The dry bulk shipping market is expected to recover from 2017 onwards driven by a narrowing supply-demand gap, according to the shipping consultancy Drewry.
Namely, demand is projected to grow at a healthy pace of 3% while supply could grow by about 1% from 2017.
The growth in demand originates from a rise in iron ore and thermal coal trade, Drewry informed. Coal demand is expected to rise mainly from developing Asian countries including Vietnam, South Korea, Taiwan and China.
The rise in Chinese domestic steel consumption will provide employment to VLOCs and Capesize vessels carrying iron ore in the market. On the other hand, Vale's new project S11D has become the most cost effective iron ore mining project and will increase iron ore supply from Brazil increasing total tonne miles, which "will help demand for bigger vessels in the long term," according to Drewry.
The supply side is projected to grow by just 1% from 2017 because of high scrapping and a thin orderbook. The environmental regulations on Ballast Water Treatment System (BWTS) and IMO's regulation on use of low sulphur fuel oil in 2020 which will result in high scrapping of old tonnages.
In addition, a contracting orderbook and low future new orderings due to limited financing availability are keeping a check on future deliveries.
"At this point in time, the orderbook as a percentage of the total fleet, which is a strong indicator of future deliveries currently stands at a decade low," Drewry said, adding that the outlook for dry bulk demand coupled with a small orderbook of newbuilds as a percentage of the total fleet capacity "will ensure a sustained recovery in the dry bulk market."
Capesize owners could be swayed to scrap more ships following the very firm US$345 per ldt Star Bulk achieved for the scrapping of its 2001-built Star Eleonora.
Now bound for a beach in India, the deal has made the ship's owner a very tidy US$8.26m. Clarkson Research described the price fetched for the vessel as "aggressive" in its latest weekly report. The research unit that belongs to the world's largest shipbroker suggested that the scrap deal may entice more owners to sell their older, larger bulkers instead of passing special survey, which seems to be the current trend.
Danish shipping and energy conglomerate Maersk Group booked a loss of US$1.9bn in 2016, negatively impacted by impairments of US$2.7bn in Maersk Supply Service and in Maersk Drilling as a consequence of an expected weaker outlook.
As a result of US$1.2bn and US$1.5bn of impairments seen by the respective units, the 'unsatisfactory loss' was a turnaround from the company's profit of US$925m registered in 2015.
Despite significant cost optimisation initiatives, Maersk Drilling and Maersk Supply Service were severely impacted by continued large scale cost reductions and project cancellations in the oil industry and the large inflow of new capacity over the last years.
Maersk Group expects its gross capital expenditure for 2017 to be in the range from US$5.5bn to US$6.5bn, as the company anticipates a gradual improvements in container rates.
The decision to halt shipbreaking activities at Gadani yards in Pakistan has left many fearing for the fate of new arrivals and clearance permissions on existing deals, according to GMS, a cash buyer of ships for recycling.
Namely, the uncertainty arose after Chief Minister of Balochistan, Sardar Sanaullah Khan Zehri, banned all demolition activities related to tankers and liquefied petroleum gas (LPG) carriers at Pakistan's Gadani shipbreaking yards last week following two incidents which caused dozens of fatalities.
The minister informed that the works would be stopped until proper safety arrangements are made.
However, once the ban is lifted, key requirement for all tankers arriving locally will be strictly gas free for hot works clean with all cargo and slop tanks totally cleaned of all cargo, slops and sludges, echoing current regulations in both India and Bangladesh, according to GMS.
The ban was imposed less than three months after Gadani yards temporarily closed in November following the series of explosions aboard the oil tanker Aces, reportedly caused by gas wielding processes undertaken during the dismantling work.
The fatal explosion on Nov. 1, which killed at least 28 workers, and the fire on Jan. 9, with another 5 victims "have really shaken up the industry and yard upgrades are inevitable," said GMS.
"It is therefore expected to be a somewhat distracted market in Gadani, until the full range of yard enhancements, restrictions and requirements are established going forward," said GMS.
The cash buyer added that the future of shiprecycling remains uncertain, however, if local beachings in the absence of cutting activities continues, "we can certainly expect Gadani recyclers to disappear from the bidding tables, especially if local authorities take too long to permit yards to come back online."
The rehabilitation process for the former South Korean shipping giant Hanjin Shipping is set to end on February 17, Yonhap News Agency cited the Seoul Central District Court.
The decision was made on Thursday by the South Korean court, some half a year after the cash-strapped carrier was put under court receivership as it succumbed to the prolonged depression in the shipping market.
The company filed for court receivership in late August 2016 as its creditors, led by the state-run Korea Development Bank (KDB), said they would not provide additional financial support to Hanjin starting from Sept. 4.
In an effort to collect enough cash to pay back its creditors, the company opted to sell a number of its assets, including its entire Asia to US route network and operations on the routes, a number of containerships, as well as its overseas businesses.
Earlier this week, Hanjin's stake in Total Terminals International (TTI), the operator of two facilities in Long Beach and Seattle, was sold to Swiss-based Mediterranean Shipping Company (MSC) and South Korean Hyundai Merchant Marine (HMM).
The acquisition, undertaken by MSC's subsidiary Terminal Investment Limited (TIL) and HMM, includes all of Hanjin's equity and shareholder loans in both TTI and the associated terminal equipment leasing company Hanjin TEC Inc.
Crude oil tanker deliveries hit a all-time high in January as 5.5 million dwt of the capacity entered the fleet so far this year, representing an increase of 220% comnpared with January 2016, BIMCO said citing preliminary data from VesselsValue.
The month already accounts for 22% of the previous year's total crude oil tanker deliveries. In comparison to the totals of 2015 and 2014, this 2017 figure amounts to 48% and 51%, respectively.
In terms of crude oil tanker deliveries of 2.5 million dwt, January 2016 hit record levels in relation to the previous two years. However, that level has been dwarfed by the tremendous amount of deliveries in the first month of 2017.
"This record-high crude oil tanker delivery growth is troubling, and worsens the balance between supply and demand instantly, due to sluggish demolition in this segment," said Peter Sand, BIMCO's Chief Shipping Analyst.
From 2014 until 2017, recycling amounts to only 8 million dwt, which represents a small proportion of 2.2% of the current crude oil tanker fleet.
"This development in January highlights the fact that the crude oil tanker market faces headwind for the current year already," added Sand.
VesselsValue data shows that the lion's share of January deliveries was taken by 12 very large crude carrier (VLCC) deliveries, which totals 3.68 million dwt and represents 67% of the month's total.
The expected expansion of the chemical shipping fleet in 2017, driven by the large number of orders placed in previous years, will continue "squeezing rates on major routes over the next two years," said shipping consultancy Drewry.
Time charter rates weakened in 2016, especially for larger tankers, and freight rates on major long-haul routes dipped. Although the trade volume from the US to Europe and Northeast Asia surged in 2016, the appearance of speculative vessels brought rates down.
Although the fleet will continue to expand, growth will be subdued compared to 2015-16, Drewry informed. While deliveries and ordering have reduced in 2016, there are still many ships scheduled to be delivered in the next five years because of heavy ordering during 2014 and 2015.
More demolitions are expected because of new regulations that will come into force in 2017. Coupled with the implementation of the Ballast Water Treatment System (BWTS) in September 2017, the adoption of the global 0.5% sulphur cap may potentially accelerate the rate of vessel demolition towards the end of 2020. However, "this is likely to have little impact on fleet supply," as most of the older ships are of less than 10,000 dwt, and thus, the capacity that can be scrapped will be a small percentage of the total fleet.
"We expect fleet oversupply to persist in 2017 and time charter rates for larger ships, especially MRs, to decline because of stiff competition. However, rates for vessels in the smaller categories are likely to remain stable in 2017," said Hu Qing, Drewry's lead analyst for chemical shipping.
"The chemical fleet grew by 5.2% in 2016 and is expected to expand by 3.3% to the end of 2017, which will continue squeezing rates on major routes over the next two years. New orders and deliveries are also expected to decline further because of the depressed market and financial woes of shipyards," Qing added.
The world merchant fleet rose by 3.1% in tonnage terms to hit a record high of 1.3bn gt.
"While annual fleet growth has dropped from a peak of 8.6% in 2010, today's fleet still represents 50% more tonnage in the active fleet compared to 2009 and the aftermath of the financial crisis," the London-based analysts said.
Also of note in the report is the following statistic: newbuild contracting activity fell to its lowest level in more that three decades, with just 542 orders of 19.3m gt reported, down 70% on an annual basis.
Scrapping volumes jumped 25% YoY last year to 29m gt, with strong container (7.6m gt) and bulk carrier recycling (15.8m gt).
The heads of Japan's three largest shipping lines addressed their employees today as the nation headed back to work. The mood among the three was decidedly sombre, albeit with a grim determination to transform their giant corporate structures to better serve a changed world economy. All three also spent much time outlining the rationale for the shock move announced last October to merge their boxship divisions to compete with other global liners.
"In no sense can we be optimistic about the coming year," Eizo Murakami, president and CEO of Kawasaki Kisen Kaisha (K Line), warned in his address.
Murakami said the planned box merger – due in 2018 – was down to the fact that "competitors cannot be defeated without significantly higher cost competitiveness".
"Our new containerships business strategy for the future will be as follows," Murakami explained, "To fight equally with overseas competitors that pursue economics of scale by applying cost competitiveness generated from the size of our combined fleets and integrated systems together with the sales competitiveness each of us has developed over the years."
Murakami's peer at Mitsui OSK Lines (MOL) also touched on the merger as well as outlining how he sees MOL positioning itself in the coming decade during his speech today.
"The integration of the three companies will give us a foundation to compete with the world's leading mega-carriers. That is why I expect the new company to pursue integration synergies and become a leaner, stronger business enterprise," said Ikeda.
Ikeda, who heads up the world's second largest shipping line by fleet size, said he felt both the container and dry bulk markets were bottoming out.
He proceeded to give employees a vision of how MOL will develop in the coming years.
"My vision of MOL 10 years from now is a group with a strong presence as the world's top logistics partner," Ikeda said.
"I believe that changes in the business environment, notably the slow trade phenomenon, are not short-lived trends," he elaborated, "They reflect a long-term structural change in global trade. Faced with structural changes in the world economy, we cannot break through this impasse by relying on the methods and strategies of the past and outmoded rules of thumb."
As a result Ikeda called for reforms at MOL with what he described as "bold, flexible thinking that breaks from the past".
"Please remember that the environment, ICT, and technological development hold the key to our future," he said, adding, "Corporations can rise above the competition only if they thoroughly analyze their customers' industries, venture into customers' value chains and identify unmet needs, explore how they can add value, and steadily propose solutions that deliver value."
For his part, Tadaaki Naito, the president of Nippon Yusen Kaisha (NYK), instructed his staff to get Japan's second largest shipping line back on a more even financial keel.
"We need to be fully aware of the fact that shareholders are very troubled with our decision to not pay a dividend for the first time in 52 years," Naito warned.
The welcome surge in dry bulk market's spot earnings at the end of 2016 is unlikely to last long into 2017, according to Maritime Strategies International (MSI), which predicts a depressed year for rates.
While iron ore trade undershot its expectations, coal trade overshot them with geographical imbalances playing a key role. However, MSI believes the short term support factors will have unwound in a matter of weeks.
Chartering of Capesize vessels for iron ore out of Brazil and Australia for January loading had slowed before year-end, dragging down spot rates. French nuclear power capacity is set to resume output in January, placing downwards pressure on Panamax coal demand, coinciding with a slowdown in grains trade from the US Gulf, MSI informs.
"In our Base Case there is little to suggest any significant changes to the market through the remainder of 2017 and it is MSI's view that freight rates will remain depressed. Overall, we forecast deadweight demand growth will broadly match supply growth at around 3-3.5% year on year," said Will Fray, Senior Analyst at MSI.
"On this basis we see little reason for freight rates to move meaningfully, other than for short-lived or localised spikes," he added.
In the longer-term, MSI forecasts for 2018 and beyond are still positive but have come down since the last update, mainly as a result of a slightly more bearish view of Chinese steel production, iron ore imports and European coal imports.