HANSA 06-2020

MÄrkte | Markets Sascha

MÄrkte | Markets Sascha Juhasz Researchleiter Ernst Russ Shipbroker VIEWPOINT: ERNST RUSS SHIPBROKER »No point in repositioning for feeders« All regional feeder markets are equally hit by the pandemic, says Sascha Juhasz, Head of Research at Ernst Russ Shipbroker. Unemployed tonnage has stabilized, but a rate recovery will take time What’s the picture across the regional feeder markets during the corona crisis? Which ship types are suffering more, which less? Sascha Juhasz: All trades and size classes across the globe are affected as illustrated by a narrowing of charter rates between 5,000-8,000 $/day for virtually all types of ships between 1,000 and 3,000 TEU. In Europe and Asia, entire feeder loops got suspended or the number of ships reduced. In the Caribbean, vessel strings were maintained but downgraded in size, for example from 1,700 to 1,100 TEU. Modern vessels with low consumption are particularly suffering at present due to the slump in bunker prices and reduced economic advantages versus older vessels. This is especially the case in Asia where usually popular 1,700 and 2,000-2,500 TEU ships are stuck without employment. What’s the outlook for the feeder markets if the global economic recovery will takes at least 2 years as forecast? When will markets turn a corner? Juhasz: As far as operated tonnage is concerned, we see a bottoming-out already. The number of unemployed vessels of 500-2,000 TEU has been steady at around 70 for the past 3-4 weeks. Charter rates will stay under pressure, though, as charterers are able to play owners off against one another. In any case, charter earnings will lag any recovery in trade and cargo volumes because it takes times to absorb all the overcapacity. Besides, with today’s extremely flexible periods of 1-12 months, many ships will have to carry on trading at the current low levels for a lot longer. How can feeder tramp owners survive the crisis? Any solutions to alleviate the pressure? Juhasz: Positioning into other regions might by relatively cheap due to low bunker costs but market conditions are almost equally bad all over. We will probably see more tonnage lay-ups soon which has been the exception so far. Also various owners should be granted loan moratoriums and bridging finance, if only because lenders have no other option. With market prices for 15-year old ships near scrap value, repossession and sale can just be the last resort for banks. © Ernst Russ Trade at rock bottom Can it go lower yet? Cargo volumes in container shipping seem to be stabilising, but the recovery is going to be patchy. By Michael Hollmann May might have been the worst month for liner shipping since the start of the corona crisis, with analysts and market participants seeing the precipitous fall in volumes levelling out. However, container lines are expected to keep a tight reign on fleet capacity as the recovery in trade is expected to be protracted with the risk of local setbacks if the epidemic surges again. The consensus is that the second quarter will mark the bottom for liner shipping and also for container ship chartering, although the former will see a quicker turnaround. The good news is that sailing cancellations in liner shipping plateaued at just over 500 since the beginning of lockdowns in Asia, according to Danish research firm Sea-Intelligence. The experts noted that there are no further blank sailings announced beyond June and that a bit of blanked capacity in long-haul trades ex Far East actually got restored. Partial reverse As its managing partner Lars Jensen, a former Maersk man, pointed out, the partial reverse is led by THE Alliance which re-inserted two sailings in the transpacific trade and four sailings in the Asia-Mediterranean trade as per 19 May. »It tells us, at least for now, that the demand downturn has bottomed out and that carriers – at least in THE Alliance – are seeing sufficient demand for their remaining services...«, Jensen explained. The move also illustrates the carriers’ resolute approach to capacity management, preferring to cancel rather too much than too little capacity in a bid to keep slot utilisation up. Freight forwarders are confirming the slight improvement in sentiment. »Carriers realised that cargo volumes were better than expected, with many sailings completely overbooked and more containers getting rolled again,« noted Janis Bargsten, general manager of Flexport in Hamburg. Capacity reductions in the Asia-Europe trade are therefore relaxed a bit during June, to -15% of pre-corona levels, he said. Perhaps cargo losses during the second quarter will not reach the 20-25% that A.P. Møller-Maersk CEO Soren Skou projected at the release of the group’s first quarter results. Time will tell. UK maritime advisory Maritime Strategies International (MSI) forecast a more modest contraction of 15% year-on-year in »headhaul« trade volumes in the three months to July. Trade would then start to recover quarter-on-quarter, albeit still lagging levels during the previous year by 3%, it said. Fellow UK advisory Drewry predicts a fullyear decline in loaded container traffic by 8% in its base case scenario. Financial impact to peak The financial impact on liner operators is generally expected to peak during the second quarter, although earlier fears of bankruptcies in the sector have been allayed. Several major carriers (Yang Ming, Hyundai, CMA CGM, Evergreen) already obtained various levels of state support and overall distress levels in the sector are not as severe as during the previous downturn of 2016, Drewry consultant Philip 8 HANSA – International Maritime Journal 06 | 2020

Orders & Sales New Orders Container Newbuilding activity is still highly influenced by the Corona crises. One new order was placed at Yangzijiang by Zhejiang Harbor Shipping for four 1,000 TEU vessels, costing 13.5 mill. $ each, following an order for four 1,800 TEU units at Yangfan by another Chinese owner. The global orderbook stood at 10.2% or 2.35 mill. TEU, nearing a record low. Due to Covid-19, several projects are on hold. Secondhand Sales The S&P market is still heavily burdened by the pandemic. Brokers report about various purchase enquiries, however, very few buyers appear for negotiations. A reported sale was the 2009-built 1,700 TEU »Cape Nati« at a low 5 mill. $. This sets a new benchmark which may force sellers to lower their price expectations further. Demolition Sales While hoping for more easing of restricitions, some chash buyers are said to have taken »speculative positions.« However, prices remain at 330$/ldt, 320$/ldt and 310$/ldt in India, Bangladesh and Pakistan. Lockdowns have significantly impacted recycling; only 18 units of 37.000 TEU had been demolished in 2020, down by 63% y-o-y. Although market fundamentals remain low, forecast for box ship demolition was reduced by 30%.MM Container ship t / c market 450 400 350 300 19.11.19 Container freight market WCI Shanghai-Rotterdam 1,738 $/FEU + 16.6 % WCI Shanghai-Los Angeles 1,700 $/FEU + 9.1 % Dry cargo / Bulk 19.05.20 Month on Month 336 • - 10.2 % Baltic Dry Index 494 - 26.5 % Time charter averages / spot: $/d Capesize 5TC average 4,196 - 50.8 % Panamax 4TC average (82k) 5,606 - 18.0 % Supramax 10TC average (58k) 5,257 + 24.9% Handysize 7TC average (38k 4,372 - 4.0 % Forward / ffa front month June ’20 ($/day) Capesize 180k 7,622 - 17.8 % Panamax 74k 7,324 + 1.6 % MPP May ’19 $ 7,524 MÄrkte | Markets TMI Toepfer’s Multipurpose Index May ’20 $ 6,441 12,500 tdw MPP/HL »F-Type« vessel for a 6-12 months TC Tankers Shortsea / Coaster Norbroker 3,500 dwt earnings est. 2,200 - 4.3 % HC Shortsea Index 14.59 - 13.4 % ISTFIX Shortsea Index 391 - 14.1 % Norbroker: spot t/c equivalent assessment basis round voyage North Sea/Baltic; HC Shipping & Chartering index tracking spot freights on 5 intra-European routes; Istfix Istanbul Freight Index covering spot freight ex Black Sea Bunkers COMPASS Baltic Dirty Tanker Index 792 - 48.1 % Baltic Clean Tanker Index 621 - 65.1 % VLSFO 0.5 Rotterdam $/t 249 + 39.9 % MGO Rotterdam $/t 265 + 24.4 % Forward / Swap price Q3 / 20 VLSFO 0.5 Rotterdam $/t 261 + 119.3 % Data per 21.05.2020, Alterations within four weeks Damas explained. »However, if the crisis drags on into next year, you cannot exclude another carrier hitting Hanjin-type distress levels and disappear,« he warned in a web presentation. Capacity reductions by container lines have shown remarkable success in stabilising or even pushing up spot freight rates despite the trade slump. According to the World Container Index (WCI), average freight rates today are 11% up year-on-year. Backhaul rates to Far East even went by up close to 30%, the China Import Containerized Freight Index showed. Meanwhile average bunker prices are still down significantly, though on the way up again. Both price and cost developments should help carriers to partly offset the effect of reduced carryings on their financials. Pain for tramp owners worsening By contrast, the pains for tramp owners are worsening faster by the day as more and more charter ships get redelivered to sit idle or to be re-employed only at much reduced rates. The fall in charter rates for ships of 1,100-4,250 TEU has accelerated to -10%, according to the New ConTex. For the bigger gearless classes of 4,250, 5,700 and 6,500 TEU losses even amount to 14-18% month-on-month. »The market for larger vessels is at a complete standstill,« as one major broker pointed out. Meanwhile the surplus of spot vessels is growing and growing, knocking on 280 units worldwide during calendar week 21, with the fastest build-up in the post-panamax, the panamax and the midsize 1,500-1,800 TEU sectors. Even for those ships able to fix new business at market levels of ,000-8,000, daily earnings are now close to opex levels. n MPP, Drybulk, Shortsea … For players in the dry bulk, mpp and shortsea trades, there is little comfort either, as freights and charter rates kept heading south during May. The deepsea trades, capesize and handysize vessels were struggling the most. Capes saw time charter levels crash below $ 2,000 per day at one point with just a meagre rebound since then while handysize units were faced with a desperate lack of business in the Atlantic. The impact of Covid-19 was felt sharp ly in all major loading areas on the continent, in the US Gulf and the East Coast of South America. Time charter rates for multipurpose ships saw a major downward correction as confidence in the breakbulk and project cargo flows waned. The market would have fallen even faster if there had not been support from steady volumes of wind mill equipment ex Far East. »Otherwise we’d all be completely in the doldrums,« one operator admitted. Full vessels loads of blades and towers are reported to have been fixed at around $ 8,000 levels on 24,000 dwt ships from China to the Mediterranean. Smaller F-type (12,500 dwt) ships got around 7,000 $/day for trips from Asia to Europe. Commercial off-hire days are still elevated, brokers say, as most of the business available is for single trips, often with waiting time between deployments.n HANSA – International Maritime Journal 06 | 2020 9