Global average reefer freight rates recorded only increases over the last 12 months, even during off-peak seasons, according to Drewry.
Although reefer trades have a reputation for volatility in volumes and freight rates, the shipping consultancy’s Global Reefer Freight Rate Index showed that these rates were up for the 4th consecutive quarter, as shipping lines “gain control of shippers’ purses.”
“The recent wave of carrier consolidation, which will continue well into 2018, is having a direct impact on global market structure,” Stijn Rubens, senior consultant at Drewry Supply Chain Advisors, said.
“As shipping lines gradually regain control of prevailing freight rates, the markets are becoming increasingly tight with behaviours one would more commonly associate with oligopoly conditions. The recent drop in investment in reefer containers only lends further weight to our expectations of further rate increases during 2018,” Rubens added.
South Korea’s Hyundai Merchant Marine (HMM) has seen its capacity decrease by 23.9 percent amid a rise in total vessel capacity operated by the top 15 carriers in 2017.
The carrier’s vessel capacity fell from 456,000 TEU in 2017 to 347,000 TEU at the beginning of 2018, according to Alphaliner.
The reduction was mainly due to the withdrawal of numerous HMM ships from the Asia – Europe and Asia – East Coast of North America routes. The ships were chartered out to Maersk and MSC under a strategic cooperation agreement, known as 2M+HMM, that took effect on April 1, 2017.
Over the course of 2017, the top 15 carriers’ combined share of the global container ship capacity increased from 78.6 percent to 85.1 percent, as their grip of the global container trades continued to strengthen.
The total vessel capacity operated by the top 15 container carriers grew by 12.6 percent in 2017, rising from 16.27 million TEU to 18.32 million TEU on January 1, 2018, data from Alphaliner shows. This figure includes capacity operated by companies that were acquired during the period.
Over the same period, the global liner capacity increased by 3.9 percent from 20.69 million TEU to 21.51 million TEU. However, not all of the carriers recorded gains, as two carriers posted reductions in their operated capacity.
The main gainer last year was the Maersk Group, whose operated capacity grew by 26.8 percent to reach 1.8 million TEU on January 1, 2018, up from 1.62 million TEU twelve months earlier.
In case of Maersk, the recent takeover of the German carrier Hamburg Süd contributed to the increase, however, even without the purchase Maersk would still have grown by some 10%.
Environmental organisations and the global shipping industry have joined in calling for an explicit prohibition on the carriage of non-compliant marine fuels when the global 0.5% sulphur cap takes effect in 2020.
In a joint statement ahead of International Maritime Organisation’s (IMO) Sub Committee on Pollution Prevention and Response from 5-9 February, at which proposals for a carriage ban will be discussed by governments, environmental and shipping organisations assert that such a ban would help ensure robust, simplified and consistent enforcement of the global sulphur cap.
A number of international associations representing the global shipping industry, as well as the Cook Islands and Norway, have already submitted proposals to IMO to ban the carriage of non-complaint fuels. These proposals call for an amendment to Annex VI of the MARPOL Convention, stipulating that ships should not carry fuel for propulsion with a sulphur content above 0.5%, unless they are using an approved alternative compliance method.
The International Maritime Organisation (IMO) has agreed that from January 1, 2020 the maximum permitted sulphur content of marine fuel outside Emission Control Areas will reduce from 3.5% to 0.5%.
Unless a ship is using an approved equivalent compliance method, there should be no reason for it to be carrying non-compliant fuels for combustion on board, according to Transport & Environment, a member of the Clean Shipping Coalition organization.
The 2020 sulphur cap will provide substantial environmental and human health benefits as a result of the reduced sulphur content of marine fuels used from January 1, 2020. At the same time, the 2020 cap will significantly increase ships’ operating costs and present major challenges to governments that must ensure consistent enforcement across the globe.
To secure the intended environmental and health benefits, the organisations say it is of utmost importance that enforcement of this standard is efficient and robust globally. Any failure by governments to ensure consistent implementation and enforcement could also lead to serious market distortion and unfair competition.
The call for a prohibition on the carriage of non-compliant fuels is now supported by BIMCO, Clean Shipping Coalition, Cruise Lines International Association, Friends of the Earth U.S., International Chamber of Shipping, International Parcel Tankers’ Association, INTERTANKO, Pacific Environment, World Shipping Council, and WWF Global Arctic Programme.
Although spot rates recovered in the Asia-US East Coast trade in the past few weeks, on the back of a demand growth in 2017, they remain well below the same period last year, according to Drewry.
Container shipments from Asia to the US East and Gulf coasts grew by a stellar 7.9% in 2017, far outpacing imports to the West Coast, which mustered a mere 1.3% uplift, Drewry cited data from PIERS.
The mismatch in the growth rates saw the East/Gulf ports increase their share of the market to 34.4%, up from 33% in 2016. The shift in the coastal balance eastward has been a constant trend in the past five years, but having slowed in 2016 it reasserted itself last year following the expansion of the Panama Canal mid-2016 that spurred lines to upgrade ships on that route.
Combined flows from Asia to all US coasts surpassed 15 million TEU last year, rising by 3.5% against 2016. When data for the faster growing Canada and Mexico markets becomes available, Drewry expects the annual rate for the total eastbound Transpacific to inflate to just shy of 6%.
Additionally, headhaul Transpacific volumes are expected to increase again this year, but at a slightly lower rate of around 4.5% with East and Gulf coasts taking further bites out of the West Coast’s dominance.
Despite the mostly supportive conditions, spot rates on the trade have been trending down for over a year, indicative of cut-throat pricing activity. Drewry said that there is likely to be further competitive friction if SM Line fulfills its plan to launch its first all-water USEC service by May 2018.
“Nonetheless, there has been some respite from the price erosion for carriers with representative 40ft spot rates adding around USD 1,000 since the start of January,” the shipping consultancy said.
“There is more room for growth before Chinese New Year when demand spikes, but the extent of the inevitable fall-off after CNY will depend on both carriers’ capacity management and pricing discipline with the final resting point setting the benchmark for annual contract negotiations.”
Carriers face an uphill battle as even after the recent upturn, spot rates remain nearly 20% down on mid-January 2017.
Tankers sold for demolition last year were one of the few silver linings, as activity rose on the back of diminishing freight rates. In its latest weekly report, shipbroker Gibson reported that “one of the few bright spots for the tanker market last year was the notable increase in recycling sales. Of course, this could be viewed as a double-edged sword as many of these sales could have been a result of poor earnings across most of the tanker market sectors. Another factor to consider is that lightweight prices gained steadily throughout 2017, closing the year just shy of $450/ldt for sub-continent sales. By the end of December, lightweight prices for tankers were approx. $100 tonne higher than the corresponding month in 2016. However, tanker recycling activity could only improve after the low level of sales recorded for 2015 and 2016 and lightweight prices have continued to rise into the new year which we hope will attract more sales”, the shipbroker said.
According to Gibson’s data, “in deadweight terms tonnage sold for demolition in 2017 amounted to 9.78 million tonnes, 86 units (25,000dwt+). The young age of the tanker fleet continues to be a barrier to sales, however, changes to OPEC production quotas began to bite in 2017 and unlike the previous year, the continuous stream of newbuildings across most sectors began to impact on earnings heaping pressure on older units. Older tankers found it increasingly difficult to get traction in the market and some owners may have found lightweight prices to be tempting”.
The shipbroker added that “last year we witnessed 11 VLCCs committed for demolition (average age 21.5 years), with the last sale in December, PLATA GLORY (built 1999) achieving the highest reported lightweight sale price at $438/ldt. Five Iranian controlled VLCCs were sold to Indian breakers, accounting for 1.5 million dwt. Of the 86 tankers sold last year, Bangladesh breakers took 46 units (5.1 million dwt), while India took 35 (4.3 million dwt). The final destination of the remaining five units is yet unknown. Pakistan remains absent from tanker demolition for the moment, following a series of explosions at recycling facilities in 2016. Twelve Suezmaxes (average age 22.5 years) and a sizable 30 Aframax/LR2 sales (average age 21.4 years) were concluded, the highest number since 2013. Our statistics above include only tankers removed from the conventional trade for demolition. However, five additional VLCCs were removed permanently from the trading fleet to take on FSO/FPSO duties, which accounted for the removal of a further 1.5 million deadweight”.
According to Gibson, “last January we alluded to the impact that pending legislation would have on demolition sector. In the event the IMO bowed to pressure to lessen the impact on owners softening the implementation of the Ballast Water Treatment convention (BWT). Owners have now turned their attention to the new 2020 sulphur limits, which we believe in combination with BWT, will exert greater pressure to increase scrapping levels as we head towards the end of the decade. The recent price hikes in bunkering costs could also heap pressure on owners to scrap, particularly for tankers with less efficient bunker consumptions. Tanker market fundamentals have changed considerably from a year ago, all of which could combine to be the catalyst for higher levels of removals in the near future”, it concluded.
Meanwhile, in the crude tanker this week, in the Middle East, Gibson said that “a lone, last minute VLCC deal to the East at the very close of last week that paid a noticeable premium, jolted the market into a vigorous, and positive, reaction at the opening bell this week, and the relief/euphoria drove rates up to a peak ws 62.5 East as a result. Thereafter, Charterers looked around to see that good availability remained, and decided to shut the taps once again, demand then softened somewhat, and older units accepted down to ws 50 also. A more cautious approach likely over the next phase. Suezmaxes bumbled along with only modest interest hitting up against easy supply – rates remained stuck at around ws 70 (18 Worldscale) to the East and sub ws 30 (18 Worldscale) West with no real cause for early change. Aframaxes kept flat through the week, but are now starting to resist ‘last done’ 80,000mt by ws 92.5 (18 Worldscale) numbers to Singapore and may add a little to the scoreboard next week”, the shipbroker said.
Denmark has moved up taking the sixth place on the list of the world’s major shipping nations with regards to operated tonnage, Danish Maritime Authority said citing data from IHS Markit.
Denmark has overtaken Germany and advanced to the sixth place, when taking into consideration operated tonnage which covers owned or chartered-in ships operated by Danish shipowners.
“It is a pleasure to see that Danish shipping has gotten up steam and is enhancing its global position of strength,” Brian Mikkelsen, Minister for Industry, Business and Financial Affairs, said.
At the moment, Greece is at the top of the list of the world’s major operating nations, followed by Japan in second and China in third place. Other nations are Singapore in fourth place, USA in fifth, followed by Denmark and Germany.
Assisted by the Plan for Growth in Blue Denmark, scheduled to be unveiled on January 22, the country expects to further advance on the ranking list, as it is only 7 million gross tonnes away from the US.
“The Plan for Growth in Blue Denmark will hopefully help get up steam even more and make us experience continued growth both in Danish-operated tonnage and in the number of ships flying the Danish flag,” Mikkelsen added.
The CEO of Hapag-Lloyd, the world’s fifth-largest container shipping company, expects consolidation in the sector to continue this year, further reducing the number of largest shipping firms as they merge their businesses.
Talking to the reporters in Hamburg on Wednesday, Rolf Habben Jansen said that the consolidation drive will result in nine of the former 20 largest shipping companies from five years ago to disappear by the end of 2018, Reuters reports.
Hapag-Lloyd, fresh from completing the integration of its business with UAE-based liner shipping company United Arab Shipping Company (UASC), expects to reap a major portion of the gains from the deal this year.
According to Jansen, the company could achieve 85 to 90 percent of targeted annual synergies of USD 435 million this year and 100 percent from 2019.
Furthermore, the company expects its full-year earnings for 2017 to be higher than previously announced.
2018 seems to be on the right track, with charter rates on the rise and lower size of the idle fleet. However, further pressure is expected from containership deliveries set to join the global fleet this year.
The total boxship capacity set for delivery in 2018 is expected to reach 1.5 million TEU in 2018, according to the figures from Alphaliner. More than half of these deliveries will be made up of ULCVs ranging from 14,000 to 21,000 TEU.
Hence, Hapag-Lloyd’s CEO anticipates transport demand growth to reach 4.5 percent in 2018 and more than 4 percent in 2019.
Since integration with UASC provided Hapag-Lloyd with modern tonnage influx, the company has no need of ordering newbuilds and can dedicate its focus on bolstering its financial structure and cutting debt.
In October 2017, the German liner company raised USD 414 million in gross proceeds from its capital increase scheme, which was agreed upon as part of the merger with UASC.
Hapag-Lloyd said it would use the proceeds primarily to pay back its debts as well as for general corporate purposes.
Ten mega boxships are set to be handed over to their owners this month making January a record month for containership deliveries.
These will include seven sea giants of 19,000-21,000 TEU set to join the ranks of CMA CGM, Maersk Line, MOL and OOCL, data from Alphaliner shows.
OOCL Indonesia boasting 21,413 TEU will be the largest containership delivered in January based on its TEU capacity.
CMA CGM Antoine de Saint Exupery with 20,776 TEU and MOL Treasure with 20, 182 TEU are set to follow suit.
Maersk Line is scheduled to take delivery of two 20,000 TEU behemoths, Manchester Maersk and Marseille Maersk of 20,568 TEU each and Maersk Hanoi of 15,282 TEU.
COSCO Shipping already took delivery of the 14, 568 TEU COSCO Shipping Alps from Hudong-Zhonghua Shipbuilding.
The newbuilding was delivered 56 days in advance on January 3, 2018.
The company will bolster its fleet with COSCO Shipping Taurus and Aries, disposing of 20, 182 and 19,119 TEU respectively.
Japanese K Line will also have one containership join its fleet this month featuring 14,568 TEU.
January will set the stage for the rest of the year, with a record number of ULCVs ranging between 14,000 to 21,000 TEU planned for delivery in 2018, according to Alphaliner.
There was a 19 percent increase in the number of piracy incidents against ships in Asia reported in 2017 when compared to figures from 2016, according to regional piracy watchdog ReCAAP ISC.
A total of 101 incidents, comprising 89 actual and 12 attempted incidents, were reported in 2017 compared to 85 incidents in 2016. These included 85 cases of armed robbery against ships and 16 piracy incidents.
The annual statistics and analysis were shared at the 9th Nautical Forum held today in Singapore, jointly organized by ReCAAP ISC, the Maritime and Port Authority of Singapore and the Singapore Shipping Association.
“While the number of incidents in 2017 continues to be among the lowest in the past decade, the increase that occurred over the last year is a reminder that there is no room for complacency in the fight against piracy and armed robbery against ships, and underscores the need for enhanced vigilance among all stakeholders,” Masafumi Kuroki, Executive Director of ReCAAP Information Sharing Centre, said.
“The capacity of the maritime enforcement authorities is critical in dealing with the threat of piracy and sea robbery, and ReCAAP ISC will continue to work with our focal points and other enforcement agencies through our capacity building programs to help them become more effective,” Kuroki added.
A decline has been noticed in terms of the severity of the type of incidents when compared to the past three years.
The number of CAT 1 incidents has dropped by more than 50 pct in 2017 with 6 incidents recorded, compared to 13 incidents reported in 2016.
However, there are numerous areas of concern, including the continued occurrence of abduction of crew in the Sulu and Celebes seas, with three incidents reported in 2017 compared to 10 in 2016.
In addition, an increase in incidents has been reported in ports and anchorages in Chittagong and off Kutubdia Island, Bangladesh, Batangas and Manila, Philippines, South China Sea and Straits of Malacca and Singapore.
With nearly 400 different vessel operators still active, there is plenty of competition and potential for more merger and acquisition activity, shipping consultancy Drewry said.
The collapse of freight rates during the second half of 2017, far out of line with the underlying supply and demand fundamentals, suggests that carriers have not yet rid themselves of certain self-sabotaging traits and that talk of a new golden age for carriers was perhaps exaggerated.
Despite recent developments, Drewry retains its view that the carriers are heading towards a brighter future, while also acknowledging there are several temporary factors that have created a bump in the road to recovery.
One area that might have been expected to have provided a more immediate benefit was the significant consolidation occurring in the market. The latest consolidation wave has barely become operational, with most transactions either just concluded or still pending.
Following completion of the outstanding deals, the leading seven carrier groups will control approximately 90% of the active containership fleet as it stood on October 1.
Yet, even with such a large swathe of the fleet in the hands of very few lines the industry remains highly competitive by standard measures.
Based on the known ship data series, there were 379 different vessel operators, all bar 31 of which garnered less than 0.1% market share. With so many operators on the water “there is clearly a lot of potential for more M&A, but in reality the majors are unlikely to be interested in the small fry.”
An analysis conducted by Drewry showed that, even after the latest M&A has concluded, the industry would remain ‘competitive’ or ‘moderately concentrated’ in most of the routes covered.
Two of the trades covered, northbound Europe-East Coast South America and westbound Europe-South Asia, do now fit the ‘highly concentrated’ description, but being relatively close to a Herfindahl-Hirschman Index (HHI) reading of 2,500, they are at the lower end of the definition.
Three trades, the two Asia-Europe headhaul routes and the southbound Asia-East Coast South America trade, moved from ‘competitive’ to ‘moderately concentrated’, where they will likely stay without further consolidation.
The Transpacific, Transatlantic and Asia to Middle East and South Asia headhaul trades are all still ‘competitive’ on the HHI scale. The addition of SM Line to Asia-East Coast North America will see the corresponding HHI number come down next year.
“The industry is heading towards a scenario whereby a small handful of dominant carriers dictate matters, but there is still healthy competition in most trades for now. Shippers will need to stay watchful for deals that impact their main routes,” Drewry concluded.