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Analyst Abstract

Containers

With the likelihood of industries re-shoring post-coronavirus growing everyday, Singapore’s CTI Consultancy crunched the numbers this month to translate what this might mean for the main east-west trades. CTI took 10% of the current Asia-Europe and transpacific demand and placed that into their own regional markets (Eastern Europe and predominantly Mexico respectively). This results in the overall demand for global teu*nautical miles transportation reducing by almost 4%. A 30% shift results in an overall 12% decline. 

However, all that is conjecture. What is for sure is that the liners have managed the current pandemic brilliantly to date – posting healthy profits by slashing available capacity. 

Consultants Drewy issued a report noting how lines look set this year to make more money than they have in a long time as their crisis management tactics – “essentially blanking voyages” – has paid off “handsomely”.

“From a public relations perspective the optics of making big profits during a global crisis are not great. The price will be more animosity and accusations of profiteering,” the Drewry report observed, sparking much debate online about liners profiteering during the crisis. 

It’s not just blanked sailings that have helped. Another lever liners have up their sleeves is speed. Goods are taking ever longer to reach their destinations in the continued fallout shipping has felt from the global financial crisis 12 years ago. Clarkson Research Services revealed this month the average speeds for containerships have fallen by 25% over the last 12 years.

Rates are showing signs of pressure, but in terms of actual volumes shifted the worst appears to be over for the sector. The inactive containership fleet ducked below the 2m teu mark for the first time in four months in early July according to Alphaliner.

Dry Bulk

A combination of rampant demand, dire weather and slower operations because of Covid-19 protocols has brought Chinese port congestion to near record levels. 

Braemar ACM noted that at the start of last week, the volume of laden capesize tonnage waiting to discharge in China reached 13.9m dwt – the highest level the company has recorded since AIS records began, representing a near four-fold increase on average congestion during July 2019. This translates to 71 ships, or around 3.9% of today’s trading fleet. 

Of the capesize iron ore voyages which have completed discharges in China this month, vessels spent on average almost four days waiting on arrival before coming alongside, according to Braemar ACM. This compares to an average of around 1.5 days over July 2019.

“If it weren’t for the congestion in China, cape rates would have been much softer than they are at the moment,” brokers Arrow suggested in a report issued last week. Cape rates did top $30,000 a day in early July but have since cooled by around 45%. 

Alphabulk revealed last week its rankings for the world’s 25 largest capesize owners. Unlike other shipping segments such as the container business, cape ownership remains a very fragmented sector. The top 25 capesize owners control some 46% of the capesize fleet on the water, according to Alphabulk data.

Tankers

Deliveries of tankers are set to be at the lowest level since 2015 this year, with coated tanker deliveries on course for their lowest tally since 2002, according to new data from brokers Braemar ACM. 

The lack of new tonnage will inevitably lead to a further ageing of the global tanker fleet. 

Analysis from Alphatanker shows that 57% of all tankers above 34,000 dwt are above 10 years of age, a trend researchers say will persist for years to come as owners are hesitant to order new ships given likely impending new green regulations. The implications of this ageing fleet is likely to be reflected in a growing disparity in charter rates between older and more modern tonnage, Alphatanker posits. 

Multiple major charterers and terminals no longer accept tankers above 15 years old, especially west of Suez. Therefore, generally tankers find more opportunities in east of Suez markets after hitting 15 years old. Currently BRS estimates that a suezmax older than 15 years would be chartered with a 2.5 to five Worldscale point discount in west of Suez markets. Meanwhile, a similar discount in east of Suez markets is around five Worldscale points.

“As more and more tonnage passes the 15 years old threshold, it seems likely that owners will have to accept deeper and deeper discounts versus market assessments (which are for modern tonnage) if they want to keep their tankers employed,” Alphatanker predicted. 

The flip side is that modern tonnage is now commanding a “steeper premium” versus older tonnage, Alphatanker noted, even if this is not reflected in Baltic tanker voyage assessments. 

With Alphatanker predicting the tanker sector to to go through an extended downturn over the next 12-18 months, it has warned that as more and more tankers chase less and less cargoes, this will ultimately “turn the screw” on older tonnage, leading to a sizeable demolition rush among the sector’s “old ladies”.

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