Following a wave of major consolidation in the container shipping industry, the trend could diminish following the merger of OOCL and China COSCO Shipping, according to Clarksons Research.
The start of joint operations as of April 2018 between major Japanese containership operators NYK, MOL and K-Line, as the Ocean Network Express was another milestone in the ongoing consolidation of the sector.
When looking at the past 20 years, Clarksons said that there was an acceleration of this trend, with significant merger and acquisition activity.
In 1998, the top 20 carriers accounted for 73% of deployed capacity globally, with the largest (Maersk) with a 7.2% share and the carrier ranked 20th (CSAV) with 1.3%. The top 20 included some famous old names, and was essentially made up of the global carriers of the day. The list of carriers ranked 21-30 also contained some carriers still well-known today: Wan Hai, Crowley, Matson and PIL (ranked 30th) as well as carriers since notably merged with others such as Safmarine, UASC, Hamburg-Sud, Delmas and MISC.
However, consolidation has greatly changed the situation and the top 20 now account for 90% of all capacity, while the top 10 account for a mighty 83%. The largest carrier (still Maersk) now accounts for 19.4%, but the carrier ranked 10th (Zim) for 1.8% and the 20th (Quanzhou Ansheng) just 0.3%.
“This profile is the result of an era of major consolidation, which looks like it might take a breather as and when the merger of OOCL with China COSCO Shipping is completed,” Clarksons said.
“The scope of the liner companies’ cost base and the perceived benefits from economies of scale have led to a slimming of the number of major operators long considered inevitable by many.”
A heavy weight top 10 carriers operates 10.4 times the capacity of the carriers ranked 11-20, compared to 2.4 times 20 years ago.
Shipowners showed concerns over compliance and a general resignation in having to switch to more expensive low sulphur fuel to meet the IMO’s proposed 2020 bunker regulation, according to Drewry’s survey.
Decisions over whether to install scrubbers, switch to LNG-propelled ships, or simply bear the extra cost of using more expensive, compliant fuel will be preoccupying all shipowners in light of the International Maritime Organization’s (IMO) proposed new bunker rules that will place a 0.5% sulphur cap on fuel in 2020.
A survey by Drewry of shipowners of all types of cargo ships found that most respondents, 66% of them, believed the regulation would become enforceable as planned in 2020.
However, over one quarter thought that the regulation would need to be extended due to a lack of readiness, with concerns ranging from the availability of low sulphur fuel, scrubber installation capacity, LNG infrastructure and potential further changes to legislation.
In terms of ensuring compliance, owners indicated that using low-sulphur fuel is the intended solution for the existing fleet in 66% of cases, far ahead of other solutions such as heavy fuel oil with exhaust SOx scrubbers with 13% or LNG with 8%, with owners wary of the cost implications for retrofitting.
That gap narrows significantly when looking at compliance for newbuilding projects. Low sulphur fuel oil is once again the preferred option with 37%, but there is far more appetite for LNG with 24% and scrubber-installed ships with 21%.
Respondents expressed a high degree of concern that external factors will make it difficult to achieve compliance by the 2020 deadline with the availability of low-sulphur fuel the major worry, while a limited capacity to retrofit scrubbers was also cited.
The IMO is expected to produce a set of guidelines to owners later this year that will clarify the tolerance levels for non-compliance, which will hopefully allay some owners’ fear of being punished in cases when they justifiably fail to meet the new standards.
“Meeting the new bunker standards is a very real concern to many owners and the sooner the IMO can provide clarity on its enforcement the better. Owners must brace themselves for additional opex and capex costs associated to the legislation,” Drewry said.
Tanker scrapping increased in the first quarter of 2018, with the volume of vessels sold for demolition exceeding all expectations.
Low freight rates, high scrap prices, an aging tanker fleet, and the impact of upcoming vessel regulations have combined to create the perfect “scrap storm”, Teekay said in its latest market update.
Since the start of the year, a total of 8 mdwt of tankers have been scrapped, including 17 VLCCs, 3 Suezmaxes and 14 Aframaxes, Clarksons data shows.
The last time 8 mdwt of tankers was scrapped in a single quarter was in 1982.
In Q1 2018, the average age of scrapping has been 20 years, though the total includes a significant number of vessels in the 17-18 year category. This indicates that many owners are deciding not to go through with the 17.5 year intermediate survey, particularly in the VLCC sector where earnings have been sub-OPEX for much of 2018, according to Teekay.
“If this pace of scrapping is maintained for the rest of the year, tanker fleet growth could be close to zero in 2018 (or even negative for the first time since 2001). Our view is that low earnings and high scrap prices will continue to spur scrapping throughout the year; however, it is perhaps too much to hope that the torrid pace seen in Q1 will be maintained,” Teekay said.
As explained, the recent scrapping trend is likely to be positive for the tanker market, particularly in the second half of the year when an improvement in demand is expected.
Multipurpose shipping has started 2018 on a confident footing and is forecast to recover further on rising demand, contracting vessel supply and lessening threats from competing sectors.
The multipurpose shipping market, which comprises both breakbulk and project cargo sectors, has struggled over the last few years but conditions are now ripe for recovery, shipping consultancy Drewry said in its latest Multipurpose Forecaster.
Dry cargo demand is growing, with a number of drivers reporting improving conditions, whilst the multipurpose fleet is contracting as older, smaller, less heavy lift capable tonnage is weeded out.
“This year has started with renewed optimism and it is Drewry’s belief that the market has finally turned that corner,” Susan Oatway, Drewry’s lead analyst for the multipurpose sector, said.
“Rate rises are never stratospheric in this sector, but we believe a steady growth of around 2-3% per year is possible over the forecast period.”
However, due to the diversity of drivers that supports this sector there are still some concerns that could impact the outlook over the medium term.
The simple multipurpose fleet, that is those vessels with lift below 100 tons, has already started to contract at a rate that is affecting the whole fleet. However, Drewry believes that the future is with the project carrier sector, i.e. those vessels with lift greater than 100 tonnes.
“Some 80% of all newbuildings over the last five years have heavylift capability, and at least 70% of the orderbook has this capability. The project carrier fleet is growing, but it will be some time before it reverses the decline in the overall multipurpose fleet,” Oatway concluded.
The container shipping market is to see a healthy demand growth that will outpace the fleet in 2018 and 2019, according to shipping consultancy Drewry.
This would result in a better supply-demand balance and slightly higher freight rates and profits for carriers, Drewry said in its latest Container Forecaster.
“The bad news for carriers is that they are unlikely to see the very strong demand growth rates of early 2017 for the foreseeable future. The good news is that while port handling growth may have peaked, they can still expect more than adequate volumes for at least the next two years,” Simon Heaney, senior manager, container research at Drewry, said.
Subtle changes to the orderbook, mainly in the form of delivery deferrals, have softened this year’s new capacity burden and had a positive effect on supply-demand equations for both 2018 and 2019.
“The top-heavy delivery schedule for 2018 with the majority of ULCVs being delivered in the first quarter has depressed our supply-demand index, but the balance will improve as the year progresses,” said Heaney.
“Unfortunately for carriers this won’t come soon enough to erase the negative sentiment for annual contracts, hence why we only anticipate a small uplift in average freight rates for the year.”
Heaney added that renewed newbuild contracting activity is not yet at the level that risks worsening the supply-demand balance.
Drewry’s forecasts were finalised before the escalation in trade hostility between the US and China.
“We did build in some element of trade deflation based on past rhetoric and actions,” said Heaney.
“A trade war is not yet inevitable, but given the lack of details, quantifying the risk to container shipping is very difficult. For example, much of the hi-tech goods considered liable to tariffs will be airfreighted rather than move on the water. In a worse-case scenario we believe as much as 1% of the world’s loaded container traffic could be exposed, and were the situation to become real we would clearly have to revise our demand forecasts downwards.”
Demand for LNG as a marine fuel has risen significantly, especially in Nordics marine market, according to a Norwegian LNG supplier Skangas.
The driving force behind the rise is the addition of new vessels to the LNG-powered fleet on the back of ever increasing conversion of ships to dual-fuelled engines and a switch to LNG as marine fuel in anticipation of more stringent environmental regulations.
The market has been waiting for the LNG bunkering vessels, according to Skangas.
The switch to LNG has been prominent in European waters, Gunnar Helmen, Sales Manager – Marine for Skangas said, where, until recently, most of the traffic consisted of ferries and RoPax cruise ferries routinely traveling set routes.
“Today, the supply pattern is more diverse due to the use of a greater variety of vessels, that require different types of bunkering solutions. And we are responding directly by offering a number of solutions for this market.”
Skangas said that it has completed 1,000 LNG bunkering operations in 2017, representing more than 60 pct increase over previous years. This was enabled, among other things, by the introduction of the company’s customized bunker-feeder vessel Coralius into operation in 2017, which delivers LNG through ship-to-ship bunkering at sea.
As responsible marine transport and shipping companies seek cleaner fuel alternatives to power their fleets, Skangas expects demand for LNG by the marine market to increase significantly during the coming years.
“Already, the number of bunkering operations we’ve executed for the marine market is higher than in Q1 2017,” said Helmen.
“Clearly, 2018 is set to be another exciting year for Skangas, as we continue to provide readily accessible LNG to industries that operate at sea and onshore throughout the Nordics.”
Total capacity on the transpacific routes is expected to increase by at least 8% by July this year, according to Alphaliner.
So far, two new services were unveiled for the routes, which are expected to add to various capacity upgrades planned on existing services.
Overall capacity to both the US West Coast and US East Coast is expected to increase by 8 to 9%, with additional capacity to be progressively phased in from April.
Alphaliner informed that OCEAN Alliance carriers are to contribute the bulk of the additional capacity, with overall growth of more than 10%, while SM Line would almost double its capacity with the launch of a new service to the Pacific Northwest in May 2018.
APL has also announced a new Eagle Express X (EXX) service, to be launched in July 2018, offering a fast eleven-day transit time from Shanghai to Los Angeles. The new loop is set to challenge the ten-day express service that Matson offers on its China-Long Beach Express (CLX).
“The planned capacity increases will have an impact on the ongoing rate negotiations for the new annual Transpacific service contracts from May 1 and spot freight rates are expected to come under pressure as vessel utilisation falls,” Alphaliner said.
After the brief recovery of January and February, SCFI spot rates are to register falls in the coming weeks as demands slows after the Lunar New Year holidays in the Far East.
Danish shipping company TORM managed to remain profitable in the year ended December 31, 2017, despite a challenging product tanker market.
The company’s profit before tax amounted to USD 3 million in 2017, compared to USD -142 million seen in the previous year, while its revenue dropped to USD 657 million from USD 680 million reported in 2016.
For the full year 2017, TORM achieved Time Charter Equivalent (TCE) rates of USD 14,621 per day, which were down from USD 16,050 per day reported a year earlier.
Despite a healthy consumer-driven demand for refined oil products, the record high clean petroleum product inventory levels globally, which were built up during 2015 and 2016, had a negative impact on the product tanker market in 2017.
Inventory drawdown was an overriding theme in 2017, which naturally had a negative impact on product tanker demand. In fact, global stocks of clean petroleum products decreased by a volume equivalent to a loss of potential trade of 4%.
“In 2017, TORM continued to execute on its strategic objectives. I am pleased that we were able to grow the fleet through attractively priced vessel acquisitions, complete the US listing in December and finally, in January this year, we raised USD 100 million in new equity for further growth.” Christopher H. Boehringer, Chairman of the Board, said.
“Looking ahead, I have confidence in the strength and performance of the TORM platform. With an encouraging market outlook for product tankers, I look forward to reporting on our progress throughout 2018,” Boehringer added.
During 2017, TORM acquired six MR resale vessels, two of which were delivered in the third quarter of 2017, and executed newbuilding options for two LR1 vessels for a total consideration of USD 259 million.
In addition to the vessel acquisitions, TORM has over the course of 2017 sold five older vessels, including one MR and four Handysize vessels. TORM has also made three sale and leaseback transactions that are treated as financial leases although they have no purchase obligation attached.
In December 2017, TORM achieved a milestone by listing its A-shares on NASDAQ in New York. Following the balance sheet date, in January 2018, TORM completed an equity raise of USD 100 million.
While the dogma of “America First” is a time-bomb in the foundations of free trade and its growth prosects, especially as it’s starting to materialize from fiction to reality, crude tanker owners are looking for the silver lining of the US economy these days. This can be found in the form of a booming export trade of crude oil, which has the potential to offer a much needed boost in the tanker freight market. In its latest weekly report, shipbroker Cotzias Intermodal Shipping, said that the “US shale production continues to grow rapidly, hitting new records and with projections being revised upwardly at every turn. According to the International Energy Agency, the US will overtake Russia as the world’s #1 crude oil producer by next year, having surpassed 10m bpd in late 2017 and slated to surpass 11m bpd by the end of 2018”.
According to the shipbroker, “over the past two years US shale oil companies have managed to become more efficient, optimizing production processes and utilizing new technologies and practices at lower costs. This is attributed in part to technological breakthroughs on the drilling side; Break-even points for US production have been driven substantially downward. It remains to be seen if this increase will be sustainable but at this point most pundits do not see production peaking before 2020. The booming production has of course unnerved other producers and oil markets globally and comes at a time when other producers have voluntarily capped their own production in order to prop up prices. During 2017, we witnessed the spike in prices due to OPEC production cuts with prices steadily correcting upwards since November 2016. Oil is currently trading in the low $60s, after peaking at a 3-year high of ~$66pb”.
Linos Kogevinas, Commercial Executive with Cotzias Intermodal Shipping, said that “OPEC and its allied producers are seeing their market shares eroded by the increasing US production. At the same time, US oil imports are also dropping, further shrinking profits from OPEC established markets. With this in mind, it will be very interesting to see how the commodity price will fare under these new conditions. US shale production will be extremely important to watch over the next 5 years. It is almost certain that production will continue to grow in the next years. However, a number of factors will determine if this growth will be sustainable long term and how the market will balance itself under a future -potentially different- status quo”.
According to Kogevinas, “on the tanker side a growing US production is good news as exports from the country could be offering more and more support to rates in the future as apart from Europe and Latin America, the long haul trips to the Far East and particularly to China is gaining increasing momentum. Thomson Reuters data reveals that US shipments specifically to China that were non-existent prior to 2016 have now reached a new record of around 2.01 million metric tonnes or 474,450 barrels/day during last month. Sinopec, the biggest oil refiner in China, expects to import 10 million metric tonnes of crude oil from the US during 2018. As the production cap from OPEC and Russia continues, the fairly new and quickly increasing flow of the commodity from the US to S. Korea, Japan and China is definitely something to watch out for. Additionally as a growing US production will almost certainly keep undermining OPECs efforts to boost oil prices, this means that the price of the commodity will keep moving – at least for the short to medium term- within a specific range that is still considered attractive for consuming countries maybe not compared to early 2016 levels but certainly when compared to mid-2014 levels of around $ 100/barrel”, he concluded.
The “mantra” of 2018 has been calling for prudence from the part of ship owners, if a freight market rebound is to materialize in the tanker market, not to mention the danger looming for the sustainability of the dry bulk segment as well. Still, newbuilding contracting activity has been quite firm. Over the course of the past week, Allied Shipbroking commented that “the newbuilding market felt an uptick in activity this past week, despite the continuing sluggish mode that has been noted in the market lately. This coincided with the rebound in volume noted from the tanker sector, which countered the overall feel this market has been giving off lately. Seeing once again movement, has helped build up positive sentiment, however, this boost is embraced with hesitation by many market participants. Given the volatility of the market, it is not surprising that many are questioning these latest orders, with fears mounting as to the added pressure these new vessels may well bring come their delivery date. On the other hand, new ordering in the dry bulk market continues to remain slow, indicating that flow from that side is losing stability and becoming subject to periodical pressure or to potential opportunities that may arise. Given their more robust fundamentals, it has been surprising to see that so few have flocked to take up this ordering option window, especially when noting the significant upward pressure being seen on prices right now”, said Allied.
In a separate shipbuilding report this week, Clarkson Platou Hellas said that “in Tankers, Daewoo Shipbuilding & Marine Engineering (DSME) have announced signing a contract for three firm 300,000 DWT VLCCs with an unknown owner. The vessels are set for delivery within 1H 2020 from Okpo. DSME have announced winning a further order for two firm 300,000 DWT VLCCs from an unknown European owner. These two units will also deliver within 1H 2020. DSME have also announced a contract for two firm 174,000 CBM LNG Carriers for delivery in 3Q 2020 – similarly the buyer’s identity remains undisclosed. In the small sizes, Jinling Shipyard have received an order for one firm 6,500 CBM LPG/Ehylene Carrier from domestic owner Nanjing Yangyang Chemical Transport for delivery in 1Q 2020”, the shipbroker said.
Meanwhile, in the S&P market this past week, shipowners’ appetite for additional dry bulk tonnage was unabated. In its report, Allied said that “on the dry bulk side, the temporary pause came as quick as it appeared, with a exacerbated rush for deal conclusion being seen after the end of the Chinese New Year. It looks as though the situation in the freight market added significant confidence amongst buyers, while it now seems as though we may well see some increased competition emerging amongst buyers. With an extra boost from the freight market one could see how this could easily heat up the market relatively quickly, while we are likely to see most of this force focused on the more modern tonnage this time around. On the tanker side, things went back down to “quiet”, with a minimal level of vessels changing hand this week. It seems as though the recent trough in the freight market has caused many to take yet again a “wait and see” strategy, while there are still many that feel that sentiment is clouded in considerable uncertainty for now, giving mixed views amongst both buyers and sellers”, Allied Shipbroking said.
In a note this week, VesselsValue said that bulkers’ values have remained mostly stable, but with a slight firming in older panamax tonnage. “Panamax Sea Ace (81,800 DWT, Sept 2012, Longxue) sold for USD 18.5 mill, VV value USD 17.32 mill. Ultramax BW Durum (61,500 DWT, Sept 2016, Dalian COSCO) sold to Navigare for USD 25 mill, including a charter for 1 year at USD 12,000 pd. VV value 23.61 mill. Supramax Darya Vishnu (56,100 DWT, Jul 2006, Mitsui Tamano) sold to Polforce Shipping for USD 12.8 mill. VV value 12.23 mill. Supramax Polestar (53,500 DWT, Feb 2006, Imabari) sold at auction for USD 9.3 mill to Pingtan Minghui. VV value 11.36 million” said VV.