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Tankers “Signs of spring are appearing not only in the parks but in the economy, too,” London-based Braemar ACM noted on Monday, echoing a widespread belief among shipping analysts that the worst appears to be over for loss-making crude tankers. “Crude inventories are reported to have normalised and are back in line with the expected average forecasts going forward in the mid-2020s,” Braemar ACM suggested. “The underlying themes behind a rebound from present trough and sub-breakeven levels are difficult to deny,” Evercore ISI stated in a recent hopeful tanker forecast. “Indeed, improving global oil demand in a post- (or even mid-) vaccination environment, diminished floating storage stockpiles, de minimis new capacity additions, an ageing fleet and associated charterer discrimination in an energy-efficient backdrop, and the closure of refineries closer to end-user demand and substitution effect of new export refineries all point to accelerating ton-mile demand amid modest-to-no fleet growth.” Evercore ISI cautioned that all of these elements will take time and the starting point is so low that a return to profitability may not occur until the final quarter of this year. The International Energy Agency (IEA) sees global oil consumption increasing by around 1.3m barrels per day in Q2 2021 quarter-on-quarter, then by another 3m barrels per day in Q3 and by a further 1.2m in Q4. Although even in late-2021 demand will remain below its level in 2019, the anticipated growth over the course of the year is deemed by tanker brokers Gibson as “substantial”. “Whilst an increase in demand will not directly translate into an increase in tanker trade, lower stocks will likely mean that the translation will be more direct than the period following the last oversupplied markets of 2009 and 2015,” Gibson noted in a report from last Friday. Dry Bulk While panamaxes hogged much of the headlines this month, it’s worth spending some time looking at the very solid handy markets. “Commodities, and as a result dry bulk shipping, are seeing some of the highest capital flows and interest in years,” Breakwave Advisors observed in a recent report, going on to point out that handysize rates at 10-year-highs in the heart of winter likely means something has changed fundamentally. “Our view remains that 2021 will be a rebound year for dry bulk, that futures are mispriced against reality due to the backward bias of most freight traders, and that the probability of prices reaching very high levels (see 2000s) is real,” Breakbulk suggested. Handysizes have traded up for a full straight month, the 7TC surpassing $17,000 a day, growing at more than $1,000 a week. There’s no floor in the market at present as in both basins things are heading in only one direction - upwards. Commentators are waiting for a pause in the market to see what the floor will be, with some suggesting $15,000 in the Atlantic is likely and $13,000 in the Pacific for one-year periods by the end of March. Lorentzen & Stemoco Research last week upgraded its projected average earnings for handies in 2021 from $9,500 a day to a very profitable $14,000 a day. Braemar ACM, meanwhile, added colour to the bullish sentiment noting recently that any charterers with forward stems have been having a hard time seeing any owners/operators rate such cargo for Q2, with the likelihood being that charterers will have to play the cargoes more spot. “Aside from firming demand, dry bulk market balances continue to be supported by reduced productivity on the back of high port waiting times while anecdotally a surge in costs to ship via containers has also driven more breakbulk cargo to be moved in dry bulk carriers, box-shaped handysize tonnage in particular,” commented Alex Stuart-Grumbar, a senior analyst with Maritime Strategies International. In terms of the global handysize fleet, last year it experienced net growth of 2%, according to Banchero Costa, something that is projected to slow to 0% this year and -1% next year. In this size range, 16% of the trading fleet is over 20-years-old, 8% is 15- to 19-years-old, whilst 11% is less than 5 years. The orderbook to trading ratio is 4.1% in dwt terms. Containers Last week, the Shanghai Container Freight Index (SCFI) rose 2% to $2,876 per teu, up 216% year-on-year. This increase is notable as the four weeks following Chinese New Year are usually a seasonally-weak period for freight rates. But this year is set to be different as Covid-19 related lockdowns and travel restrictions in China have led to many industrial workers remaining at work, supporting manufacturing activity. “More goods = more trade = more demand for containerships,” investment bank Jefferies stated this week. However, while much attention has been paid to the soaring spot freight rate markets, it is the contract side of the business that is worth focusing more time analysing. Typically contract leads spot box volumes globally by around 60:40 - it is the bulwark of liner earnings. Contract rates as measured by the 23-year-old China (Export) Containerized Freight Index (CCFI) have risen faster than ever recorded putting containerlines on course to register improved profits this year, even over 2020’s stellar performance. Sea-Intelligence has done modelling for Container Trade Statistics (CTS), which includes all trade lanes, not just ex-China ones, and again records are being smashed. Available CTS data dates back to 2009 – with an all time high of 116 points achieved in 2010. Modelling by Sea-Intelligence suggests the CTS has hit 150 points this month. “The developments in late 2020 and early 2021 can only be described as extreme. For all intents and purposes, the best description is that contract rates measured by the CCFI index are almost twice what they have ever been before. This is an extreme record seen in a 23-year perspective,” Sea-Intelligence stated. Quantitative analysis carried out by the Sea-Intelligence team four days ago suggests the current record-high contract rates could persist, not only for the next few months, but potentially all the way to spring 2022. "The current tightness in supply means that carriers have the upper hand when negotiating these new contracts, and although many shippers have initially been reluctant to sign new contracts, they will inevitably do so in the coming months. This will be done at high rates to the benefit of carriers, even if the spot market falls from its current highs,” a container shipping report from BIMCO stated on Monday.

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