The demise of the crude tanker market could be translated to record demolition activity during 2018. In its latest weekly report, shipbroker Charles R. Weber said that “following a depressed year for crude tanker earnings during 2017, rising $/ldt demolition values appear to be the only positive development for owners of elderly tonnage during the first weeks of 2018 amid a worsened trading environment. Through the first eight weeks of 2018, crude tanker earnings have posted an average decline of 65% on the same period during 2017 – to levels that are either at or below OPEX costs in most cases. At the same time, $/ldt values have continued to rise, posting a 40% gain since the start of 2017. Strengthening $/ldt values already prompted an accelerating of demolition sales activity during 2H17 and, over the course of the whole year, more tanker tonnage was demolished than during 2014, 2015 and 2016 combined. The trend appears to be accelerating, as so far this year there has been 4.3 Mn DWT of crude tanker capacity sold for demolition; on an annualized basis, this is a nearly four‐fold year‐ on‐year increase. Several additional crude tanker units currently under negotiation for demolition sales suggest that the trend may rise still – particularly as many of the units being worked are VLCCs”.
According to CR Weber, “a heavy phase‐out program between now and the end of the decade had already projected by market participants and factored into the projecting of a recovery of earnings in the coming years, in light of the age distribution of the crude tanker fleet and the high cost of compliance with forward maritime regulations. Pegging the precise timing of most units’ phase‐outs, however, is complicated by a number of factors, not the least of which is the fact that many owners have historically enjoyed better returns from older units that usually have little or no debt servicing obligations. Our phase‐out projections are made both generally (based on age and SS/DD positioning) and granularly (in consideration of known variables pertaining to the deployment, trading orientation and ownership profile of each unit).
Yet, despite the expectations of both the market and our models, the extent of demolition activity was rather uninspiring until 3Q17 – well after the earnings downturn commenced. Moreover, even as the pace of demolitions surged during 3Q17 and 4Q17, the average age of demolished units actually rose to 27.7 years. The reluctance of owners to agree to demolition sales even as earnings were nosediving appeared to many as a harbinger of a poor trading market for years, rather than quarters, to come. Since the start of the year, however, the average age has declined considerably to 21.7 years, with no less than five units younger than 20 years included in the average. Participants in the crude tanker market will undoubtedly be closely monitoring the pace and age characteristics of units sold for demolition in the coming months to ascertain the shape a forward recovery of earnings may take. Certainly, a sustained commitment to the demolition option by owners would be a positive development that could hasten a recovery forward by at least a few quarters”, the shipbroker concluded.
Meanwhile, in the VLCC tanker market this week, CR Weber said that the market “appeared to be further deteriorating this week with fresh demand‐ side headwinds adding to those caused by an ongoing and pronounced structural oversupply situation. Fixture activity in the Middle East market dropped 7% w/w and COA coverage thereof increased by six percentage points to account for 43% of the total. The Atlantic basin was worse yet: there were zero fixtures in the West Africa market, marking the first such occurrence in over a decade while in the Americas, demand remained limited and fresh cargoes were met with a growing list of available units. Middle East Rates on the AG‐CHINA were unchanged at an apparent floor of ws39 (the shorter‐ haul AG‐SPORE route experienced a fresh weakening). Corresponding TCEs concluded the week at ~$8,406/day. Rates to the USG via the Cape were off by 0.5 point to ws17.5. Triangulated Westbound trade earnings were off by 6% to ~$15,041/day. Atlantic Basin Rates in the West Africa market followed those in the Middle East. The WAFR‐FEAST route was unchanged at ws41. The route’s TCE concludes the week at ~$12,482/day. In the Americas, rates were unchanged at $3.25m lump sum for CBS‐SPORE voyages”, the shipbroker concluded.
The consolidation drive in the container shipping sector through mergers and acquisitions is likely to slow down in 2018, according to online freight forwarder iContainers.
Instead, this is likely to pivot to freight forwarders, where the industry can expect to see an increase in M&A talks.
“In terms of carriers, I doubt we will see any more movements in the near future. I don’t see any major players breaking right now. Any acquisitions that were to take place now would be a purely strategic move, or if an opportunity presents itself for one of the bigger carriers to buy up a younger one,” Klaus Lysdal, Vice President of Sales & Operations at iContainers, said.
Amid a prolonged market downturn, many carriers resorted to forming alliances and setting agreements on slot purchases. These allowed them to gain cost-effectiveness by combining their resources without risking further debt. Such movements have had its effects trickle down to shippers, the online freight forwarder added.
The latest M&A round saw Japanese carriers NYK, MOL and K Line merge their containership business within the Ocean Network Express (ONE), scheduled to start operations on April 1, 2018.
Creation of ONE came on the back of M&A deals involving CMA CGM and APL, Cosco and CSCL, Maersk Line and Hamburg Süd, and Hapag-Lloyd with UASC.
“We’ve seen so many consolidation activities that there are now a lot fewer options for shippers to choose from and less flexibility with the number of carriers so dramatically reduced,” Lysdal explained.
“But on the other hand, the good thing that has come out of all of this is some very much-needed rate increases to make the industry healthier overall.”
SeaIntelligence Consulting’s CEO, Lars Jensen, agrees with the projection, adding that despite some aspirations for further mergers competition authorities are likely to block them.
“Long term, Hyundai and Yang Ming are not going to be viable in their present states. They’re too large to become niche carriers and too small to become super carriers. They will transform or disappear in some way, shape, or form. Yang Ming is likely to be absorbed into Evergreen, even though Evergreen hates the idea. Hyundai will persist as long as the Korean government wants to subsidize them,” Jensen adds.
According to Jensen, the shift may be moving down the line to the smaller carriers, where hundreds of small and medium-sized carriers will be starting to stir and probably where the consolidation game will ramp up over the coming years.
“The capacity operated by these carriers has skyrocketed. And it’s not because they were operating more ships. It’s because they were redelivering smaller charter vessels and taking larger ones on. There’s no way they can all fill the ships that way. So there will be a consolidation with these small and medium-sized carriers.”
Lysdal believes freight forwarders may also be mimicking the move and engaging in their own M&A activity for strategic growth purposes, with mid- and large-ranged forwarders acquiring tech-savvy companies as a shortcut into the digital market.
“I think we will see that the top players will be watching and observing from the sidelines for a while. Once they see someone really make a breakthrough, that’s when they make their move.”
BIMCO relaunches ship benchmarking system Shipping KPI after two years of redesign. The system helps shipowners and managers make strategic decisions about their fleet.
“The Shipping KPI system enables me, as a shipowner, to make rational strategic decisions on how to run my fleet, by benchmarking with other ships in the segments we compete in. It is an important step for BIMCO in its goal of developing digital solutions for the industry,” says Şadan Kaptanoğlu, owner of Kaptanoğlu Group, President Designate of BIMCO and chair of the Shipping KPI steering group.
Shipping KPI is based on self-reporting by 300 companies and a total of 6000 ships. It enables users to compare performance parameters between ships of similar type, tonnage, trades or flag states, while remaining anonymous.
Users can compare 33 different Key Performance Indicators (KPIs) – for example budget performance, ship availability, contained spills and officer retention. The KPIs are based on 64 individual performance indicators.
BIMCO’s short term target is to get more than 10,000 ships into the system to create an even better foundation for comparison and analysis.
Shipping KPI, a community tool
“We see Shipping KPI as a community effort. It is by the industry for the industry. It is designed for shipowners and ship managers, to help them compare apples with apples, without giving over proprietary data to their competitors. It enables us at Kaptanoğlu Group to manage our fleet better,” Kaptanoğlu says.
BIMCO has improved the reporting tool and made sure that the reporting values conform to IMO-rules and industry-standards. A lot of work has also gone into improving the user experience.
When you benchmark in the Shipping KPI system, the lowest level you can compare your ship or ships with is the data from a minimum of 10 ships, owned by at least three different companies.
The data is hosted with an external company, which is independently audited to verify its ability to safeguard the data. It should be noted that BIMCO does not have direct access to the data provided by the participating companies.
Free of charge
Shipping KPI is run by BIMCO on a not-for-profit basis. New users have to pay a sign-up fee, but thereafter, the tool is free for BIMCO members. Non-members have to pay a sign-up fee and thereafter an annual subscription of €1,975.
Shipping is often regarded as a relatively fragmented business, with over 94,000 vessels split between almost 24,000 owners. However, the level of consolidation varies greatly between sectors, while the recent increases in M&A and restructuring activity have driven some change. This month’s Fleet Analysis takes a look at consolidation amongst shipowners in a selection of shipping sectors.
A Tighter Chokehold
Some of the more consolidated sectors, led by cruise ships, are shown on the left of the graph. As of 1st February 2018 the ‘top five’ owner groups (ranked by the size of their fleet within the sector, in GT terms) owned 84% of cruise tonnage. With each group controlling a number of companies, strong brand loyalty, as well as the huge cost of vessels, make it difficult for new owners to enter the market.
The containership sector has also typically been a more consolidated part of shipping, with 46% of fleet tonnage accounted for by the ‘top ten’ owner groups as of 1st February. This share has risen from 37% at the start of 2010, driven in part by significant M&A activity, such as the acquisition of Hamburg Sud, UASC and CSAV by larger liner companies. Consolidation is even more pronounced when focussing on operation, with the top ten boxship operators deploying 80% of tonnage. Elsewhere, in the gas carrier sector, the ‘top ten’ owner groups accounted for 38% of fleet tonnage at the start of February. However, this was a decline from 49% at the beginning of 2007. Fleet ownership is now divided more evenly between energy majors, who were previously dominant, and independent shipowners, who have increased their share.
A Range of Combinations
In other sectors, consolidation is less pronounced. The ‘top ten’ offshore owner groups accounted for 27% of fleet tonnage as of 1st February 2018. The diversity of vessel types across the offshore fleet means that many owners specialise in a small number of sub-sectors, limiting the extent of consolidation across the fleet as a whole, although recent M&A activity has driven some change. Meanwhile, at the start of February the ‘top ten’ tanker owner groups accounted for 21% of fleet tonnage. Although this was a lower share than elsewhere, consolidation varies across the sector, for example due to high capital costs in the larger crude tanker sizes.
All Chopped Up
The bulkcarrier sector remains the least consolidated of the major vessel types, with the ‘top ten’ owner groups representing 15% of fleet tonnage at the start of February. Smaller owners have typically accounted for a higher share of the bulker fleet than in other sectors, and as of 1st February, there were almost 1,500 owner groups with just 1-5 vessels.
Shipping as a whole remains a relatively fragmented industry, with smaller owners accounting for a large share of vessels. Equally, owner groups with fleets of more than 50 vessels account for 47% of total tonnage, and M&A activity could continue to drive consolidation. However, with some sectors dominated by a small number of groups and others remaining more fragmented, consolidation across the world fleet still varies hugely.
Miami-based cruise company Norwegian Cruise Line Holdings (NCLH) reported record earnings in the fourth quarter and full year 2017, mainly due to robust revenue growth.
For the year ended December 31, 2017, the company generated a net income of USD 759.9 million, up from USD 633.1 million reported in the previous year, while its revenue for the period stood at USD 5.4 billion, rising 10.7% from USD 4.9 billion seen in 2016.
The increase was primarily attributed to a 6% rise in capacity days due to the delivery of Norwegian Joy in April 2017, Regent’s Seven Seas Explorer in June 2016 and Oceania Cruises’ Sirena in April 2016 and strong organic pricing growth across all core markets.
The company’s net income for the fourth quarter of 2017 reached USD 98.8 million, compared to USD 72.2 million reported in the same quarter a year earlier. NCL’s revenue for the quarter was up by 11.1% at USD 1.24 billion, compared to USD 1.12 billion seen in the fourth quarter of 2016.
“The strong, record performance we delivered in 2017 was the perfect end to a historic year as we celebrate the five year anniversary of our initial public offering,” Frank Del Rio, president and chief executive officer of Norwegian Cruise Line Holdings Ltd, said.
Looking at 2018, the company said that strong financial track record continues as the fifth consecutive year of double-digit EPS growth is anticipated. 2018 booked position was at all-time high entering the year with load factor and pricing higher than prior year across all three NCL brands driven by strong demand across all core markets.
“The continued strong global demand for our portfolio of brands will enable us to further grow revenue, resulting in our sixth consecutive year of net yield growth. This, coupled with the benefit of the launch of Norwegian Bliss and a continued focus on costs, will drive 2018 earnings to record highs,” said Wendy Beck, executive vice president and chief financial officer of Norwegian Cruise Line Holdings Ltd.
The container shipping industry will be focussed on the deployment of ultra large container vessels (ULCV) during the year as around 40 of such ships are expected to join the fleet in 2018, according to BIMCO.
53 ships larger than 13,500 TEU are scheduled for delivery, however, the number is expected to be slighty less as some owners might opt to push deliveries of their ships. In 2017, 55 ships of the same size were scheduled for delivery, but only 43 were handed over.
During 2017, owners and investors were busy in the second-hand market. The year was in fact the busiest on record as 297 ships changed hands, valued at USD 4,178 million, BIMCO cited data from VesselsValue. Panamax ships were in demand, more due to price than anything else, with 93 ships changing hands in total.
Purchasing prices were equal to the demolition values of many of the ships, meaning there was little downside risk from the purchase. Since mid-2017 both demolition prices and second-hand values have gone up.
A 2009-built, 4,275 TEU panamax ship was valued at USD 13.7 million in July 2016, USD 5.6 million in January 2017 and USD 10.9 million in January 2018. At the same time, the demolition value of the same ship was USD 4.6 million, USD 5.6 million and USD 8.1 million. Meaning that deals done at January 2017 prices were equal to demolition values.
Regarding the overall demand in the container shipping industry, BIMCO said it wxpects the demand to be lower than in 2017, but still high enough to potentially improve the fundamental market balance.
Demand is forecast to grow by 4.0-4.5% against a fleet growth of 3.9% in 2018.
More than 87 pct of the global fleet capacity is controlled by only ten out of 67 shipping lines operating fully cellular containerships, which is less than 7 pct of the total lines, according to the data from MDS Transmodal.
Danish liner major Maersk Line is on the top of the list with an estimated share of over 21 pct of the global market (excluding intra-regional).
Maersk Line is followed by its 2M Alliance partner Mediterranean Shipping Company (MSC) in the second place and CMA CGM in the third place. The remaining top ten players include German liner Hapag-Lloyd, COSCO, Evergreen, OOCL, MOL, Yang Ming and NYK.
Over the last four years, the top 10 shipping lines have seen their combined market share increase from 68 to 83 pct, according to the UK-based consultancy.
During the said period, the top 10 lines have seen their deployed capacity increase from some 55 million TEU to 86.7 million TEU. The increase was mainly driven by consolidation and mergers and acquisitions over the past few years, a process which is far from over.
Namely, Orient Overseas Container Line (OOCL) is to become part of China Ocean Shipping Company (COSCO) sometime this year, bringing the duo’s combined share in the deep sea trades to around 12 pct.
In April 2018 the container divisions of Nippon Yusen Kabushiki Kaisha (NYK), Mitsui O.S.K. Lines (MOL) and Kawasaki Kisen Kaisha (K Line) will merge, forming a joint venture called Ocean Network Express (ONE). MDS estimates that their combined share of the deep sea trades will be 8.7 pct.
With fewer lines dominating the market, smaller lines are facing an ever-increasing pressure.
On the major three East/West routes, the market is dominated by the three alliances- Ocean Alliance, 2M and the Alliance- although at different magnitudes. On the Asia-Europe routes, lines that are not part of alliances account for just 1 pct of the total deployed capacity, whereas on the Transpacific and Transatlantic routes, they account for 11 pct and 17 pct respectively, data from MDS shows.
However, on the individual routes, mergers and acquisitions and consolidations could indirectly offer opportunities for small players.
For instance, the strict conditions imposed by the regulatory authorities on Maersk operations after the acquisition of Hamburg Süd have offered the chance for a small line, in this case, Pacific International Lines (PIL), to launch a service between Asia and South America EC.
Nevertheless, the longevity of this kind of services is far from certain as they will be subject to rates volatility, MDS concludes.
The dry bulk shipping industry, which should be facing another year of improvement to the fundamental balance, is currently in its year of opportunity, according to BIMCO.
The improvement is expected amid the slowest pace in fleet growth since 1999, as well as solid growth in demand.
January saw plenty of ship deliveries coming onto the water as it reached a ten-month high at 4.8 million dwt, while 0.7 million dwt were demolished. Although the fleet growth slowed down, the flip side is that more new orders are being placed at Far Eastern shipyards by global shipowners and investors.
According to BIMCO, the dry bulk shipping market requires careful handling in the first quarter of the year as seasonal cargo demand drops. In terms of freight rates, the positive development that characterised most of the second half of 2017 came to a sudden end on December 12, 2017, once capesize earnings peaked at USD 30,475 per day.
By the end of January, the freight rates for all sizes of dry bulk carriers were at break-even levels – covering both OPEX and CAPEX – but not turning profitable.
Although CRSL data shows that the overall tonne miles demand grew by 5.1% in 2017, powered by a massive lift in Chinese imports once again, BIMCO believes that the strong demand will not be repeated in 2018.
“Our forecast for overall demand growth in 2018 is around 2-3%, with plenty of uncertainty surrounding that. Not just in terms of volume, but most likely also in terms of sailing distances,” BIMCO said, adding that seen against a fleet growth of 1.4%, an improved market is still expected.
Containership owners have broken the ordering silence from December 2015 having made a major comeback to shipbuilding yards this month with orders ranging from feeders to ultra large boxships.
However, the ordering flurry doesn’t seem to be over, according to Alphaliner, since additional orders are expected to be announced in the coming weeks as owners and carriers look to renew their fleets.
The fleet rejuvenation is being pursued ahead of the anticipated impact of the new environmental regulations including the 2020 Sulfur cap and the Ballast Water Management Convention.
Major liners, including Maersk Line, have added newbuilding capacity over the past couple of weeks.
As World Maritime News reported, the Danish container shipping major has exercised an option for the construction of two 15, 200 TEU containerships at Hyundai Heavy Industries (HHI).
Evergreen is investing in 20-strong newbuilding fleet, having booked construction of eight 12,000 TEU ships with Samsung Heavy Industries (SHI) in addition to chartering 12 additional 11,850 TEU ships from Shoei Kisen.
Furthermore, Taiwanese shipping company Yang Ming Marine Transport Corporation is on the brink of bringing 20 new ships to the fleet.
Under the investment plan, Yang Ming will order the construction of ten 2,800 TEU containerships and charter ten 11,000 TEU containerships.
What is more, Korean shipping line Hyundai Merchant Marine is expected to start ordering up to 20 ultra large container vessels (ULCVs) as of next month.
These could eventually push the orderbook-to-fleet ratio to above 15 pct, Alphaliner said.
Vessels with a combined slot capacity of 986,000 TEU have been added to the orderbook since September 2017, compared to only 316,000 TEU between January 2016 and August 2017, Alphaliner’s data shows.
The containership fleet has already expanded by 1.2 pct in the first month of 2018 – equal to the entire fleet expansion of 2016, BIMCO said in its market outlook for 2018.
January was one of the busiest months for boxship deliveries over the past eight years, ushering in 254,173 TEU of new capacity.
On the demolition side, three ships have been removed so far, those being a 320 TEU ship built in 1981, a 976 TEU ship built in 1990 and a 3,802 TEU ship built in 1998, BIMCO said.
2017 saw a total of 398,000 TEU demolished, a level which is bound to decrease in 2018. BIMCO expects that 250,000 TEU will leave the fleet as the year progresses.
The idle containership fleet has almost disappeared with only 65 ships on Alphaliner’s list with a combined capacity of 191,441 TEU as of February 5, 2018.
In real terms, this means that nominal fleet growth will have a bigger effect on the market balance, as the temporary idling and re-activation of ships becomes negligible, BIMCO said.
Overall demand growth is expected to be lower than in 2017, but still high enough to potentially improve the fundamental market balance.
BIMCO forecasts demand to grow by 4.0- 4.5 pct against a fleet growth of 3.9 pct in 2018.
The VLCC tanker market was on a high over the course of the past week, as a result of increased demand for cargoes from the Middle East. In its latest weekly report, shipbroker Charles R. Weber noted that “a strengthening of demand in the Middle East market this week halted the downward rate trend of the second half of January. A total of 35 fixtures were reported there, representing an 82% w/w gain and the highest tally in four weeks. Fixture activity in the West Africa market was less inspiring: there were just four fixtures there – off two from last week’s tally – which reduced the four‐week moving average of regional fixtures to a two‐month low. Meanwhile, a small number of speculative ballasts from Asia to the Atlantic basin have returned amid the sour TCE environment prevailing in the Middle East market. Round‐trip AG‐FEAST TCEs presently yield an average of ~$11,081/day while round‐trip TCEs on the CBS‐SPORE route stand at ~$18,719/day.
According to CR Weber, “these ballasts contributed to a modest narrowing of oversupply during the final decade of the February Middle East program to 22 units after reaching a four‐year high of 30 units at the conclusion of the month’s second decade. The reduction of excess supply could help to improve rates during the coming week if sentiment is also influenced by demand strength, but any gains would likely be very modest at best, particularly as recent decline in bunker prices has broadly boosted voyage TCEs. Middle East Rates to the Far East route were unchanged at ws37 while corresponding TCEs were up 18% to ~$11,804/day on a 7% decline in bunker prices. Rates to the USG via the cape rose one point to ws19 to narrow the gap between triangulated TCEs and those on round‐trip voyages from the Caribbean. Triangulated Westbound trade earnings rose 22% to a closing assessment of ~$20,141/day. Atlantic Basin Rates in the West Africa market lagged those in the Middle East and posted fresh losses, accordingly. The WAFR‐FEAST route lost 2 points to conclude at ws42.5. Corresponding TCEs were off 2% to ~$14,479/day. Rates in the Atlantic Americas were stronger on declining regional availability. The CBS‐SPORE route gained $100k to conclude at $3.6m lump sum. Round‐trip TCEs on the route rose 18% to conclude at ~$19,088/day”.
Meanwhile, “Suezmax rates in the West Africa market were up slightly this week as availability levels slipped. The WAFR‐UKC route gained five points to conclude at ws57.5. Waning VLCC demand in the region has been incrementally increasing Suezmax cargo availability since late January loading dates – and as charterers move to work through February program this week, demand is expected to jump in line with a decline in VLCC coverage for late‐February cargoes. This could keep rates on an upward trend during the upcoming week. In the Caribbean market, rates were softer in a lag of regional Aframaxes, despite stronger demand to service US crude export cargoes and the stronger West Africa market. The CBS‐USG route was unchanged at 150 x ws60 while the USG‐UKC route dropped four points to 130 x ws48”, said CR Weber.
Finally, “the Caribbean Aframax market saw rates steady at an affective floor tested last last week. The CBS‐USG route was trading in the low ws80 for most of the week, concluding unchanged w/w at an assessed ws85. Meanwhile, the USG‐UKC route lost 2.5 points to conclude at 70 x ws62.5. Owners are keen to maintain present rates as the floor with some having earlier shown resistant to trades at lower levels. The disappearance of some units late during the week from position lists will likely be pointed to as a basis for modest fresh rate gains, though it remains to be seen if this will be sufficient to add to rates given that TCEs rose 42% this week on lower bunker prices”, the shipbroker concluded.