Baltic Exchange and the digital container freight platform Freightos have unveiled an independent, audited benchmark for the global container shipping industry.
On April 25, during the Singapore Maritime Week, the two organisations informed that the Freightos International Freight Index will be audited by the Baltic Exchange and republished as the Freightos Baltic Indices.
The index reflects weekly spot rates for 40-foot containers based on 12 to 18 million price points collected every week on 12 main shipping trade lanes.
This will also include a new headline index – the FBX Global Container Index (FBX) – a weighted average of the 12 underlying route indexes, while setting the stage for derivative financial instruments in the future.
“Baltic Exchange benchmarks are already widely used as settlement mechanisms in the derivatives and physical markets for billions of dollars-worth of bulk freight transactions,” Mark Jackson, Baltic Exchange Chief Executive, said.
“By offering our robust auditing methodology to the FBX, we hope to provide the framework for the container shipping industry to develop sophisticated risk management tools,” Jackson added.
“This exciting endeavour means that the world’s manufacturers, distributors and retailers, and logistic services providers, will for the first time be capable of managing ocean freight rate volatility,” Freightos Founder and CEO Zvi Schreiber concluded.
The manufacturers and stakeholders in the ballast water treatment equipment market have taken a major step forward by codifying a unified manufacturers’ association.
The Ballastwater Equipment Manufacturers’ Association (BEMA) met on April 19, 2018 for their first Annual Meeting and elected the inaugural Board of Directors.
The paramount need for this association arose from the growing demand for well-founded information on the practicability of ballast water treatment technologies, as well as on the technical and environmental aspects of implementing ballast water management regulations worldwide.
Following the announcement of a further delay of the 2004 IMO Ballast Water Convention implementation dates, which occurred at MEPC 71, a group of industry insiders gathered in New York City to draw up the framework of what was to become BEMA.
The association moved from concept to reality with their first official meeting on March 9, 2018.
The attendees at this seminal meeting, made up of representatives of equipment manufacturers, industry stakeholders, and component suppliers from all technologies and regions of the world, voted on and adopted a set of draft Bylaws as well as other formation documents, setting the stage for selecting the organization’s Board of Directors and electing the first slate of association officers.
Singapore-based Pacific International Lines (PIL) returned to profitability in 2017 due to an increase in shipping revenue, container sales and initiatives which improved operational efficiency.
The company reported a net profit of USD 119.5 million for the twelve-month period ended December 31, compared to a net loss of USD 251.4 million seen a year earlier.
The company’s turnover for the period surged by 32 percent reaching USD 4.04 billion, compared to USD 3.07 billion reported in 2016, mainly driven by an increase in shipping volume, average freight rates and container sales.
The group’s container shipping business posted increases in shipping volume and average freight rates of 12% and 9%, year-on-year, respectively. This resulted in a 21.3% growth in the shipping business’ turnover. PIL also implemented initiatives which helped to increase operational efficiencies, with shipping expenses increased by only 9.3% in FY 2017 despite the much larger growth in revenue.
PIL informed that it is “encouraged by the recovery” that led to strong financial results, and expects overall market conditions to continue to improve in 2018, driving shipping volume, freight rates and container sales.
South Korean shipbuilder Hyundai Heavy Industries has set a target of KRW 70 trillion (USD 65.2 billion) in revenues by 2022, according to The Korea Times.
The target represents a big jump compared to KRW 37 trillion earned in 2017. The shipbuilder expects a revenue of KRW 37 trillion this year as well.
HHI plans to achieve the new goal by focusing on technologies to sell value-added ships, such as liquefied natural gas and LPG carriers, and launching new businesses, Kwon Oh-gap, HHI’s Chairman and Chief Executive, said during a press conference on April 16.
The company would establish a research and development center in Pangyo, Gyeonggi Province, which would help drive the company’s future success. The center, to be established by 2021, is expected to house up to 7,000 researchers and experts.
Furthermore, HHI is to unveil a new business initiative as early as next month, the chairman said, hinting that the company’s refinery unit Hyundai Oilbank could form a joint venture. Kwon Oh-gap confirmed that Hyundai Oilbank would launch its initial public offering in September or October, as the unit is currently selecting a lead underwriter.
Following the 2008 financial crisis, the Ulsan shipyard sold a number of its non-core assets and cut its workforce through voluntary retirement programs. Due to a quiet market demand, the shipyard would continue reducing jobs this year as well, the chairman informed.
Air pollution from sulphur oxides (SOx) emitted from ships has substantially dropped over the past years, a new compliance report issued by the European Commission shows.
As explained, this positive trend is the result of joint efforts by member states and the maritime industry to implement EU rules under the Sulphur Directive and opt for cleaner fuel.
EU mechanisms to technically and financially support member states to reduce emissions were an important factor in compliance, according to the commission.
Since 2015, stricter limits in the designated ‘Sulphur Oxides Emissions Control Areas’ of the North and Baltic Seas have more than halved emissions, while the overall economic impact on the sector remained minimal, the report says.
“Environmental rules deliver and protect our citizens’ quality of life when all sides involved work together to correctly apply them. The shared commitment by member states, industry, and the maritime community as a whole is paying off. People living around protected sea areas can breathe cleaner and healthier air. And we have preserved the level playing field for industry,” Karmenu Vella, Commissioner for the Environment, Fisheries and Maritime Affairs, commented.
The report comes days after the member states of the International Maritime Organisation (IMO) reached an agreement on a strategy to reduce greenhouse gas (GHG) emissions from international shipping by at least 50% by 2050.
Both are said to illustrate the commitment of the EU to the goals of the Paris Agreement and to a Europe that protects with cleaner air for all as exhaust gases from ships are a significant source of emission and impact on citizens’ health and the environment.
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.”