shipping consultancy Drewry.
The new International Maritime Organisation (IMO) regulation on Ballast Water Management will require that all vessels going into deep sea have in-built Ballast Water Treatment Systems (BWTS) by September 2017.
Existing vessels will have a grace period to carry out the retro-fit during their next special survey if this occurs after the deadline. Some owners are expected to bring forward fourth special surveys, if they fall around the scheduled deadline, in order to delay retrofitting BWTS to the fifth special survey.
But vessel owners for which the survey is due after mid-2018 will probably have to either retro-fit BWTS or scrap their tonnage. The additional cost of retrofitting BWTS along with the special survey will force many owners to scrap younger vessels before the next survey is due, Drewry said.
The shipping consultancy estimated that about 74 crude tankers with 14 million dwt and 114 product tankers with 5.6 million dwt will have their fourth special survey due between mid-2018 and 2021, making them potential victims of the new regulation.
"We do not expect all these vessels to be scrapped since many of them are on long-term charter at attractive rates, justifying the additional cost of retro-fitting BWTS," said Rajesh Verma, Drewry's lead analyst for tanker shipping.
"However, since the tanker market will be oversupplied, older vessels will find it difficult to get employment, which in turn will force many owners to scrap their tonnage just before their next survey is due," added Verma.
The containership demolition has hit its all-time high as it surpassed 500,000 TEU, providing a positive surprise for the struggling container shipping industry, according to international shipping association BIMCO.
BIMCO have throughout 2016 focused on the level of demolition in the container shipping industry and the high level of demolition activity has continued its pace and exceeded our expectations.
"The demolition activity in the last three months' surprised BIMCO positively and it exceeded our initial expectation based on the appalling 2015 demolition activity," BIMCO's Chief shipping analyst Peter Sand said, adding that the advance is "a push in the right direction."
The number represents 4.2 times more TEU scrapped than in the same months in 2015, with the last 3 months accounting for more than 41 % of the total demolition in 2016.
The activity is picking up and is primarily generated by the Panamax container ships, which account for 47% of the total demolition in 2016, while TEU scrapped from Intermediate and feeder containerships account for 30% and 23% respectively.
"It is important that the demolition of excess capacity comes sooner rather than later, as there is still a huge delivery schedule hanging over the container shipping industry for the rest of this year and well into 2017-2018," said Sand.
The high demolition activity is currently softening the net supply growth rate of the container shipping capacity and, according to Sank, "will prevent a darker outlook for the years to come, if maintained."
Whilst freight rates have improved marginally from the extreme lows seen over the middle of the year, the entire container shipping industry remains under significant pressure, according to Maritime Strategies International.
As most liner companies are now breaking even, with weaker lines still probably in a loss-making position, the situation is even worse for charter owners, with vessel earnings marooned below operating costs for most mid-sized vessel classes.
"Whilst the operator side of the liner industry continues to be wracked by convulsions and consolidation, the tonnage provider space seems to be slowly sinking ever deeper into the mire," said James Frew, Senior Analyst at MSI.
"Containership tonnage providers are at the bottom of the food chain, as ultimately liner companies can intermediate the supply of liner shipping capacity to shippers, and push excess capacity back onto the charter owners," he added.
In the light of the current oversupply, and a demand environment which fluctuates between uncertain and disappointing, the industry is taking what evasive action it can on the supply side, according to MSI. September 2016 saw the second-highest monthly total ever for containership demolitions, while new orders were confined to just three ships totalling 6,000 TEU.
The liner operator landscape continues to respond to dire circumstances, but plans by the three Japanese liner companies to merge their operations reflects a trend that asks questions of the remaining midsized operators.
"In broad terms, we regard the liner companies with sufficient scale to compete on a global level being Maersk, MSC, CMA CGM, COSCOCS, Hapag Lloyd, the Japanese and Evergreen. Where this leaves other companies is something of a parlour game but further consolidation appears inevitable. In the new world of consolidated liner companies it is increasingly hard to see a future for mid-sized lines," Frew noted.
Vessel operating costs are expected to rise in both 2016 and 2017, with repairs, maintenance and spares set to record the most significant increase in each of the two years, according to shipping consultant Moore Stephens.
Vessel operating costs are expected to rise by 1.9% in 2016 and by 2.5% in 2017, while the cost of repairs and maintenance is expected to grow by 1.7% in 2016 and by 1.9% in 2017. Additionally, expenditure on spares could go up by 1.7% in 2016 and by 1.8% in 2017.
Moore Stephens said that the predicted overall cost increases for 2016 were highest in the container ship sector, where they averaged 3.3% against the overall survey increase of 1.9%.
Container ships also headed the expected cost increases for 2017, at 3.4% compared to the overall survey average of 2.5%. Tankers featured in second place for both years at 2.5% for 2016 and 2.9% for 2017.
The mood of respondents in the study generally was quite pragmatic, with many referencing the need to address such familiar problem areas as over-tonnaging, excessive competition, a paucity of finance, rising fuel costs and burgeoning regulation and legislation.
"An even greater discrepancy is expected between operating costs and freight rates," one respondent said, adding that "owners will manage to make ends meet, but barely."
The cost of meeting regulatory requirements was high on the list of concerns cited by respondents, one of whom noted that "operating costs will rise for technical expenses such as maintenance and repair held over from previous years, while the cost of ballast water treatment plant will have to be taken into consideration in 2017 drydocking budgets." Another respondent pointed out that "with the Ballast Water Management (BWM) convention coming into force in 2017, drydocking costs will increase significantly, depending on the type and size of ship involved."
Respondents were also asked to identify the three factors that would most affect operating costs over the next 12 months. Overall, 20% of respondents identified finance costs as the most significant factor, followed by competition at 19%. Crew supply was in third place with 18%, followed by demand trends and labour costs.
"The predicted increases in ship operating costs for 2016 and 2017 compare to an average fall in operating costs in 2015 of 2.4% across all main ship types recorded in the recent Moore Stephens OpCost study," said Richard Greiner, Moore Stephens Partner, Shipping & Transport.
"In 2008, for example, the average operating cost increase absorbed by the industry was no less than 16%. Meanwhile, one year ago, expectations of operating cost increases in 2016 were 2.8% on average, so the fall in that expectation to 1.9% is of note."
Despite better demand side conditions on the "road to recovery" for the dry bulk shipping industry, the supply side is worse off, according to international shipping association BIMCO.
As ship owners' interest in demolition has cooled, the supply side is worse off today than earlier estimates projected for 2016. Stronger demand side growth is the only reason for the improved market conditions in the dry bulk shipping sector.
In short, the fundamental balance of the market has improved, and freight rates can still reach profitable levels in 2019. But bringing profits back remains in the hands of shipowners themselves, BIMCO said. But staying on the road to recovery requires a series of extremely tough and sustained measures to be taken, year on year.
"The dry bulk market is still in a terrible condition. Regardless of a significant improvement in the BDI from its all-time low back in February 2016, the freight market remains lossmaking and in a very bad state," said BIMCO Chief Shipping Analyst Peter Sand.
"The market has risen only from 'catastrophic' to 'gloomy' – so the need for shipowners to take decisive action remains," he added.
For the first five months of 2016, shipowners were doing just the right thing. They were limiting the impact of new deliveries launched into the market by demolishing ships which were creating excess capacity.
From January to May, a net fleet growth of just 4 million dwt meant that the dry bulk fleet grew by 0.5%. This was right on BIMCO's target to reach a net supply growth of 10 million for the full year, based on 50 million dwt of newbuilds fed into the market and 40 million dwt taken out of the market for demolition.
As of early October, the changes to the supply side of the dry bulk shipping market are no longer on target, if judged by net fleet growth, BIMCO said.
This is because shipowners have halted demolition of excess shipping capacity while taking delivery of newbuilt ships at an unchanged pace. The dry bulk fleet today is 1.75% larger than at the start of 2016.
38.8 million dwt has been delivered in the first nine months of the year, while only 25.2 million dwt has been demolished.
While BIMCO's estimate for newbuilt deliveries remains on target for 50 million dwt, the shipping association's forecast for demolition of dry bulk tonnage for the full year of 2016 was revised from 40 million dwt down to 35 million dwt.
Japan's big three container shipping companies have agreed to establish a new joint-venture company to integrate their container shipping businesses.
After the resolution by the board of directors of each company held, and subject to regulatory approval from the authorities, Kawasaki Kisen Kaisha (K Line), Mitsui O.S.K. Lines (MOL), and Nippon Yusen Kabushiki Kaisha (NYK Line) will establish the new company which will, besides the container shipping businesses, include worldwide terminal operating businesses excluding Japan.
The new joint-venture company would operate a fleet totaling 1.4 million TEUs, placing the new company as sixth in the market with approximately 7% of global share.
K Line and MOL, which will each hold 31 percent, and their compatriot NYK Line, which will hold the remaining 38 percent, plan to establish the new joint-venture company on July 1, 2017, while business commencement is expected to start as of April 1, 2018.
The parties opted for the move to ensure future stable, efficient and competitive business operations in the container shipping industry, which has struggled in recent years due to a decline in the container growth rate and the rapid influx of newly built vessels.
These two factors have contributed to an imbalance of supply and demand, destabilizing the industry and creating an environment that is adverse to container line profitability.
In order to combat these factors, industry participants have sought to gain scale merit through mergers and acquisitions and consequently the structure of the industry is changing through consolidation.