Danish shipping giant Maersk Line reported a net profit of USD 584 million in 2017, against a net loss of USD 376 million seen a year earlier.
The company’s revenue for the year increased by 14.9% to USD 23.8 billion, from USD 20.7 billion reported in 2016, driven by an 11.7% increase in the average freight. Underlying profit for the period was at USD 521 million, against a loss of USD 384 million.
The year was challenged by a cyber-attack and bunker price increases, however, Maersk Line returned to profit with a significant improvement compared to the disappointing 2016.
The global container demand was strong in 2017, despite a slowdown in the second half of the year following a strong first half, which resulted in increased freight rates compared to the previous year. Maersk Line grew volumes by 3% to 10,731k FFE, compared to 10,415k FFE, despite the negative impact of the cyber-attack.
The volume increase was driven East-West by 2.4%, North-South by 2.2% and Intra-regional by 7.3%. The rise reflects a strong market demand, with estimated growth of around 5% compared to 2016.
The acquisition of German container shipping line Hamburg Süd and the divestment of Brazil’s container shipping line Mercosul Line were completed in December 2017.
The Maersk Line fleet consisted of 287 owned vessels and 389 chartered vessels with a total capacity of 3,564k TEU by the end of 2017, an increase of 10% compared to the end of 2016. The rise is partly due to more capacity being deployed to accommodate the incoming volumes from the slot purchase agreement signed in Q1 2017 with Hamburg Süd and Hyundai Merchant Marine.
Idle capacity at the end of 2017 was 24.1k TEU (three vessels), which was flat compared to 24.7k TEU of idle capacity at the end of 2016.
South Koran shipbuilder Hyundai Heavy Industries (HHI) ended the fourth quarter of 2017 with a widened net loss.
HHI suffered a net loss of KRW 572.3 billion (USD 524.8 million) in 4Q 2017, compared to a loss of KRW 351.8 billion seen in the corresponding period a year earlier.
The shipbuilder’s operating loss stood at KRW 342.2 billion in the fourth quarter of 2017, against an operating income of KRW 61.2 billion posted in 4Q 2016.
What is more, sales dropped by 33 percent to KRW 3.48 trillion in 4Q 2017 from KRW 5.19 trillion recorded in the same quarter of 2016.
As a result of the company’s worsened earnings and dwindling order backlogs, union members at HHI supported a wage deal with management, Yonhap News Agency reported.
As informed, the deal covers the fiscal years of 2016 and 2017. Under the terms of the deal, each HHI employee will receive a month of extra salary plus KRW 1.5 million (USD 1,380) in bonus. The workers’ basic pay will be frozen for the two years.
HHI is encouraging workers with an additional KRW 1.5 million in cash for 2017 to overcome the current slowdown in the industry.
The shipbuilder has set sights on reaching KRW 7.99 trillion in sales during 2018. HHI’s 2018 sales target represents a 60 percent decline from the one a decade ago. The lower aim was set due to a decline in order backlogs, which is expected to continue this year as well.
Norwegian-based ballast water treatment (BWT) specialist Optimarin delivered more than 60 of its USCG compliant Optimarin Ballast Systems (OBS) during 2017.
With 2017’s orders accounted for, Optimarin has now sold 550 systems, with around 440 delivered worldwide. Backed by a stable group of investors, with ambitious long-term plans, Andersen believes the next few years will see these numbers increase significantly, as shipowners move to comply with the IMO’s Ballast Water Management (BWM) Convention.
“We’ve been exclusively focused on developing BWT solutions for almost 25 years, but we’ve never been as busy as we were in 2017,” Tore Andersen, Optimarin CEO, said.
In November 2017, Optimarin decided to launch the BWT sector’s first five-year guarantee. This means that if a shipowner signs a fleet agreement with Optimarin for installation on multiple vessels, the company will provide them with a five-year guarantee that covers all parts and servicing, worldwide.
OBS is fully approved by both IMO and USCG, with certification through DNV GL, Lloyd’s, RINA, Bureau Veritas, MLIT Japan, and American Bureau of Shipping.
Optimarin’s fellow BWT system developers, namely Finnish engineering company Wärtsilä and Swedish Alfa Laval AB, also saw stable increases in demand during the year.
Wärtsilä said that its order intake increased 14% to EUR 1,514 million during the fourth quarter of the year, while order intake grew 15% to EUR 5,644 million for the year ended December 31, 2017.
The company said that the demand for its services and solutions in 2018 “is expected to improve somewhat from the previous year.” Demand in Marine Solutions is expected to be solid, as the marine market environment remains challenging due to overcapacity and lack of financing, despite improving sentiment.
Furthermore, Alfa Laval said that 2017 has been a year marked by a broad economic upswing and a stable increase in demand within most sectors. Order intake was at SEK 9,780 million, up by 16%, in the fourth quarter of the year, “which was somewhat higher than expected.”
However, the company said it expects that demand during the first quarter of 2018 “will be somewhat lower than in the fourth quarter.”
The contracting for new ships at the ship yards increased by about 50 percent compared to 2016, resulting in a significant effect on the order intake in the Marine Division during the year as well as in the fourth quarter, when a sequential upturn of 27 percent was reported. The company said that the increase was slightly higher for the full year.
2018 is not likely to bring much relief for tanker owners as both supply and demand continue to exert pressure on earnings.
“We are currently being hit from both sides,” Trygve Munthe, Co-CEO of DHT Holdings, said in a conference call on Tuesday.
“Demand for tanker transportation is hit by inventory drawdowns and on the supply side we are hit by deliveries of newbuildings exceeding retirements of older ships.”
As explained by Munthe, the main headache in the near-term continues to be the oil inventory cycle, mainly driven by OPEC cuts.
“But the good news is that we’re making meaningful progress towards the alleged goal of getting inventories back to five years historic averages. It has certainly been a tough period for tanker owners and we eye an end into the inventory drawdown phase in the not too distant future.”
The global demand for oil is robust and growing, Munthe added, noting that the main engines of growth are China, India, and Southeast Asia.
“Further, the increased export of U.S crude is becoming an important factor in the tanker market.”
On the supply side, there are some signs of encouragement, as more VLCCs are being sent to scrap yards. Just in January this year five VLCCs were sent for demolition.
In addition, the number of likely candidates which are turning 20 in the next couple of years will reach 37 in 2020.
DHT expects that many of these, if not the majority, will be retired from the trading fleet.
On the newbuilding front, the leading shipyards are now fully committed for 2019 and have consequently revised their prices upwards.
Speaking on the acquisition opportunities in 2018, Svein Moxnes Harfjeld, Co-Chief Executive Officer of DHT, explained that from an asset price perspective, “it has moved sideways. It’s not marginally upward.”
The company availed of the asset prices last year and acquired BW Group’s 11 strong VLCC fleet.
According to Harfjeld, there seems to be no room for such acquisitions this year.
“I think from a DHT standpoint, our balance sheet does not allow us to really make any growth efforts this year,” he noted.
“We take the liberty to suggest that you should expect a continued disciplined execution as the market evolves over time. “
DHT Holdings reported a net loss of USD 7.5 million in the fourth quarter of 2017, against a net income of USD 17.8 million seen a year earlier. For the full year, the company’s net income reached USD 6.6 million.
Increasing confidence in the dry bulk market’s long term recovery has triggered an increasing number of newbuilding orders over the course of the past week. In its latest weekly report, shipbroker Allied Shipbroking said that it was “an interesting week for the Newbuilding market was due, mostly attributable to the Dry Bulk sector, which pulled in its weight this week dominating the reported activity tables this past week. Despite the fact that freight market is showing some slight softening, with the BDI having eased back from its early January levels, fresh interest seems ample at this point, a mere reflection of the strong forward outlook being shared right now by most in the market. Moreover, despite overall activity being still relatively slow for the time being, we have been seeing a considerable amount of options being declared. At the same time it looks as though traders are starting to get into the game, providing ample backing for further ordering to take place. On the tanker side, things are still lacking confidence with the bearish attitude in the freight market still leaving for minimal appetite to emerge in realized new orders”.
Owners of Suezmax tankers are worse off than their counterparts with focus on other ship classes, said shipbroker Charles R. Weber in its latest weekly report. The shipbroker said that the Suezmax market will face a prolonged course towards recovery, as a result of a lack of enough phase-outs, compared to other tanker classes. According to the report, “a broad decline in Suezmax rates since the start of the year has seen average pushed earnings to sustained lows with average returns hovering under $3,000 /day throughout this past week. Representing merely third of average daily OPEX, average earnings stand 35% below the low observed during 2017 – at a time when the market is still at seasonal strength”.
CR Weber said that “while hosts of factors have influenced trade dynamics to the detriment of demand distributed to the Suezmax class, the drivers of the extreme scope of the earnings downturn are far from complex: global fleet supply has expanded by 17% since 2015 while demand has decline by 8%. Indeed, in order to achieve earnings equivalent to the ~$42,280/day observed during 2015, we estimate that the fleet would need shed 111 units. Instead, we project that the 2018 orderbook will produce 33 deliveries by the close of the year. Net of a projected 21 phase‐outs, the fleet is likely to expand by 2.4%. During 2019, a further 24 newbuilding deliveries and 15 phase‐outs are projected, for a net growth of a further 1.7%”.
The shipbroker added that “Suezmax demand is not isolated and the class’ ability to compete in VLCC and Aframax markets implies that any advance improvements elsewhere in the crude tanker market will be supportive, to varying degrees, of Suezmaxes. Inversely, challenges in those markets have applied strong negative pressure on Suezmaxes in recent quarters – something evidenced by the fact that Suezmaxes presently earn considerably less than Aframaxes on a TCE basis but are more expensive for charterers on a $/mt basis for comparable voyages. At the time of the last downturn, at their lowest Suezmax earnings were earning 56% of Aframaxes were – and indeed today, the larger class is earnings 59% of the smaller. Typically, Suezmaxes out earn Aframaxes by 132%”.
Accordin to CR Weber, “encouragingly, the pace of demolition sales in the crude tanker market surged during 2017 amid 38% rise in $/ldt values. Twelve Suezmaxes were ultimately retired through such sales, partly offsetting the 51 newbuilding units delivered; between 2014 and 2016, just 10 units were retired. Expanding the pace during 2018 could help to lift the floor during the ongoing trough market. It would be unreasonable to expect 111 units to be quickly phased‐out in the coming months – indeed, achieving that number would require nearly every unit under 16 years of age to be demolished, something unlikely given recent major maintenance undertaken on a large portion thereof. Simultaneously, it would not be unreasonable to expect at least some pickup. Our base‐case phase‐out assumption, which is based on a granular analysis of the likely phase‐out time for each consistent of the fleet given a range on information pertaining to attributes like ownership, construction and deployment, is for 22 phase outs during 2018”.
“In a high scrapping scenario, we would assume that the commercial disadvantages of older tonnage and the prolonged earnings lull would change the mentality of owners around scrapping sufficiently that most units under 18 years of age would be phased‐out in during the year, totaling 38 units. Assuming that similar scrapping acceleration is observed throughout the crude tanker space, the impact would certainly be meaningful: we estimate that the difference between 22 and 38 phase‐outs during 2018 for earnings could be as much as $13,000/day”, CR Weber concluded.
Global schedule reliability deteriorated to 74.5% in 2017, dropping by 8.4 points from 82.9% in 2016, SeaIntel Maritime Analysis said.
Taiwanese container carrier Wan Hai was the most reliable carrier in 2017, with schedule reliability of 81.0%. Hamburg Süd and Evergreen followed close behind with on-time performance of 79.7% and 79.1%, respectively.
SeaIntel said that none of the top 18 carriers improved on their 2016 schedule reliability scores.
Evergreen and HMM recorded the lowest decreases of 4.7 and 5.0 percentage points. On the other hand, MOL, PIL, and Yang Ming recorded the largest year-on-year declines at 12.7, 11.2, and 10.2 percentage points, respectively.
Looking at the major East/West trade lanes, Asia to North America West Coast saw a 9.3 percentage point drop in schedule reliability to 72.1% in 2017. Matson was the most reliable carrier on this trade lane with on-time performance of 93.3%, followed by Evergreen with 81.0%.
Asia to North America East Coast saw a significant drop in on-time performance, from 80.4% in 2016 to 66.3% in 2017. Evergreen was the most reliable carrier here in 2017, with schedule reliability of 72.3%, followed by Maersk Line and MSC with 70.5%.
Schedule reliability on Asia to North Europe and Asia to Mediterranean dropped by 3.0 and 9.3 percentage points, reaching 76.4% and 74.6%, respectively. Evergren was the most reliable carrier on Asia to North Europe with on-time performance of 82.6%, followed by COSCO with 82.5%.
On Asia to Mediterranean, Safmarine was the most reliable carrier with on-time performance of 95.5%, followed by Evergreen with 79.8%.
Both the Translatlantic trades saw drops in on-time performance of larger than 10.0 percentage points, with Transatlantic Westbound declining by 10.5 percentage points to 67.4%, and Transatlantic Eastbound decreasing by 10.6 percentage points to 70.2% in 2017.
Niche carriers ICL and Marfret had the highest schedule reliability on the Transatlantic Westbound and Eastbound trade lanes, recording on-time scores of 97.5% and 98.7%, according to SeaIntel.
Rates for LNG tankers picked up considerably during the final part of 2017. In the LNG shipping spot market, TFDE headline rates, as reported by Clarksons, rose through the end of the fourth quarter, reaching a peak of $82,000 per day in late December, an increase of 82% from the same time in 2016. According to a market outlook by shipowner GasLog LNG Partners this week, “this improvement in rates, combined with only ten newbuild orders last year, gives us confidence in the sustainability of the current market recovery. While we expect there to be seasonality in both LNG prices and LNG shipping spot rates during 2018, the longer-term outlook for LNG shipping day rates remains positive”.
According to GasLog, “the fourth quarter of 2017 witnessed the start-up of Chevron’s Wheatstone LNG project in Australia, Novatek’s Yamal Train 1 in Russia, and Dominion’s Cove Point project in the United States, building on the momentum in the expansion of global liquefaction capacity seen throughout 2017. In total, over 30 million tonnes per annum (“mtpa”) of new nameplate capacity came online in 2017, an increase of 11% over 2016. Looking ahead, Ichthys, Wheatstone Train 2, Cameroon, Elba Island, Prelude and Yamal Train 2 are expected to begin production this year, adding a further approximately 25 mtpa of nameplate capacity, a projected increase of 9% over 2017”.
The shipowner added that “further out, the long-term outlook for incremental LNG supply and demand continues to gather momentum as witnessed by Cheniere’s recent sale and purchase agreement with Trafigura under which it agreed to supply 1 mtpa of LNG over 15 years beginning in 2019 and Tohoku Electric’s 0.2 mtpa off-take contract with Area 1 in Mozambique. While only one final investment decision (“FID”) was made last year (ENI’s 3.4 mtpa Coral FLNG), various sources project a shortfall of LNG by between 2021 and 2023, implying the need for additional project sanctions over the next 1-3 years”.
According to GasLog, “demand for LNG in 2017 was stronger than expected, growing an estimated 12% over 2016. More specifically, Chinese demand grew by almost 50% year-on-year, overtaking South Korea as the world’s second largest consumer of LNG as the country seeks to introduce more natural gas into its energy mix. Elsewhere in Asia, demand from Japan remained steady while South Korea and Taiwan grew 10% and 14%, respectively. Strong seasonal demand from Asia drove spot LNG prices to over $11/mmBTU in recent weeks, widening the west-east arbitrage window for sending Atlantic Basin LNG into Asia, expanding ton miles and driving incremental demand for LNG shipping capacity.
It may take time before the strength in the spot market observed this winter translates into the multi-year charter market as we are in the early stages of the recovery. However, we are observing increasing levels of tendering activity for charters ranging from multi-month to multi-year, an encouraging development as we look to fix our open days for GasLog Partners’ three vessels whose current charters end in 2018. In addition, some off-takers for LNG projects scheduled to begin production over the next two years have yet to secure their shipping requirements. We expect a number of vessels for these projects to be sourced from vessels currently operating in the short-term market, but also expect the coming increase in LNG supply to require additional LNG carriers beyond those currently on the water and in the orderbook”, the shipowner concluded.
Although hardly a surprise, as most market delegates and shipowners were expecting a weak tanker market anyhow, January has proven to be quite the disappointment for tanker owners. Freight rates have fallen at below operating expenses rates, despite the fact that this part of the year should be a positive seasonality factor. In its latest weekly report, shipbroker Gibson said that “for quite some time the consensus in the crude tanker market has been that 2018 will be a disappointing year in terms of industry earnings. However, the extreme weakness in spot TCE returns across all tanker categories in January still left many surprised, taking into the account the traditional support lent to the market during the winter season. Spot TCE earnings on the benchmark VLCC trade from the Middle East to Japan (TD3) averaged just under $13,000/day at market speed last month, an unprecedented level for January since the turn of the century. The performance on key trades for other crude tanker segments was even worse. Spot earnings for Suezmaxes trading West Africa to UK Continent (TD20) averaged $6,500/day, while Aframaxes trading across the North Sea (TD7) returned on average $4,500/day over the course of last month, in both cases insufficient to cover fixed operating expenses”.
The shipbroker added that “without doubt, such a poor performance is largely attributable to OPEC-led production cuts, coupled with the rapid growth in the crude tanker fleet. Crude production in the Middle East, the largest load region for VLCCs and an important demand source for Suezmaxes and Aframaxes, is now at similar levels relative to volumes produced in early 2016, while the fleet size is notably bigger. At the start of 2018, the VLCC fleet stood at around 720 units, nearly 80 vessels more than in the beginning of 2016. In addition, back in 2016 a sizable portion of the VLCC fleet was tied up in Iranian and non-Iranian storage. This is no longer the case. VLCC storage of Iranian crude and condensate ceased to exist in November 2017, while storage of non-Iranian crude declined dramatically over the past three months. Overall, over 20 VLCCs were released from floating storage duties between January 2016 and January 2018, with the vast majority of these tankers resuming trading operations”.
According to Gibson, “the Suezmax and LR2/Aframax supply also witnessed a spectacular growth, with the fleet size up by 50 and over 75 units respectively over the past two years. In addition to the developments in the Middle East, crude trade on the Suezmax key route from West Africa to Europe remains weak, despite recovering Nigerian output. This is primarily due to the rebound in Libyan output, which has reduced the European refiners’ appetite for West African barrels. Furthermore, more crude is also being shipped from the US to Europe. The same factors aid Aframax demand; however, at the same time there has been a decline in Aframax trade from Latin/South America to the US, mainly due to lower flows from Venezuela. Finally, generally favourable weather conditions in January in a number of regional markets meant less weather driven delays and disruptions, one of the key support factors to the market during this time of the year”.
The shipbroker noted that “going forward, there could still be a few weather driven spikes in rates, particularly in the Northern Hemisphere. However, the rapid fleet growth will continue, as the anticipated pick up in demolition activity will provide only a limited relief from plenty of new deliveries expected to enter the trading market this year. To reverse the current fortunes, owners need notable increases in trading demand. At the moment, rising crude exports out of the US is the key area for growth but the industry also needs to see strong gains in exports in other parts of the world”.
Meanwhile, in the crude tanker market this week, Gibson said that it was “another difficult week for VLCC Owners here as Charterers see no reason to fix too far forward as the oversupply of tonnage again dictates. We may start to see Owners become apathetic and withdraw from the field of play until there is a necessity to fix. Currently levels achievable going East are 270,000mt by ws 39 and 280,000mt by ws 18 cape/cape to Western destinations. Suezmax rates have come under further pressure this week and in the earlier part of the week rates to the West bottomed at 140,000mt by ws 25 and after a flurry of activity rates only slightly rebounded up to ws 27.5. The East has seen little activity and levels remain suppressed at 130,000mt by ws 62.5/65. The Aframax outlook in the East remains bleak with rates slipping further this week. AGulf-East runs are now down to 80,000mt by ws85 even after a flurry of activity in the Agulf”, the shipbroker said.
The liquefied petroleum gas (LPG) shipping market has been under a considerable pressure over the past two years, especially due to the rampant delivery of new ships in 2016.
Speaking of the current orderbook that is lined up and market balance between supply and demand during a Capital Link webinar, Dorian LPG CEO, John Lycouris, said that he was worried about the ordering spree as so many ships are scheduled for delivery in 2019 and 2020.
A substantial amount of new tonnage has been amassed, according to Lycouris, with the orderbook standing at almost 12 percent of the fleet.
However, some ease is expected to be provided by the scrapping of older ships.
“There are indeed 35 ships ready for scrapping in next two years that are going to be put out of the picture no matter what,” he added.
The market is going to be balanced, probably only because of the additional supply of product coming in and more demand in the East for LPG, Lycouris explained.
With regard to the potential ordering of small pressurized LPG carriers, CEO of Epic Gas, Charles Maltby, said that the pricing of newbuildings in the sector is not compelling at the moment. Hence, it is not expected that many owners would be tempted to order new tonnage.
When asked about the new regulations coming into effect soon such as the Ballast Water Treatment Convention, IMO Tier III and the 2020 sulfur cap, Maltby said that no pressurized LPG vessel has been ordered which features duel-fuel engine capability so far.
“Some shipyards have designs available and are in discussions with various potential buyers, but nothing has actually been done. It doesn’t look like something we are going to be at the forefront of when it comes to implementation,” he added.