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Tankers Tanker bulls are increasingly arguing that the 2020s represents one glorious last hurrah for earnings thanks to the limited orderbook and the changed trading patterns. A consistent increase in Atlantic Basin crude export volumes to Asia over the next five years will have as far-reaching repercussions for crude oil shipping as the shift in Russian crude exports, the International Energy Agency (IEA) said this month. Continued demand growth in Asia is expected to by far outpace increased crude supplies from the Middle East by 2028. IEA forecasted Asia’s crude and condensate import requirements will rise by 4.8m barrels per day to 28m barrels per day in 2028, with the Atlantic Basin crude surplus playing a crucial role in meeting this demand over the forecasted period. The medium-term report forecasts that global oil demand will rise by 6% between 2022 and 2028. Such growth comes at a time where the tanker fleet is ageing with very little additions coming out of the yards in Asia. The skewed demographics of the world’s tanker fleet will lead to a shortage of available tonnage in the years ahead, according to brokers Gibson. A mix of ships trading for longer lifetimes thanks to the growth of the dark fleet hauling Russian cargoes, combined with a minimal orderbook has made for a fleet that is getting old fast. Currently, 8% of the fleet over 25,000 dwt is over 20 years of age, according to Gibson data, with most of these units, particularly on larger sizes already operating outside conventional trades, including storage operations. Another 25% of the total fleet is in the 16-to-20-year bracket, with the proportion of handy, panamax and aframax vessels in this age group being notably higher. “Although the recent pick up in orders is welcome, it still comes nowhere close to offsetting the number of vessels at or approaching their natural retirement age over the next four/five years,” Gibson stated, concluding: “When scrapping ultimately comes, the tanker industry may well find itself in a similar situation as the oil industry – with not enough tankers to meet existing demand.” Analysts at Xclusiv Shipbrokers maintain that the global tanker fleet is in danger of shrinking in the near future mainly because of the low orderbook, which stood at its lowest point since 1996 in February this year and because about 34% of the active fleet is older than 16 years. Tankers still working aged above 20 years of age made up just 1% of the global tanker fleet pre-covid, and were still a rarity at 3% before the invasion of Ukraine in late February last year. They’re now on track to make up 11% of all tanker demand by mid-2025, according to data from brokers Braemar. Bringing an end to the party for the tanker bulls, the IEA said it estimates global oil demand to peak before the end of this decade as high prices and Russia’s invasion of Ukraine speed up the pace at which countries and industries move away from fossil fuels. Dry Bulk The Chinese steel industry slows down every year from June through to the end of August in line with the construction industry easing up thanks to the high heat and heavy rains. March and April are considered peak months normally, something that failed to materialise this year, adding to the sense of gloom that has spread across much of dry bulk in the past six weeks. Analysts at investment bank Jeffferies lowered their estimates and targets for listed dry bulk firms this month, citing the weaker China steel outlook. “So far in 2023, charter rates have averaged similarly to those seen in the tough years pre-2021. China’s re-opening has led to higher steel production and iron ore imports, but a sustained recovery seems farther away given the correction in steel prices recently. An expected China stimulus could be a positive near-term trigger, however,” Jefferies noted. Analysts at shipbroker Arrow observed that over the past few weeks, the souring economic outlook from China has very quickly fed into the dry bulk spot market. “The sentiment and selling pressure is flowing from the macro environment into the chartering market via the FFA market,” Arrow explained. This poor sentiment in the chartering market is evident in Arrow’s Dry Bulk Sentiment Index (see below), which is around the lowest level on record since the index was created at the start of 2021. This index is built using daily chartering reports, analysing the positivity/negativity of the language used. “Weakening China-related commodities, property stocks selling off, economic data disappointing all combined to generate poor sentiment, whilst FFA market activity perhaps accelerated this trend. The spot market moved much faster than we expected,” Arrow admitted. “2023’s recovery in China’s industrial sector has clearly continued to stall and youth unemployment in China also continues to set new records,” a report from dry bulk advisory Commodore Research observed. Containers The conditions on the global container shipping markets are continuing their path towards normalisation, stated the latest weekly report from Denmark’s Sea-Intelligence, stressing the point that a normal container shipping market is not the same as a container shipping market with no changes or disruptions. Looking at the latest Drewry World Container Index, Lars Jensen from Vespucci Maritime noted that spot rates on the Asia to North Europe trade is now 10% lower than the same week in 2019, while the backhaul rate on this trade is back to the same level as pre-pandemic. Asia-Mediterranean remains the outlier, persistently high, and is still 35% higher than pre-pandemic, while on the Pacific voyages to the west coast are 18% higher than pre-pandemic and the east coast rate remains 5% higher. The backhaul rate from the west coast remains 104% higher than pre-pandemic. Jefferies this week described the container market as delicate. “There are encouraging signs that demand is at a pivot point, but liners have limited pricing power and spot rates remain very weak across most routes,” the investment bank observed.

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