HANSA 09-2020

Märkte | Markets

Märkte | Markets Carriers make most out of uneven recovery Container shipping is making juicy profits again as freight increases offset volume losses. Although cargo volumes plunged by two-digit percentages, liner companies cautiously expand their route capacity again at fast-rising charter rates. By Michael Hollmann The Q2 financial reporting season in liner shipping beats the expectations. Many in the industry are taken aback by the container lines’ ability to »make more from less« during the pandemic. Although cargo volumes plunged by two-digit percentages during the second quarter, liner operators presented the best quarterly earnings in quite some time, with Hapag-Lloyd right at the forefront with its core EBIT margin (EBIT/ turnover) of 11.7%! Even notoriously loss-making carriers such as Hyundai and ZIM have turned a corner. Browsing the columns of the profit & loss accounts of container lines makes you forget that these are »unprecedented« bad times ... Perhaps for the first time in history – certainly after the end of the »conference« system more than a decade ago – liner operators are savour- Auf HANSA+ vereinen wir eine Übersicht wichtiger Kennzahlen: Fracht- und Charterraten in der Container-, Bulk- und Tankerschifffahrt, Bunkerpreise, MPP-, Shortseaund Umschlag-Indizes, Ölpreise und vieles mehr ing the benefits of consistent and unrelenting capacity management. Blank sailings, service suspensions and scaling-down of vessel sizes on a number of loops took active route capacity down to level with or even below cargo demand. Space constraints – especially in the large east/west trades – caused freight rates to rally while bunker costs decreased significantly. Their behaviour was not collusive but in observance of competition rules under the block exemption for liner consortia in the EU that has recently been prolonged. At least there is no evidence to the contrary. Only China’s ministry of transport has raised an eyebrow asking six major container lines for explanations behind the recent hikes that took transpacific rates (FE-USWC) to record highs of over 3,400 $/FEU. The initiative is merely serving inquiry purposes so far. The improved earnings quality for liner operators is backed by the withdrawal of 5% of global container ship capacity from trading at present. At the start of August, 264 vessels (1.2 mill. TEU in total) were classed as »idle« – at anchorage, in lay-up or in repairs – by French research unit Alphaliner. Three fourths of that capacity is controlled by liner operators, so it’s them who must pay capital and operating costs. With today’s freight revenues, they can easily afford it. Carriers were even able to add more and more charter ships with intakes below 8,000 TEU to their fleets as they cautiously expand their route capacity again. And with net freight income surging they could afford to do so at fast-rising charter rates. The New ConTex which tracks hire rates for 1,100-4,250 TEU ships is up a staggering 20% month-on-month. Hire levels for the most popular panamax and post-panamax types firmed up by 40- 50% over the past weeks!. Following the sell-out of tonnage in the 8,500 TEU sector, charterers began to mop up all the 5,500-6,500 TEU post-panamaxes they could get. As a result, there is now precious little prompt tonnage on offer until early October, shipbrokers have advised. As interest »cascaded« further down, other segments from 4,000-5,000 TEU panamaxes down to 2,500/2,8000 TEU sub-panamaxes saw open tonnage tightening as well. Latest estimates say that prompt tonnage supply in the charter market two months forward is scarcer than it was one year ago. Right now, it seems every day brings new high benchmark fixtures in the mid-to-larger vessel sectors. . It is only the smaller feeders below 1,400 TEU that continue to struggle. In VIEWPOINT Pacific demand to drive tanker rates up again The crude tanker market had one of its best runs in history but is now facing pressure as crude supply dwindles and floating storage unravels. Andrew Wilson, head of research at shipbroking group Barry Rogliano Salles (BRS), considers the long-term prospects to be strong, though. Tanker spot rates have been flagging since they surged to stellar highs on the back of storage capacity shortages in spring. Is it the end of the “boom” or do you expect a rebound? Andrew Wilson: I am not expecting a significant rebound in rates over the remainder of 2020 and into 1H21 as there will be too much tonnage chasing too few cargoes. Nor a repeat of the storage issues (driven by Saudi Arabia embarking on an ill-fated battle for market share) which helped to propel tanker rates higher. OPEC have returned to their traditional market management role and have started meeting on a monthly basis which means that they can react (and stop) the oil market becoming under- (or more likely) over-supplied. Our balances suggest that global oil production will remain around 8.5 mb/d lower year-onyear which will directly equate to less Andrew Wilson, Head of Research at shipbroking group Barry Rogliano Salles (BRS) tanker demand. This is around 4 less VLCC fixtures per day. Both the supply and demand side of crude oil have been thoroughly shaken up as a result of Covid-19. How do you see the crude trades realigning in the mid- or long-term? Will there be lasting consequences for shipping? Wilson: I remain relatively bullish on the © Hollmann 8 HANSA – International Maritime Journal 09 | 2020

Märkte | Markets Orders & Sales New Orders Container In August, the newbuilding market for containerships was very calm. The global orderbook stood at around 2.1 mill. TEU or roughly 9 % of the active fleet. Secondhand Sales The upward trend in charter rates is also noticeable on the S&P market, where there has recently been increased activity. The sellers included First Ship Lease Trust (three ships to SPIL) and Borealis Maritime, who reportedly sold the 15 years old, German-built »Bomar Aurora« (2,700 TEU) to clients of SITC for 6 mill. $. Also, TS Lines acquired the 2,500 TEU vessel »Port Adelaide« (blt 2007 in Japan) from Japan for 6 mill. $, too. Demolition Sales Although the infection numbers of the corona pandemic are rising again, not least on the Indian subcontinent, the scrap markets are showing positive developments, according to brokers. Prices have recently risen in all major markets, to 360 $/ldt in Pakistan, 350 $ in India, 330 $ in Bangladesh and 215 $ in Turkey. The ships sold include two with a German past: Euroseas disposes the former CPO ship »EM Oinousses« and the ex-Transest ship »Manolis P« - built at the Warnow Werft - will be scrapped.MM Container ship t / c market 450 400 350 300 20.02.20 Container freight market WCI Shanghai-Rotterdam 1,870 $/FEU + 3.7 % WCI Shanghai-Los Angeles 3,390 $/FEU + 15.5 % Dry cargo / Bulk 20.08.20 Month on Month 392 • + 20.2 % Baltic Dry Index 1518 + 9.4 % Time charter averages / spot: $/d Capesize 5TC average 18,570 + 0.2 % Panamax 4TC average (82k) 15,301 + 34.7 % Supramax 10TC average (58k) 10,530 + 3.5 % Handysize 7TC average (38k 9,692 + 14.5 % Forward / ffa front month (Sep 20): $/d Capesize 180k 21,566 + 31.7 % Panamax 74k 14,095 + 28.6 % MPP August ’19 $ 7,547 TMI Toepfer’s Multipurpose Index August ’20 $ 6,492 12,500 tdw MPP/HL »F-Type« vessel for a 6-12 months TC Tankers Shortsea / Coaster Norbroker 3,500 dwt earnings est. 2,100 + 5.0 % HC Shortsea Index 12.67 - 1.4 % ISTFIX Shortsea Index 366 + 5.2 % 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 491 - 8.9 % Baltic Clean Tanker Index 412 + 16.0 % VLSFO 0.5 Rotterdam $/t 316 - 4.5 % MGO Rotterdam $/t 381 + 1.6 % Forward / Swap price Q4 / 20 VLSFO 0.5 Rotterdam $/t 319 - 1.2 % Data per 20.08.2020, month-on-month Asia, the 700-1,200 TEU segments are reportedly seeing high utilisation levels again. Yet, a lot of contracts are just for short-term extra loader requirements of feeder operators faced with weather-related delays and congestion, thus owners were not able to push rates up from today’s range of mid 4,000’s to high 6,000’s $/day. In North Europe and the Mediterranean brokers report stagnant or slightly weaker rates in view of continued excess spot supply (especially in the Med), with some vessels even fixing non-containerized cargo to reposition to other areas. The Caribbean offers a glimmer of hope, though, as tonnage availability below 2,000 TEU tightened recently. According to Hamburg based Ernst Russ Shipbroker, high-reefer geared 1,300 TEU vessels were able to push up fixing levels from low 6,000’s to mid- 6,000’s $/day in August, with geared 1,100 TEU vessels expected to achieve some firmer rates as well. n long-term prospects for oil and tanker demand. I do not believe that we have seen peak oil demand. Alphatanker analysis suggests that this will occur post-2030. However, Covid-19 has set oil and tanker markets back several years as aviation demand is likely to remain hamstrung potentially until a vaccine is developed. However, away from aviation there remains many bright spots for demand such as the petrochemical sector and a resurgence of burning fuel oil in the power generation sector. Moreover, we forecast that, to a certain extent, Covid may actually help tanker trade. A portion of old, simple, inefficient refining capacity in legacy regions such as Europe, the US, Latin America, Japan and Australasia may close due to competition coming from new large-scale , efficient capacity in China, the Middle East, India etc.. Hence more crude will be carried from the Atlantic Basin to the Pacific, adding to ton mile demand. On the flip side, legacy, consuming regions will require more product imports as their refineries shutter. These volumes will be supplied by tanker. Newbuilding contracting is lagging last year’s levels by 37%. How long will owners keep their discipline? Wilson: I believe that the current low orderbook is a direct reflection of the uncertainty the shipping sector is facing in meeting the IMO’s ambitious carbon emissions targets. As the IMO has not yet outlined officially how these goals will be met, it has left owners in a holding pattern waiting for clarity before ordering new vessels. In this respect, I believe that owners will remain disciplined until the IMO publishes its guidance. This could potentially be as late as 2023. Moreover, owners do not want to order LNG-propelled tonnage and then find out that they become obsolete rapidly. Also currently, few charterers are willing to back owners ordering LNG-propelled (or alternative propulsion) tonnage with longterm time charters. Such backing is crucial for owners reducing their risk.mph HANSA – International Maritime Journal 09 | 2020 9