HANSA 07-2020

Märkte | MarKEts Ben

Märkte | MarKEts Ben K. Perry BMTI VIEWPOINT: BMTI »Demolition to outweigh newbuilding« German research firm BMTI has released its new study »Short Sea on the Move«. HANSA talked to editor and coauthor Ben K. Perry about the prospects for the sector. How is the sector »moving« ahead then? Is there major fleet renewal on the cards? Ben K. Perry: Short sea has a strong upside for fleet renewal for a variety of reasons – static fleet growth throughout the 2000s, an ageing fleet and new environmental regulation to name a few. Shipping banks have been too risk-averse, but this is changing with some Nordic banks and alternative equity providers more willing to take on projects with small owners. Given today’s orderbook, we expect newbuilding deliveries of circa 3% (by tonnage) in the next 3 years. Overall, the fleet is likely to contract, though, because of increased demolition. The Covid-19 crisis sent freights and vessel earnings down to extreme lows. Will that spur more recycling? Perry: Demolition of short sea vessels averaged about 600,000 dwt worldwide in the early 2010s, in the late 2010s (2015-2019) it fell to around 200,000 dwt annually. It has yet to bounce back from that level as market prices for scrap tonnage have been judged too low by many owners. With cargo demand set to stay subdued in 2020, the pace of demolition could well accelerate. However, the new EU Ship Recycling Regulation (EU ships to be recycled at EU-certified yards) raises the barrier for owners. How do you judge the earnings prospects in the medium run (opportunities, risks? Perry: Freights are now at a base level of where coaster trades can realistically exist, now the only direction is up. Given the relative inelasticity of short sea freights, a recovery in demand for trans-European commodities would translate directly into increased freight earnings. Our medium-term forecast is cautiously optimistic if only for the fact that extreme lows require extreme recoveries. The EU is also actively supporting the sector with a number of financial initiatives. There is reason to see the pandemic as a catalyst for necessary changes to be implemented more rapidly than previously expected. BMTI has been monitoring fleet distribution by owner country over the years – any notable shifts? Perry: China is the biggest owner of short sea tonnage with nearly 1,000 vessels (3,000-12,000 dwt). It is also the most active buyer today. Looking at Europe, Germany takes its traditional role as biggest owner with over 600 ships, followed by Turkey, Russia, the Netherlands, Norway and Ukraine. As per data collected by BMTI, Turkish buyers were most active in the second-hand market between 2012 and 2016. From 2016 to 2019, activity was led by Scandinavian and German buyers. © BMTI Big ships lead the recovery After the free fall in charter rates across the dry bulk and container ship sectors in spring, markets have begun to stabilise or even bounce back. The largest vessels are reaping the greatest benefits. By Michael Hollmann The worst of the corona crisis is over. That at least seems to be the mood among most chartering people, be it in the dry cargo, project/mpp or in the container ship sector. No doubt, the effects of the crash in earnings since February will continue to be felt on the balance sheets of shipowners, with even shooting stars such as MPC Container Ships getting forced into financial restructurings. But the trend in voyage earnings and time charter rates is sideways or even showing up again. The most conspicuous sign of a rebound is the recent surge in the Baltic Dry Index led by the 180,000 dwt capesize class. It makes market participants rub their eyes: Having traded at sub-OPEX levels for the better part of the last months, average time charter earnings suddenly bursted into the very high $ 20,000’s per day – just shy of the $ 30,000-barrier which many consider to be the breakeven level for a lot of modern vessels delivered throughout the 2010’s. Panamax (74,000-82,500 dwt), supramax (52,000-58,000 dwt) and handysize bulkers (28,000-38,000 dwt) are trailing somewhat behind. However, rates of $ 11,000 (panamax) and $ 6,700-$ 7,300 (handy, supra) are probably way more than shipowners were expecting to achieve just a few weeks ago. The main driver of the current recovery is rampant seaborne iron ore demand in China where the steels and infrastructure construction sectors are seeing a speedy recovery. Seaborne iron ore demand year-to-date already exceeds volumes in the corresponding period last year while steel production and export of steels (important for handy and supramaxes) came back onto growth retail in April, too. China leading the recovery China is buying all the iron ore it can get amid supply constraints as illustrated by iron prices (62% CIF China) above the 100 $/t-mark for several weeks in a row. Panamaxes and supramaxes are benefiting from continued strong grain flows ex East Coast South America, beyond the typical peak season, while the US Gulf as important loading region for handies and supras has sprung to life again, too. In the multipurpose heavy-lift sector, time charter rates are at least stabilising following the steep corrections of April and May, according to Toepfer’s multipurpose index. Most 12,000 dwt »workhorse«-type vessels have been absorbed back into the project tramp trades, with the Far East even faced with a tightness in heavy-lift capable vessels, as brokers point out. In container shipping, liner operators have done a remarkable job in maintaining and pushing up freight rates, prompting an- 8 HANSA – International Maritime Journal 07 | 2020

Märkte | MarKEts Auf HANSA+ vereinen wir eine Übersicht wichtiger Kennzahlen: Fracht- und Charterraten in der Container-, Bulk- und Tankerschifffahrt, Bunkerpreise, MPP-, Shortsea- und Umschlag-Indizes, Ölpreise und vieles mehr. Orders & Sales in Container Shipping New Orders As owners and carriers are still waiting for the effects of the Corona pandemic to become clearer, no newbuilding orders have been placed in the last weeks. Currently the orderbook comprises 2.291 mill. TEU or 9.8% of the active fleet. Since the beginning of the year, 15 units were contracted. Secondhand Sales The Second-Hand market has recently been relatively active after a longer break. The activity concerns above all the feeder segment, as price expectations seem more in line, say brokers. Especially the German fleet was affected with purchases and sales. Sellers include MPC, Jüngerhans, Vega and Northern Shipping. Various further sales negotiations are said to be already underway. Demolition Sales Currently cash buyers pay 315 $/ldt in Pakistan, 310 $ in Bangladesh, 295 $ in India and 190 $ in Turkey. It remains to be seen, whether the growing queue off Alang will lead to any kind of price development. The number of vessels sold for scrap has risen strongly – including the largest units ever scrapped with 7,403 TEU – as the recycling businesses recovers from the lockdown. More than a dozen ships are waiting for being demolished. MM Container ship t / c market Month on Month 308 • - 8.3 % Container freight market WCI Shanghai-Rotterdam 1,830 $/FEU + 8.0 % WCI Shanghai-Los Angeles 2,467 $/FEU + 47.3 % Dry cargo / Bulk Baltic Dry Index 1,783 + 255.0 % Time charter averages / spot: $/d Capesize 5TC average 29,395 + 811.0 % Panamax 4TC average (82k) 11,273 + 74.0 % Supramax 10TC average (58k) 7,457 - 35.0 % Handysize 7TC average (38k 6,934 - 44.2 % Forward / ffa front month July ’20 ($/day) Capesize 180k 23,553 + 283.7 % Panamax 74k 12,399 + 62.3 % MPP COMPASS 12,500 tdw MPP/HL »F-Type« vessel for a 6-12 months TC Tankers Baltic Dirty Tanker Index 459 - 42.0 % Baltic Clean Tanker Index 408 - 34.3 % Shortsea / Coaster Norbroker 3,500 dwt earnings est. 2,000 - 9.1 % HC Shortsea Index 13.17 - 9.8 % ISTFIX Shortsea Index 310 - 20.7 % 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 VLSFO 0.5 Rotterdam $/t 286 + 14.9 % MGO Rotterdam $/t 336 + 26.8 % Forward / Swap price Q3 / 20 VLSFO 0.5 Rotterdam $/t 249 - 4.6 % Data per 23.06.2020, Alterations within four weeks alysts to revise their doom-and-gloom forecast of spring. Some now even project billions of profits instead of losses for liner carriers this year. The second quarter proved to be the most challenging for them. Latest data from UK consultant Container Trades Statistics (CTS) point to a year-on-year drop in full container loadings worldwide of 18% in April. Will it have been the low-point? Latest investor guidance by Maersk and by freight forwarding giant DSV fuel hopes that the collapse in trade volumes was not as severe as expected. Trade data for May is going to be released shortly, it will give an indication whether the general cargo/container trades are on an upward trajectory again, narrowing the gap with last year. Port call statistics by Clarkson Research point in that direction already: traffic for deep sea cargo vessels in the dry and container segments are only reduced by 7-8% year-on-year in June versus a fall of 10% during May. Fixing spree for large boxships The container ship charter market also witnessed a sudden change of sentiment. Fixing activity – especially for post-panamax and classic panamax vessels – went through the roof at the start of June after 2-3 months in which redeliveries outweighed new fixtures by far. One Hamburg-based broker recorded around 40 fixtures of post-panamax ships during the first two weeks of June – double the volume during the whole month of May. According to Alphaliner, the number of ships in spot positions fell by 17% to 223 worldwide within a fortnight as per 15 June. There are now the first signs of ships fixing above last done, with levels for 8,500 TEU vessels recovering from $ 12,000 to around $ 17,000 for longer durations. Classic panamaxes managed to stop the decline and lift fixing levels above $ 7,000 per day again. For the sub-panamax and feeder classes below 4,000 TEU, the rate trend is still sideways but the good thing is that ships continue to be able to cover their operating expenses. On the other hand, latest macro-economic data does not make for comfortable reading, with both the World Bank and the IMF down-grading their world GDP growth forecast to around -5% for 2020. Growth in 2021 is not expected to make up for the losses this year. However, these are all value/monetary considerations, weighed down by the price falls for oil and other commodities. The volume and tonne mile prospects, that are key for shipping, may be better than overall GDP developments. Restocking and inventory building in the dry goods segments as well as increased tonne mile demand for tankers – China buying more from Atlantic producers... – could offer more unexpected tail winds, even during the traditional summer lull. n Erratum: Sascha Juhasz, head of research Ernst Russ Shipbroker, was quoted in our last issue saying there were 70 unemployed container vessels only in the 500-2,000 TEU range. We failed to mention that this figure only applies to tonnage in the Atlantic, not worldwide. Apologies for the omission! HANSA – International Maritime Journal 07 | 2020 9