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Tankers “As anyone with the slightest insight into our industry will know, oil prices and tanker earnings tend to have an inverse relationship and this time is no exception,” reads a typically punchy daily markets report from Lorentzen & Co earlier this week. One of the reasons that the Norwegian broker highlighted was that the softening in the American oil balance has coincided with a “spectacular” upsurge in US crude and product exports. The US Energy Information Administration said last week that US crude oil exports ran at 4.9m barrels per day in the prior week. Combined with products, exports totalled a record 11.9m barrels per day, with Europe and Asia absorbing huge quantities of American energy. BRS says that VLCC utilisation is increasing from west to east, potentially leading to rates on TD22, from the US Gulf to China, gaining momentum over TD3C, the Arabian Gulf-China route. However, the forthcoming ballaster wave from Asia following the discharge of laden vessels might find it hard to be absorbed by the Arabian Gulf to West trade and thus ballasting time towards the West will increase, thereby intensifying fleet inefficiencies, BRS suggested. In itself, while this implies a short term VLCC freight weakness, it is bullish for the global VLCC market for the later part of Q2. “Eventually, large ballaster waves to the West will create volatility for the segment with large spikes followed by dives,” BRS argued this week. Increasing exports are also leading to inefficiencies in other ways. Braemar analysis suggests that demand for tanker space generated by ship-to-ship transfers onto and off larger ships has grown from an average of 6.7m tonnes per day between 2016 and 2019 to 10.8m tonnes over the past three quarters. It now makes up 5% of all tanker demand. Some of this can be attributed to Russian flows to Asia, but the strong growth of US exports to Europe on VLCCs over the past year has also played its part. Dry Bulk March proved to be a bit of a dead cat bounce for capes. In the first half of the month, rates accelerated back into profitable territory, before cooling off again amid speculation China may not knock out as much steel this year as originally forecast. Newbuilds entering the market, a lack of congestion, and a surge in spot tonnage availability were all cited as reasons to expect April to be rather muted for the capesize sector in a report issued by BRS six days ago. The number of ships hit by congestion had dropped to around 50 ships by the end of February, down by more than two-thirds from highs experienced at the start of 2022. In addition, changes in the ballasters count - or spot tonnage availability - has played a pivotal role in recent capesize developments. Currently, the ballaster count (see chart below) has retraced to its support trendline, which BRS warned likely means an imminent increase in tonnage availability. Also depressing is the fact that in 2023, an additional 50 capesize ships are expected to be delivered, adding 10m dwt to the fleet. Breakwave Advisors said in a recent report it was still too early in the year to make any big calls on dry bulk fortunes, but the New York outfit did warn the macro environment remains “challenging”, while headline risk has been elevated, and commodity prices have seen "wild swings" because of broader economic risks. Containers Rates are dropping in smaller numbers, charter rates and enquiries are firming, the idle fleet is being brought back into action, and S&P prices are robust. The container market looks like it is close to bottoming out. How busy this year’s peak season will be remains debatable, however. On the container charter markets, Braemar noted in its latest weekly box report: “The activity level continues to be high which has led to increasing charter rates for specific segments and a 12-month period is becoming the new normal.” Maersk Broker, meanwhile, reported: “Prompt tonnage across all segments is very scarce, and we expect TC rates to continue their firming trend and average periods to carry on rising.” Looking at the past 25 years of the China Containerized Freight Index (CCFI), experts at Sea-Intelligence concluded on Sunday that the sector is now two-thirds of the way back to normality, from a peak capacity loss of 14% in January 2022. John McCown, whose Blue Alpha Capital quarterly liner profit reports have become essential reading during box shipping’s record earnings run since 2020, anticipates that the carriers will be profitable in 2023 with a net income to revenue margin in double digits but with aggregate quarterly profit levels below the Q4 level recorded in 2022.

Analyst Abstract

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