Post on 17-Nov-2020
Shipping Markets Outlook
2019 Edition
Contents
Foreword 4ConsultancyDivision 5Introduction 6TheEconomicBackdrop 9
Global Macro Environment Charts 16TheDryBulkMarket 27
The Dry Bulk Market Charts 33TheTankerMarket 41
The Tanker Market Charts 46TheContainershipMarket 57
The Containership Market Charts 64Conclusion 68Appendices 69AboutUs 71
Shipping Markets Outlook 2019Shipping Markets Outlook 20194 5
Foreword
ThethemeofShippingMarketsOutlook2018was“TackingintotheWind”asweanticipatedthatthemarketwouldcontinuetobuffetusbackandforthaswesailedintoheadwinds,makingforslowforwardprogress.Thatturnedouttobeafairassessmentof2018asitwasnotaneasyyearinanyofthethreemainsectors.However,aswemoveintothesecondquarterof2019,wedoperceivethatsupplyanddemandarebecomingbetterbalancedandthisshouldleadtoimprovedearningsandassetvalues.Frustratingly,itisalltakingmuchlongerthanwehadexpectedastherateofprogressslowedin2018afterthequickerpaceof2017.Therefore,thethemeforShippingMarketsOutlook2019is“TheLongandWindingRoad”.Westillhavequitealotofworkaheadofustogettothatbetterplace.
Thishasreallybeenthestoryofshippingsince2009,alongandwindingroadtorecoveryaftertheexcessesof2004to2008,especiallythetonnagesupplygrowthcausedbyover-orderinginthoseyears.Asfortheroadahead,weconsiderthatwehavegoodvisibilityintermsofthesupplyanddemanddatabut,inreality,wearenotentirelysurewhatliesaroundthenextcorner.FuturedemandislessclearaswefaceslowerEurozonegrowth,weakerChinesegrowth,aglobaleconomicslowdownandunresolvedtradewars.FuturesupplylooksmuchbetterwithlowordersattheshipyardsandthepotentialconstrainingeffectofIMO2020andotherregulations.Theoptimismthatwefeltattheendoflastyearwastemporarilydentedbyvolatilebulkcarrierandtankerearningsanddepressedcontainerfreightratesinthefirstquarter,butthiswillchange.
MayItakethisopportunitytothankourcustomersaroundtheworldfortheircontinuedsupportandtoourstaffinLondon,SingaporeandShanghaifortheirhardworkandbestefforts.Westillfacechallengingfactors,manyofwhichhavelittleornothingtodowithshipping,butwecontinuetobelievethatourmarketsareontheroadtorecovery.Torepeatwhatwesaidinlastyear’sforeword:“Thesupplyanddemandfundamentalsindicatethatwehavethemostbenigntonnagesupplysituationthaninmanyayear,withhistoricallyloworderbooktofleetratios.”Thisremainsthecase,aftermarketsstalledlastyear,settingthingsupforabetter2019.Fromthemiddleofthisyearweshouldbegintoseethefundamentalsassertingthemselvesandforthatall-importantingredientofsentimenttolift,helpingustorediscoveroursenseofconfidenceandoptimism.
ChrisOhlson ManagingDirector HartlandShippingServicesLimited
Introduction to the Consultancy Division of Hartland Shipping Services
TheConsultancydivisionofHartlandShippingServicesisaspecialisedshippingandshipbuildingindustryteam.ItprovidesdetailedsectorresearchandconsultancytoexternalclientsinadditiontoconsultancyservicestotheHSBCGrouponaglobalbasis.TheConsultancydivisionhasatrackrecordofsuccessfullycompletingshippingindustrystudiesandconsultations.Theseincludeprovidingcommercialduediligenceforinvestmentsinshippingandshipbuilding,conductingfeasibilitystudiesfornewshippingoperations,counsellingbanksonportfoliorisk,engagingincommercialrestructuring,andworkingonleadingshippingmergersandacquisitionsandequitycapitalmarketsprojects.
Researchpublicationsinclude:
• ShippingMarketsOutlook(annualpublication)• WeeklyCommentary• MarketMonitor(weeklypublication)• On-demandbespokeshippingandshipbuilding• Newbuildingmarketreport
Consultingandadvisoryworkscopeincludes:
• Commercialandstrategicadvice• Feasibilitystudyandbusinessriskassessment• Commercialduediligenceforinvestments• Vesselvaluationandfleetanalysis
TheConsultancydivisionofHartlandShippingServicesaimstoofferin-depthcoverageoftheinterfacebetweenshippingmarketsandtheglobaleconomy.
Team members
Welcome to Hartland Shipping Services Shipping Markets Outlook 2019
NigelBPrentis Director/HeadofShippingConsultancy E-mail:nigel.prentis@hartlandshipping.com
MaartenVandenBroeck ResearchAnalyst E-mail:maarten.vdbroeck@hartlandshipping.com
MorganeRosec ResearchAnalyst E-mail:morgane.rosec@hartlandshipping.com
Shipping Markets Outlook 2019Shipping Markets Outlook 20196 7
AlltheycanrelyuponistheallegedhighcostofrefineryconversionfromHFOtoLSFO(typicallyover$1billion)andthelongleadtime(typicallyover5years).TheassumptionisthattherewillbesufficientHFOavailableinworldwidebunkeringportsforscrubber-fittedshipsforyearstocome.ItisanuncomfortableassumptionforthosewhoplantoinvestinexhaustgascleaningequipmenttocontinueburningHFOthattheIMOarguablyshouldhavedecisivelybannedfortheavoidanceofambiguity.5-10%ofthecommercialfleetisexpectedtobefittedwithscrubbersintime.TherestofthefleetwilldefaulttoLSFOorMGOandexpecttorecovertheextracostsfromcharterers,andultimatelyfromtheendconsumer.Itisapolarisingissuewithoneofthelargestlistedbulkcarrierplayers,StarBulk,goingall-inforscrubbersandthelargestlistedtankercompany,Euronav,stayingall-out.Thedebateisemotionalandofteninvolvesthehighlyselectiveuseofresearchanddata.
Thereareplentyofopinionsaboutscrubbersbutthereisratherlesshardevidenceatthisstage.SufficetosaythatEuronavperceivestheretobeapublicrelationsriskinbeingseentoconvertairbornepollutionintoseabornepollution.StarBulkpointsoutthattheseawaterwashingofexhaustgasinanopenloopscrubbersimplyaddssulphatestotheoceanthatalreadyexistinlargequantities,aswellashelpingtoremoveotherimpuritiessuchasparticulatematter.Furthermore,suchscrubberswereactuallyapprovedbytheIMO,whichcomplicatesmatters.TheWorldscalesystemneedstobereformediftankerownersaretobecompensatedfortheiractualfuelcostsandbunkeradjustmentfactorsneedtoberefinedifthecontainerlinesaretorecovertheircosts.Bulkcarrierownersenjoyabetterpass-throughmechanismonvoyagetermsandcanalwaysoptfortimecharteroutifcharterersareunwillingtopayfreightlevelsthatcovertheactualcostofbunkers.
DNVestimatesthatsome2,700commercialshipsofalltypesmaybefittedwithscrubbersby2020,withover80%beingopenloop.ScorpioGroup,withfleetsofbothtankersandbulkers,hascommittedtoinstallingopenloopscrubbersonmorethan100ships.TakentogetherwiththeothermajorIMOinitiative,theobligatoryinstallationofballastwatertreatmentsystems,itisfacingacapitaloutlayofaround$500millionforitsfleet.Itmentionsthat,asfarasBWTS,about30%ofthe108systemsthatithaspurchasedtodatehavebeendeclarednon-operationalthroughacombinationofdefects.Thishasinvolvedsevenmanufacturersandfourdifferenttechnologiesoverthepastfiveyears.Itmustfearsimilarrisksforlargelyuntestedscrubbers.StarBulk,isfittingitsentirefullydeliveredfleetof112largebulkcarriers,rangingfromsupramaxtonewcastlemax,withopenloopscrubbers.Thetotalcapitalcostisestimatedat$185mwithabout70%ofthistobefinancedbyloans.AswithScorpio,itisreliantuponIMO2020beingenforcedfrom1stJanuary2020.
ItisofconcerntosuchcompaniesthathavecommittedtosignificantscrubberinvestmentsthattheIMOhasreopeneddiscussionsaroundscrubbertechnologysoastoharmonisefuturerulesrelatingtoscrubberuse.AnIMOsubcommitteeentitledPollution,PreventionandResponse6(PPR6)metbetween18-22FebruaryinLondontoconsiderlatestsubmissionsfromIMOflagstatesandNGOs.Justaheadofthemeeting,theEuropeanCommissionreportedonthesubjectandsuggestedthat“thesooneruniformandunambiguousregulatorymeasuresaredevelopedandadopted,thebetterthepotentialpollutionwillbecontrolledandthelesssignificanttheeconomicimpactwillbebothonindustryandadministrations.”ItsfindingswerebaseduponaGermanstudythatwaspresentedtotheIMOattheendof2018.TheEC’sconcernshavefoundsupportfromtheflagstateofPanamawhichpresentedareportthatitcommissionedfromtheMassachusettsInstituteofTechnology(MIT).ItsuggeststhatdamagecanindeedbedonetothemarineenvironmentbyopenloopscrubbersanditquestionstheassumptionofequivalencebetweenburningHFOwithscrubbersandtheburningofLSFO.
TheGermanreportassertedthat“theoperationbyshipsofexhaustgascleaningsystemsisexpectedtoleadtoadegradationofthemarineenvironmentduetothetoxicityofwaterdischarges.”Itpointedoutthatthecompositionofexhaustgasesmadeitinevitablethatscrubbereffluentwashwatercontainsheavymetals,nitricacid,sulphuricacid,sulphates,nitratesandpolycyclicaromatichydrocarbons(PAH).Thisappearstobeacondemnationofthepracticeofdeployingscrubbers,especiallyopenloopmodels,despitethefactthattheIMOhadapprovedtheirusein2015.Thereportmentionedthatabouttwo-thirdsofthenearly1,500scrubbersalreadyinstalledoronorderareoftheopenloopvariety.Scrubberusershaveconductedtheirownscientificstudiesthatrefuteclaimsthattheirusemayharmthemarineenvironment.IndirectchallengetotheECreport,aJapanesegovernmentstudyintoopenloopscrubberswasalsopresentedtothePPR6meetinganditfoundthattherearenounacceptableeffectsfromtheiruseonmarineorganismsorthequalityofthesea.
Thestudyestablishedthattheamountofheavymetalsintheseaemanatingfromopenloopscrubberuseisabout100timeslessthanthelimitofheavymetalconcentrationpermittedfromlanddischargesinJapan.Japanistheworld’ssecondlargestshipowningandthirdlargestshipbuildingnation,soitsopinionmayprovetobeinfluential.Furthermore,JapanisbackedupbytheCleanShippingAlliance2020whichproducedalong-termstudyoftheshipsinthefleetofoneofitsmembers,CarnivalCorp.ThefindingswereinlinewiththoseoftheJapanesegovernmentwithscrubberdischargewaterfallingwithinsafetystandards.IntherealworldthelikesofChina,SingaporeandFujairahhavealreadyintroducedlimitationsontheuseofopenloopscrubbersintheirportsandterritorialwaters.Anyway,thedebateaboutscrubbers
Introduction
2018 built on the improvements witnessed in 2017 across the three main
sectors of bulkers, tankers and containers although tankers and containers
found it to be a more challenging year than bulk carriers.
TheClarkSeaIndex,abroadmeasureofoverallperformanceacrosstheshippingsectors,rose13%in2018to$12,144perday,havingrisen14%in2017.Thistakestheindextojustaboveitsaveragelevelof$11,751perdaysincetheglobalfinancialcrisisinthe10-yearperiodbetween2009and2018.Thismakes2017and2018yearsofsteadyifunspectaculargains.Overallfleetgrowthwasat2.6%in2018after3.4%in2017andtradegrowthwasat2.7%in2018after4.2%in2017.The2.7%tradegrowthlastyear(3.1%intonne-miles)tooktotalseabornevolumesto11.9billiontonnes.In2019wewillneedtowatchChina’sindustrialproductiongrowthandprogressinavertinganescalationinUS-Chinatradefriction.Only11%ofthefleetisonorderwhiledemolitionfell12%year-on-yearin2018to31m-dwt,implyingexpectationsofbetterearningsahead.
Westillhavesomeexcesstonnagesupplytoburnoffaftersuccessiveyearsinwhichsupplygrowthhasoutgunneddemandgrowth,butatleastwearenowseeingbettersupply-demandbalance.Withmodestexpectationsofsupplygrowthaheadwearehopingthatcontinuedpositivedemandgrowthwillreturnusbetterearningsandhigherassetvaluesacrossallthreemainsectors.So,withsupplyunderreasonablecontrol,itisdemandthatwillholdthekey,anditisthisareathatisposingsomerisksaswemoveinto2019.OutinAsia,weareseeingsignsofslowergrowthinChinaandJapanthatdoesnotbodewellforthemaindriversofconsumptionintheregion.InEurope,wehavetheconundrumoftheUKpossiblyleavingtheEUandupsettingtheeconomicorderacrossEurope.Europe’seconomyisevidentlyailingjudgingfromItalybeinginrecession,drasticallyslowingGermaneconomicperformanceasitsexportsfall,andFranceinthegripoflowleveldisruptionfromthepopulistgiletsjaunesmovement.
Inthefourthquarterof2018,theUKregisteredGDPgrowthofjust0.2%,after0.6%inQ3.ThistookannualGDPgrowthdownto1.4%for2018,thelowestsince2012,accordingtotheOfficeforNationalStatistics.TheEuropeanUniondidnobetterlastyear,merelymatchingtheUKrateof1.4%.SinceQ1,itsgrowthratefellfrom0.5%inQ2,to0.3%inQ3andto0.2%inQ4.TheEUleader,export-dependentGermany,managedannualGDPgrowthof1.5%in2018after2.2%in2017and2016.InQ3itcontractedby0.2%andinQ4itcamebacktozerogrowth.2018wasGermany’sworstperformancesince2013.FrenchGDP
growthmatchedGermany’sat1.5%in2018following2.3%in2017.ThetrendisalreadyclearasEuropeiswitnessingslowereconomicgrowthonfearsoftheconsequencesofBrexitlocallyandofUS-initiatedtradefrictionglobally.
AcrosstheAtlantic,USGDPgrowthcameinatastronger2.9%for2018,boostedbycorporatetaxcuts,after2.2%in2017.However,itpostedthreeconsecutivequartersoffallinggrowthingoingfrom4.2%inQ2,to3.4%inQ3andto2.6%inQ4.Signsofgrowthfatiguewereevidencedby12consecutivemonthsoffallingpendingexistinghomesales,aprocessthatacceleratedinQ4.AprotectionistUS,belatedlytryingtogetevenandleveltheplayingfieldwithitsoverseascompetitors-rangingfromneighboursCanadaandMexicotomoredistantEurope,IndiaandChina-hassetupamorehostileglobaltradeenvironment.TheFedhasgraduallyraisedratesfrom0.25%tothecurrent2.5%whereitisnowlikelytopauseaseconomicuncertaintiesdemand.ItisintheprocessofunwindingQEwhiletheECBisstrugglingtoenditsownstimulusprogramme.TheBankofJapanhasnotyetstartedanypauseorreversalofitsownQEprogrammeasdomesticandglobalgrowthslow.TheJapaneseeconomyexpandedbyanestimated1.0%in2018following1.7%in2017.
Environmentalissues,andmostimmediatelyIMO2020,areamongstthegreatesttechnicaluncertaintiesfacingshippingtoday,andtheythreatentoimposeextracostsonallparticipantsintheshippingindustry.Theswitchfrommaximum3.5%sulphurcontentfuel(effectivelyHFO)to0.5%sulphurcontentfuel(closetoMGOat0.1%)isabigshift.IMOcompliantlowsulphurfueloil(LSFO)shouldbeavailableinsufficientquantitieswhenthedeadlineof1stJanuary2020isreached.Thiswillrequireanestimatedswitchofsome2.5m-bpdofHFOtoLSFOorMGO.Theworld’srefinersarenotyetprovidinguswithconfirmationthattheywillhavesufficientquantitiesofLSFOavailableintime,astodosowouldonlyunderminefutureLSFOpricing.NoraretheyguaranteeingsufficientquantitiesofHFOfortheyearsfollowingIMO2020,asthiswouldunderminethefuturepriceofHFO.Thusships,powerstationsandotherusersofHFOthatareinvestinginscrubbersareleftwithoutaclearpictureofthefutureavailabilityorpricingofhighsulphurfuel.
Shipping Markets Outlook 2019Shipping Markets Outlook 20198 9
willrageonandtheuncertaintieswillcontinueasPPR6decidedthattherewasinsufficientleadtimefortheIMOtoreviseits2015scrubberguidelineswhenitsEnvironmentalProtectionCommitteeconvenesits74thsessioninLondoninMay.AnynewguidelineswillnotbereadyuntilPPR7inayear’stime,afterthenewrulesbecomeeffective.
AnothertopicarisingfromtheIMO’sPPR6meetingconcernedthecontinueduseofHFOintheeventofconcernsaboutthequalityandsafetyofavailablecompliantfuels.ItmightbeinterpretedasanalltoofamiliarfudgeandtheperceptionofapotentialweakeningofenforcementproceduresagainsttheburningofHFOwithoutscrubbersafterthe1stJanuary2020deadline.TheIMOagreedthatshipscancontinuetoburnHFObeyondthedeadlineiftheownerscanprovethattheyhavelegitimateconcernsaboutthequalityandsafetyofavailablecompliantfuels.Thissafetyget-outclausewillbeaddedtothefueloilavailabilityreport(FONAR)whichcanbepresentedviatheflagstatetoPortStateControlasproofthatcomplaintfuelwasnotavailablewithoutmakinganunreasonabledeviationintheship’stradingroute.TheIMOhasatoughtaskgettinguniversalmemberagreementtopolicyandenforcementissues.Inthisinstance,PortStateControlwillhavetobethejudgeofwhatconstituteslegitimategroundsforcontinueduseofnon-compliantfuelsin2020.TheInternationalChamberofShipping(ICS),insupportoftheIMO,haswarnedthatFONARscannotbeusedasafreepasstocontinuecarryingnon-compliantfuel.Measureswillbeputinplacetoavoidabuse.
ThereisnodoubtthatIMO2020andotherenvironmentalregulations,suchasBWTS,aresettoplayasignificantroleinreshapingthesizeandoperationalcharacteristicsoftheglobalcommercialfleet.Thepopularperceptionisthattheseregulationswillimposeextraburdensandcostsupontheindustry.Themostlikelyupshotisthatwewillseeanincreaseinscrappingandadecreaseinvesselspeeds,thusreducingeffectiveshippingcapacityatthemargin.Thisisgoingtohappenoverthenextfewyearswhenweexpectquitelimitedfleetgrowthineachmajorsectorthankstopoorearnings,lackoffinance,highnewbuildingpricesandregulatoryuncertainties.Thispositivesupply-sidedevelopmentisaccompaniedbycorrespondingpotentiallynegativedemand-sidedevelopments.TheseincludetheUSpullingoutoftheTPPandrejiggingNaftaandembarkingupontradedisputeswithCanada,Mexico,EuropeandAsia.
ThebiggestongoingtradedisputeistheonebetweentheUSandChina,thetwolargesteconomiesintheworld.Itiseithercausingorcontributingtoslowereconomicglobalgrowth.Thesoonerthetwosidescometoashort-termagreementontariffs,andagreetoengageinalongertermdiscussionabouttradingpractices,thebetterforshipping.
Themostrecentnews,inmidMarch,isthattheUSandChinaappeartobeinchingtowardsadealthatmaybescopedoutbyendMarchandratifiedbyPresidentsTrumpandXibyendApril.Theleadersofeachcountryarekeentoavoidbeingblamedforcausingadamagingdecelerationineconomicgrowth.Chinaisreportedlyofferingtoboostitspurchasesoffarmandenergyproducts(suchassoybeansandLNG)whilemakingmodestconcessionsontechnologytransfer,intellectualproperty,marketaccess,industrialpolicyandsubsidies.Thiscoversabroadrangeofshort-termandlong-termissues.ThefirstcoversthetariffsandtheUSbilateraltradedeficit(whichwasat$375bnin2017androsetoanall-timerecordof$419bnin2018)andthesecondcoversstructuralchangesthatwilltakemuchlongertothrashout.Separatingthetwomighthelpreachasolution.ChinaisagreeingtobuymoreUScrudeandLNG,whichitwasontargettodoinanycase,attheexpenseofothersupplierssuchasCanada,Russia,AustraliaandtheMiddleEast.Itshouldnothaveaproblemwiththat.
ChinacanresumebuyingmostofUSsoybeanexports,whichisinevitableinanycase,attheexpenseofrivalexportersinBrazil,ArgentinaandUkraine.Onceagain,itshouldhavenoproblemwiththat.Chinahasothertoolsatitsdisposaltocompensateforanylossoftractionwiththosenationsthatloseoutintheshortrun.Chinacanalsoincreaseitscapitalgoodspurchases,especiallyaircraft,whichwillpleaseBoeingbutmaybenotAirbus,althoughthisconceptdoesfacesomeproblemsafterthegroundingoftheglobalfleetofBoeing737Maxaircraft.PresidentTrump’sre-electionprospectsnextyearwillcertainlygetaboostfromeasingthepainthatisbeingfeltinthefarmingandenergydependentstates.PresidentXiwillalsogetsomerelieffromthepricerisesthathavebeencausedbyitstariffsonassortedUSimportsatatimewhentheeconomyisgrowingatitsweakestratein30years.TheUSandChinahaveidentifiedeachotherasleadingtechnologycompetitorsandstrategicadversariesbut,fornow,bothpresidentsstandtogainfromatruce;sotoowillshippingandtrade.
The Economic BackdropVolatile stock markets
Stockmarketshadarollercoasteryearin2018,commencingstronglybutendingtheyearlowerthanwheretheystartedafterapoorlastquarter.Bytheendoftheyear,theDJIAwasdown5.6%,theS&P500was6.2%lowerandtheNasdaqwasdown3.9%.EvensteeperfallsweresufferedoverseaswiththeFTSEAllShareIndexoff12.0%,theFTSE100down12.5%andtheEuropeanStoxx600offby13.2%.InAsia,theNikkei225was12.1%lowerandtheHangSengwasdown13.6%.However,somewhatominously,thesteepestlosseswerebookedinChinawiththeShenzhenCompositedown33.1%andtheShanghaiCompositeoff24.6%.
Thisallchangedin2019.Asweapproachtheendofthefirstquarter,Chinesestockmarketindiceshaveperformedbetterthanothers.ChinaisdefyinggloomyexpectationsaswellasbenefitingfromareboundininvestmentinflowsaheadofchangestoMSCIindexweightings.IntheyeartoFriday15March,theShenzhenCompositewasup30.6%andtheShanghaiCompositewasup22.6%,evenafterhavingsufferedsharp3-4%correctionsattheendofthefirstweekinMarchonacombinationofmarketjittersandaboutofprofittaking.DespitetheseearlyMarchcorrections,theChineseindicesarestillaheadoftherest.
Bywayofcomparison,intheyeartoFriday15Marchmarketclose,theDJIAwasup10.7%,theS&P500was12.5%higherandtheNasdaqhadrebounded13.8%.TheFTSEASIrose7.8%overthisperiodwhilethemorefocusedFTSE100wasup7.3%.TheEuroStoxx600managedtoputon13.0%whileitstwomainGermanandFrenchcomponentswereeithersideofthismeasurewiththeDAXup10.4%andtheCAC40up15.3%.InSpain,theIBEX35wasup9.3%.OutinAsia,theNikkei225was9.7%strongerwhiletheHangSengwasup15.4%.Thesestockmarketgainsin2019todateareallthemoreremarkablegiventhemanifestuncertainties.
Weaker Chinese growth
OfficialfiguressuggestthattheChineseeconomygrewatarateof6.6%in2018havingslowedto6.4%inthefinalquarter.Thisistheslowestrateofgrowthsince1990whentheChineseeconomywasjustgettingintogear.ThisyearChineseGDPgrowthissettoslowtoaround6.3%accordingtoconsensus.TheChineseGDPfiguresarenominalgiventheofficialpracticeofsmoothing;actualgrowthin2018wasprobablycloserto5%.Thelatestgovernmenttargetfor2019isinthe6.0-6.5%range,assetbytheNPCinearlyMarch.
Chinaisdefinitelysufferingfromaslowdownaccordingtoanassortmentofmetrics.Weakerdomesticdemandisillustratedbya6%fallindomesticcarsalesin2018to22.7millionunits,accordingtotheChinaPassengerCarAssociation.OneleadingChineseautomotivemanufacturer,Geely,sawitssalesdropby44%year-on-yearinDecember2018alone.ThisisthefirsttimethatsalesofcarshavefalleninChinainatleast20years.Itcoincidedwiththeendingofgovernmentsubsidiesforvehiclepurchaseslastyear.
Chineseconsumersappeartohavebeenaffectedbythetit-for-tatimporttariffsimposedonimportedUSgoods.Thepricesthattheyhavetopayhavegoneupandsotheirpurchaseshavegonedown.ManyChinesecitizenswouldalsohavebeeninfluencedbythesharpdropindomesticstockmarketindiceslastyear,leadingtoretailsalesgrowthfallingtoa15-yearlowin2018.InearlyMarch,BeijingrevealedthatChina’sexportsinFebruaryfell20.7%year-on-year,thesteepestdropsince2016,anditsimportswere5.2%lowerthaninFebruary2018.Theseweakimport-exportfiguresmayalsoreflectthedistortingeffectsoftheCNYholidays.
Stronger US growth
IncontrasttoChina,theUSeconomygrewby2.9%in2018,upfrom2.2%in2017,whileinflationwassubduedataround2%.TheUSstockmarketboomwasinitiallyinflatedbyPresidentTrump’staxcutsandthendeflatedbyhispursuitoftradewarswithbothfriendandfoe.Otherimpedingfactorsweretheeffectofrisingrates,theunwindingofQEandthe35-daypartialgovernmentshutdown.S&P500companiessawtheiraverageearningsrisebyabout20%in2018witharound8%ofthisapparentlyattributabletothetaxcuts.InearlyJanuary,WallStreetconsensuswasthattheymightexpecttogrowearningsbysome8%in2019.ThiswouldgiveanaverageP/Eratioofjustbelow15,ataboutthemeanforthepasttenyears,andafewpointsbelowtheaverageforthepastfiveyears.BylateJanuary,theconsensusforecastofearningsgrowthhadslippedto6.5%in2019.Thisdeclineisallthemorerelevantinthecontextofthe10%forecastasrecentlyaslastOctober.
TheUSisstilldoingwellwhenitcomestojobcreation.Non-farmpayrollsroseby222,000lastDecemberandthenby304,000inJanuary.Thiswasfollowedbyashockingdroptojust20,000jobsgrowthinFebruary,againstaforecastof180,000.Itwastheworstreadingin17monthsbutmighteasilybeputdowntotheuncertaintycausedbythegovernmentshutdown.Itwasinconsistentwiththeunemploymentratefallingfrom
With modest expectations of supply growth ahead we are hoping
that continued positive demand growth will return us better earnings
and higher asset values across all three main sectors. So, with supply
under reasonable control, it is demand that will hold the key, and it is
this area that is posing some risks as we move into 2019.
Shipping Markets Outlook 2019Shipping Markets Outlook 201910 11
4.0%to3.8%inFebruaryandwiththe3.4%year-on-yearriseinhourlyearnings,thebestratesince2009.
BackinJanuary,OxfordEconomicswasexpectingrealUSGDPgrowthtoslowfromaround3%year-on-yearin2018toabout2%bytheendof2019aspolicy-driveneconomicheadwinds–tradepolicy,fadingfiscalstimulus,andtightermonetarypolicy–wouldweighoneconomicmomentum.ByearlyMarch,mostforecastersweretrimmingtheirUSgrowthforecastsfor2019:theOECDto2.6%;theWorldBankandIMFto2.5%;theEconomistto2.3%;GoldmanSachsandMorganStanleyto2.0%orless.ItappearsthattheUSwillfailtoescapecontaminationfromslowingglobalgrowth.
ThismeansthatPresidentTrumpislikelytofallwellshortofachievinghisambitiousaimof4%growth.NodoubthewillblametheFederalReserve,EuropeandChinaforanyfailuretodeliveronhis2016campaignpromises.HisbiggestcampaignpledgewastobuildawallonthesouthernborderwithMexicoandgettheMexicanstopayforit.IntheendhedecidedthatCongressshouldadvance$5.7bntopayforitinexchangeforabudgetdealtoavoidasecondshutdown.
On15February,afterCongressrefusedtoadvancethemoney,MrTrumpapprovedthe$333billionfederalgovernmentspendingbillbut,atthesametime,hedeclaredastateofnationalemergency.Thisenabledhimtoallocateabout$8billioninemergencyfundsthatweresetasideforthemilitaryanddisasterrelief.Acoalitionof16USstates,ledbyCaliforniaandallgovernedbyDemocratswiththeexceptionofMaryland,issuingtheTrumpadministrationhopingtoblocksuchaperceivedmisuseofpresidentialpower.
US-China trade friction
InearlyJanuary,theOfficeoftheUSTradeRepresentativedeclaredthatthreedaysoftalkshaddiscussedwaystoachievefairness,reciprocityandbalanceintraderelationsbetweentheUSandChina,andtheneedforeffectiveenforcementofanydeal.Chinapledgedtobuyasubstantialamountofenergy,manufacturedfoodsandagriculturalproductsfrom
theUSasameanstowardsnarrowingthebilateraltradegapwhichreached$375billioninChina’sfavourin2017.TheUSpresidentisdeterminedtoseeanarrowinginthistradegapbut,unfortunately,mostrecentdatashowsthatitactuallywidenedin2018.
TheUSTRexpectedtousherinstructuralchangestoChina’stradepoliciesthatwouldprotectUSintellectualpropertyandcurtailtechnologytransferstoChinesefirms.PresidentTrumpmightoriginallyhavebeenhopingtoannounceanendtothetradewarstocoincidewiththeWorldEconomicForuminDavosattheendofJanuary.However,MikePompeo’svideo-linkedaddresstotheWEFgavenohintofanybreakthroughandthetalkslookedsettogoallthewaytothe1Marchdeadline.Shortlybeforethedeadlinewasreached,thepresidentdecidedtotemporiseanytariffincreasestogivethetwosidesachancetoreachagreement.
Aspartoftheongoingtradetalks,Chinahaspledgedtobuyanadditional$1.2trillionofUSgoodsimportsoversixyears.Thiswouldincludemorepurchasesofsoybeans,corn,naturalgas,crudeoilandcapitalgoods.Boeingaircraftareakeycomponentofthelattercategory.TheworldwidegroundingoftheBoeing737MaxseriesaftertworecentcrashescomplicatestheissueasChinaisthoughttoaccountforabout10%oftheunfilledordersforthisaircraft.Avolonanditssubsidiariesaresaidtohaveover100orders,BOCAviationhas90onorderandChinaDevelopmentBankhas77.Chinaisunlikelytoconfirmitspurchasesofthe737MaxuntilthesafetyissuesareresolvedandthiscouldmakeitmoredifficultforChinatoreachthe$1.2tntarget.
UK is weakened by Brexit
TheUKeconomyisstrugglingaheadofitsplanneddeparturefromtheEuropeanUnionon12April.On10January,JaguarLandRoverannouncedthatitwascutting4,500jobsinBritainblaminga12%fallinglobalsalesinSeptemberanda46%dropinsalesinChina,itsbiggestmarket.ItalsonotedtheacceleratingmoveawayfromdieselenginecarsinEurope.Onthesameday,FordannouncedthatitwouldcutthousandsofjobsacrossEuropeandtheUK.Slowingsalesandnew
The result of China’s state-driven economic and trade policy is global
overcapacity in industries such as steel and cement which leads to
excess production being dumped in overseas markets, including
Europe. In this sense, one might see President Trump’s ‘America
First’ and ‘Make America Great Again’ campaigns as much needed
antidotes to China’s ‘Made in China 2025’ campaign.
environmentalrules,bothfamiliarsubjectsinshipping,demandradicalrestructuring.TheongoingpoliticaluncertaintyintheUKcausedbyBrexithasmadetheUKautoindustryanobvioustarget.InearlyFebruary,NissanannouncedthatitwillnolongerbebuildingitsX-TrailSUVatitsplantinSunderland,shiftingproductiontoJapaninstead.On12March,itannounceditwillceaseUKproductionofitsluxuryInfinitibrandinSunderland.
On19February,HondaannouncedtheclosureofitsflagshipBritishplantinSwindonin2022,leadingtoatleast3,500joblosses,andpossiblyuptodoublethat.ThisisHonda’sonlyplantinEuropewhichlastyearmade160,000Civics.90%wereexportedtotheEUandtheUS.ItcitedthesmallEuropeanmarketandtheshifttoelectriccars.Swindon’scapacityroseto250,000carsayearin2001,butitonlyevergottoapeakoutputof230,000unitsbeforethe2008downturn.Afterthatoutputlevelscollapsed,leavingit36%belowcapacity.Bycomparison,itmakesaround2millioncarsayearinbothChinaandtheUS.ThethreatofUSimporttariffsofupto25%setalarmbellsringingbutitwastherecentEU-JapantradedealthatprobablysealedSwindon’sfate.Undertheseterms,Japanese-builtcarscanbeexportedtotheEUatzerotarifflevelsfrom2027,avoidingthe10%commontariffthatwouldbepayableoncarsimportedfromtheUKonceithaslefttheEU.
TheUK’sOfficeforNationalStatisticsrecordedaquarter-on-quartergrowthrateofjust0.2%inQ4of2018from0.6%inQ3,0.4%inQ2and0.1%inQ1.InmidMarch,theONSreportedthattheunemploymentratehadfallento3.9%,thelowestsince1975.Year-on-yeargrowthinaverageweeklywagesroseto3.4%suggestingthatthelabourmarketisquitetight.DomesticinvestmentintheUKeconomydeclinedquarter-on-quarterineachofthefirstthreequartersof2018asbusinesseshavenoclarityofthetermsoftradebeyondtheendofMarch.InQ3lastyear,investmentwas2.2%lowerwhencomparedwiththelastquarterof2017.ItislikelytohavefallenagaininQ4whentheONSreleasesitslatestdataattheendofMarch.70%ofinvestmentintransportequipment,machineryandIT,intangibleassets,andbuildingsandinfrastructureisbycompanies;therestisbycentralandlocalgovernment.SuchinvestmentlevelsnowfallwellbelowtheUK’sEuropeanpeersinItaly,FranceandGermany.InmidMarch,theOfficeforBudgetResponsibilityreduceditsforecastofUKgrowthto1.2%forthisyear,theweakestsincethefinancialcrisis.TheOBRalsoestimatedthatbusinessinvestmentwillfall1%thisyear,similartolastyear’sdrop.
Germany joins the US in pushing back at China
InearlyMarch,theECBreduceditsforecastofEurozonegrowthin2019to1.1%fromitsprevious1.7%.Itannouncedthatitwouldkeepinterestratesonholdandbewillingtodeploynewstimulusifnecessary,thustemporising
thestimuluswithdrawalprocess.SlowinggrowthinEurope,matchingslowdownselsewhere,isnowheremoremarkedthaninGermany.Itsgrowthratefellto1.5%in2018,from2.2%in2017,andisexpectedtofallfurtherto0.7%thisyear,evenbehindtheUK’s0.8%,accordingtotheOECD.Germany’sexport-dependenteconomyisfindingthatdemandforitsgoodsinoverseasmarketsiswaning.Insympathywiththisobservation,Germany’sindustrialordersfell2.6%year-on-yearinFebruary.AleadingGermanindustrybody,theFederationofGermanIndustries(BDI),possiblyemboldenedbyPresidentTrump’sattacksonunfairChinesecompetition,recentlyspokeoutagainstuncheckedcompetitionfromChina’sstate-controlledeconomy.
TheBDIcomplainedthatBeijingisnotliberalisingitseconomy,despiteclaimstothecontrary,asitsmarketsandpricesaredistortedbystateaid.Itisinsteadestablishingitsownpolitical,economicandsocialmodelthatentersintosystemiccompetitionwithmoreliberaleconomiessuchasthatofGermany.TheresultofChina’sstate-driveneconomicandtradepolicyisglobalovercapacityinindustriessuchassteelandcementwhichleadstoexcessproductionbeingdumpedinoverseasmarkets,includingEurope.TheBDIhaswarnedthatthesamemayhappeninotherareas,suchasroboticsandbatteries.IturgedBrusselstoadaptitslegalframeworktoconfrontdumpingandsubsidiesaswellasstate-financedacquisitionsofforeigntechnologycompanies.TheBDIacknowledgedthatChinaremainsthedrivingforceoftheglobaleconomyandisanimportantsalesandprocurementmarketforGermanindustry,butitseeksbetterprotectionfromnon-EUnon-marketeconomiesthatseektobeactiveinEurope.
Inthissense,onemightseePresidentTrump’s‘AmericaFirst’and‘MakeAmericaGreatAgain’campaignsasmuchneededantidotestoChina’s‘MadeinChina2025’campaign.FromtheBDI’sperspective,whatisrequiredisasharpeningofEUstateaidlegislationandanti-subsidyinstrumentsasGermanywakesuptothefactthatChinaisacompetitoraswellasapartner.In2017,Sino-Germantradereached€187billion,being€86billioninexportsand€101billionofimports.Thiswasequivalentto30%oftotalEU-Chinatradein2017,makingChinaGermany’smostimportanttradingpartneroutsideoftheEU.TheproblemwithcurrentUStradepolicyisthatitisnotaimedexclusivelyatChina,itisalsoathreattoothersincludingGermany.
TheTrumpadministrationistoyingwiththeideaofimposingpunitivetariffsofupto25%oncarssourcedfromtheEuropeanUniononnationalsecuritygrounds.ThiswouldonlymakeGermany’scurrenteconomicproblemsworse.VW,DaimlerandBMWhavelargeplantsintheUSthatcouldendupbeinghitveryhard.In2018,theUSboughttheequivalentof$31billionworthofGermanvehiclesandcomponents,makingitthelargest
Shipping Markets Outlook 2019Shipping Markets Outlook 201912 13
exportmarketfortheGermanautomotiveindustry.VDA,theGermanautoindustryassociation,reportsthatGermanbrandssuchasVW,Porsche,Mercedes,BMWandAudisold1.34millioncarsintheUSlastyear.
ReutersinformsusthatGermancompaniesbuiltsome750,000luxurycarsatUSplantsin2018,ofwhich44%weresolddomesticallyandtherestwereexportedoverseas,includingalmost100,000carstoChina.Around690,000GermanvehiclesweresoldintheUSin2018thatwereimportedfromfactorieswithintheEuropeanUnion,ofwhich470,000camefromGermanplants,accordingtotheVDA.Mercedessold316,000carsintheUSlastyear,14%ofitsglobalsales,whileBMWsold355,000carsandVW638,300carsintheUSin2018.Evercoreanalystsestimatethat,intheeventof25%tariffs,VWGroupwouldtakea€2.5bnhit,Daimler€2.0bnandBMW€1.7bn.Thestakesarehigh,andtheunpredictableMrTrumpisontheothersideofadeal.
IMF downgrades global growth
TheIMFdowngradeditsforecastsofglobalgrowthinresponsetoJanuarydatathattheChineseeconomyhadgrownatitsslowestratesince1990.Itnowpredictsglobalgrowthof3.5%in2019,downfromitsOctoberforecastof3.7%.Growthfor2020isputat3.6%,0.1%downonitspreviousestimate.WeaknessinEuropeandJapancausedittoreduceitsgrowthforecastforadvancedeconomiesfrom2.3%in2018to2.0%in2019andto1.7%in2020.GlobalrisksincludeBrexitandagreaterthanexpectedslowdowninChinathanpreviouslyenvisaged.ChinaseemstobesufferingfromtheimpactofitsinitialtradeskirmisheswiththeUS,exacerbatedbythefactthatthesearehappeningatatimeofastructuraleconomicdeceleration.
Moregovernmentstimuluswillfollowintheformofinfrastructurespendingandlooserbanklendingrules,butthisisonlylikelytoincreasethenationaldebtburden.Itisunlikelytohelptheraftofprivatecompaniesthatarefailingastheycannotaccesstraditionalfinancing.XiJinping’spolicyistosupporttheunreformedstate-ownedsectorandprojectitssubsidisedmightstrategicallyininternationalmarkets.ItisconfrontationalandChina’smajorwesterntradingpartners,includingtheUSandGermany,arebelatedlyrealisingthatChinacanbebothfriendandfoe.TheUSuseoftradeconfrontationmayyetreapsomeshorttermrewardsbutithasbackfiredin
otherwaysasthe2018bilateraltradedeficitwithChinaroseto$419billionin2018from$375billionin2017.
The rise in populism
Theriseofpopulistauthoritarianmovementsacrosstheglobe,alliedtoattacksonmultilateralinstitutions–suchastheIMF,WorldBank,WTOandNato–findtheirmostobviousandrecentmanifestationsinBrexitandTrumpbut,inreality,theycanbetracedbackatleasttotheaftermathofthe2007-08globalfinancialcrisis.Theregulatoryandpolicyresponsetotheglobalfinancialcrisisprovedtobesociallydivisiveandfinanciallypolarisingasthosethatcauseditseemedtogetfurtherahead,whilethosethatwerevictimsofitappearedtogetleftfurtherbehind.Thisviewiscontested,ascentralbankpolicyresponses–slashinginterestratesanddeployingquantitativeeasing–actuallydidwork;andthebenefitsweremorewidelydistributedthanoftenclaimed.Thefactremainsthat,beyondtheUS,wehaveyettonormalisethesepolicyresponses,andnowtheUShasstoppedinitstracksaswell.
Thepopulismthathasbeenincubatingoverthepasttenyearsispartofabacklashagainstglobalisationthathasservedshippingsowell.AsFTcolumnistMartinWolfhasobserved,theessenceofauthoritarianismistheabsenceofdemocracy;thisiswhendemocraciesmorphintodictatorships.Intheperiodfrom2000to2010,examplesofthistransformationwereRussiaunderPutin,TurkeyunderErdoganandVenezuelaunderChavez.Morerecently,thePhilippinesunderDuterte,HungaryunderOrbanandBrazilunderBolsonaroappeartobewellontheroadfrompopulismtodictatorship.ThewellsupportedUSviewisthatVenezuelaunderMaduroisanillegitimatedictatorshipafterfraudulentre-election.SincemidFebruary,TrumpandMadurohavebeenonacollisioncourseastheUShastightenedsanctions.TheVenezuelanpresidenthasrefusedtoyieldofficetohispoliticalrival,JuanGuaido,whohaswidespreadexternalrecognitionasthecountry’slegitimateleader.Theregime’sblockageofUSandforeignaidattheborderiscausinganationalandregionalcatastrophe.
ManypeopleseeMrTrumpasarightwingpopulistwithauthoritariantraits.Suchtraitsincludehavingloyalistsinpositionsofpower(suchasinthegovernmentandinthecourts),thepromotionoffamilymembers,assertingthatthetraditionaleliteiscorruptandincompetent,
This trade dispute is about much more than Chinese intellectual
property theft or the widening US-China trade deficit. It is about who
wins the technology race and is a tug of war for global domination.
thatexpertsandthemediaarenottobetrusted,andthepromotionofpersonalrulebyintuition.InthecaseofMrTrump,heisatleastconstrainedbytheveryinstitutionsthathedespises,sothechecksandbalancesexistevenafterthefailureofpartisanself-servingpoliticians.Populistandauthoritarianrulersaregreatlyassistedbythedeclineoftheoldmediaandthemulti-messagingcapabilitiesofthenewmedia.Newmediaspreadsdoubtbydestroyingtheauthorityofexperts,elitesandthetraditionalmediathroughacasualattitudetothetruth.However,autocraciesusuallyfail.MrPutinhaspresidedoverpostColdWarRussianeconomicdecline.Inthenewcoldwar,ChinahasreplacedRussiaasthegreatestthreattotraditionalwesternvalues.
Business confidence is lower
AbusinessconfidencesurveyconductedbyPwCinJanuaryshowedthatalmostathirdofchiefexecutivesbelievethattheglobaloutlookisdarkening,comparedwithjust5%ayearago.Tradetensionsandrisingprotectionismaretoblame.Onealsoneedstotakeintoconsiderationthatglobaltradingactivityacceleratedinthefinalquarterof2018asimportswerebroughtforwardaheadofanticipatedUStariffincreasesfrom1JanuaryandsubsequentChineseretaliation.UNCTADreporteda19%fallinglobalforeigndirectinvestmentin2018asUScompaniesrepatriatedvastoverseasprofitsinresponsetolowercorporatetaxes.LatestdataindicatesthatpendingexistinghomesalesintheUSslumped9.9%fromayearearlierinDecember2018,followinga7.9%declineinNovemberanda6.4%fallinOctober.InJanuary,theyweredownanother2.3%markingthe13thconsecutivemonthofdeclinesinsuchsales.
TherateofdeclineinexistinghomesalesintensifiedinQ4fromtheearlierquartersin2018butmoderatedinJanuary,givinguscauseforhope.Thedeclinestillseemssignificantwhentakentogetherwithothereconomicindicators.AnyfutureescalationintheUS-Chinatradedisputewouldbeharmful.ItisatleastwelcomethatthethreattoincreaseUStariffson$200billionofChineseimportsfrom10%to25%hasbeenindefinitelypostponed.Bothsideshavebeengivenmoretimetostrikeadeal.CrunchtalksarebeingheldinlateMarchbutthereisnoclarityonthechancesofsuccess.ThistradedisputeisaboutmuchmorethanChineseintellectualpropertytheftorthewideningUS-Chinatradedeficit.Itisaboutwhowinsthetechnologyraceandisatugofwarforglobaldomination.USvictimisationofChinesetelecompowerhouseHuaweiisemblematicofthestruggleasitisreckonedtobeatleastayearaheadinitsdevelopmentofglobal5Gnetworks.
Complicated geopolitical risks
Thegeopoliticalsituationisunusuallycomplicated.TheUSisprovingitselftobeanunreliablepartnerafterMrTrump’spublicattacksonGermany,theEUandNatoandonothercountries,blocsandmultilateralinstitutions.TheUS,quiteunderstandably,wishesitsEuropeanNatoalliestopaytheirfairshareforhavingAmericanforcesandequipmentdeployedinEuropefortheirprotection.ManyEuropeancountriesarebehindontheirdefencebudgetobligations;thelatestUSdemandisthattheypaythefullcostplusanother50%onaccount.AstheUSplayscatch-upinthe5Gnetworksofthefuture,itisdemandingthatitspartnersintheFiveEyesintelligencealliance(Australia,Canada,NewZealand,UKandUS)dropHuaweifromtheir5Groll-outorfindthemselvesexcludedfromintelligencesharing.Suchistheextent
Shipping Markets Outlook 2019Shipping Markets Outlook 201914 15
ofUSfearofChineseespionageanditsinfiltrationofwesterncompaniesandgovernmentagenciesviatechnologicalmeans.TheseUSthreatsagainstitsusualalliesriskthebreak-upofthepowerfulalliancesthathavehelpedpreventwarsbetweensuperpowers.
AftertheObamaadministrationfailedtoactonitsredlinesinSyria,relatingtotheuseofchemicalweapons,Russiaseizedtheinitiative.ItworkedwithAssad,IranandHezbollahtoweakenandpushbacktheregime’smultipleopponents,allconvenientlylabelledasterrorists.IslamicStateisnotyetdefeatedbut,backinmidDecember,MrTrumpunilaterallyannouncedhisintentiontopullUStroopsoutofSyria.HewaseffectivelywillingtoabandonhisKurdishalliestoapossibleTurkishattackandtheregiontoevengreaterIranianandRussianinfluence.IranalreadyhasitsShiacrescentstretchingfromTehrantoBeirutviaIraqandSyria,givingitanoutletontheMediterraneanSea.EversinceMrTrump’sannouncement,USadministrationofficialshavebeentryingtoreassureits‘allies’intheMiddleEastthatithasnointentionofanimmediatepull-out,butthishasnotstoppedIsraelandIrandirectlyengagingwithoneanotherinSyria.Itisacceptedthat,iftheUSleavestoosoon,thenSyriawillbecomeanextendedbattlefieldandISwillregroupamidstthechaos.
IranissufferingfromUSsanctionsagainstitsoilindustry,cuttingoffitsaccesstofinance,andweakeningitsabilitytofurtherextenditsinfluenceacrosstheMiddleEastgiventhedeprivationsofitscitizensathome.ThemediawouldhaveusbelievethatthereisverylittlesupportamongmoderateIraniansfortheregime’sinterventionistactivitiesinYemen,Syria,IraqandLebanon.However,MrTrump’slackofrespectforhisgeneral’sdoesnotbodewellforregionalpeace.SaudiArabia’swaragainstIran-backedHouthirebelscontinuesinYemenwhileUS-SaudirelationsremainstrainedaftertheKhashoggiaffair.Furthereast,thereisanever-presentriskofmilitaryconfrontationbetweentheUSandChinaasthelatterextendsitscontrolovertheSouthChinaSea,withitsninedashline,andtheformerchallengingit.NoprogresshasbeenmadewithNorthKoreaondenucleari-sationaftertheSingaporesummitinJunelastyearandtheHanoisummitinFebruary.Thelatterbrokedownafteralackofpreparationandamisunderstandingofthescaleofeachother’sambitions.LatestnewsisthatthereissatelliteevidencethatNorthKoreaisrebuildingpreviouslydismantledpartsofitsmissileinfrastructure.FailuretomakeanyprogressinHanoionNorthKorea’snuclearthreatmaymaketheUSadministrationkeenertoachievesomekindofdealontheUS-Chinatradefront.
State of the Union
Inhis5FebruaryStateoftheUnionaddresstoCongress,PresidentTrumpmanagedtosendouttheusualparadoxicalmessages.Aswithallpoliticalleaders,he
tookcreditforeverythinggoodthathashappenedonhiswatchwhileblamingothersforeverythingbad.Hecalledforanendtopartisanpolitics,whichmakessensegiventhathehaslostcontroloftheHousetotheDemocrats,butstillhewasunabletoavoidattackinghispoliticalopponents.HehasaccentuateddivisionsbetweenRepublicansandDemocratsandhehaspolarisedopinionsacrossAmericaonlinesofrace,religion,genderandwealth.Internationally,heisinretreatfromthemultilateralinstitutionsthathavesecuredworldpeaceinfavourofbilateraldealsinwhichAmericacanbullyitswaytovictory.Despiteallthis,MrTrumpiswidelyadmiredforhispugnaciousattemptstoleveltheplayingfieldandfightbackagainstunfaircompetitionfromAmerica’sfoesandbelow-parcontributionsfromitsfriends.Hisunconventionalapproachhasnotbeentriedbeforeduetotheconstraintsofdiplomacyandpolitesse.
HehasthreatenedmilitaryinterventioninbackyardVenezuela,whileoverlookinghumanrightsabusesinotherLatinAmericancountries.HeisseekingregimechangeinCaracasafterallegedriggedelectionsandtheinstallationofpro-USJuanGuaido.ThismovehasallowedPresidentMadurotoclaimthattheUSisafteritsoilreserves,whicharethelargestintheworld.ThisisfancifulgiventhatUSoiloutputisalreadytheworld’shighest,averaging11.0m-bpdin2018,whileVenezuela’shasdwindledtobelow1.5m-bpd.OthermajorproducerssuchasRussia(11.2m-bpd)andIran(3.8m-bpdforJan-Sep2018)arealsounderUSsanctionswhileSaudiArabia(10.3m-bpd)iskeptclosedespiteitswelldocumentedissuesinYemenandTurkey.MrTrumphasprioritisedweaponsalesoverhumanrightsinSaudiArabiabutthisisnodifferenttoothersuppliers,includingtheUK.ItisnodoubttruethattheRussiansandChinesewouldbehappytostepinandfillanyvoidbuttheworldwouldprobablypreferamorediplomatic,nuancedandlesspublicapproachtosuchconflictsofinterest.
Trump seeks re-election by being tough
Thispresidenttendstoseeeverythingthroughthelensofmoneyanddeal-makingwithmoralprinciplesnotcountingformuch.Hestillhasaloyalhard-coresupportbasethatidentifiesasmuchwithhisabrasivepoliciesaswithhiswelldocumented,andaccepted,humanfailings.Thisbaseispredominantlywhite,male,middleincomeandRepublican.ArecentPolitico/MorningConsultpollindicatedthathisapprovalratinghasslippedfromapeakof56%twoyearsagoto41%today.Hehaslostgroundineverysinglecategoryofrace,gender,income,party,educationandage.HischancesofasecondtermappeartobediminishingalthoughtheDemocratoppositionhashandedMrTrumpagiftinallowinghimtocampaignagainsttheirincreasinglysocialistleanings.Hecannowrunonananti-socialismticket.Thepresidenthastakencreditforstrongeconomicgrowthandrecordlowunemployment,
ignoringthefactthatgrowthmomentumpickedupunderPresidentObama.Meanwhile,thestimulatingeffectsofMrTrump’sDecember2017$1.5trilliontaxcutshavealreadyfaded,leavingalegacyoftrilliondollarannualdeficitstobepaidbackbyfuturegenerations.
MrTrumpregularlycallsforanendtothewitchhuntintopossiblecollusionbetweenhiscampaignandRussiainthe2016election.TheinitialresultsoftheMuellerenquiryabsolvethepresidentofcolludingwithRussia,althoughallegationsofobstructionofjusticeremainopen.HehaswithdrawntheUSfromtheIntermediate-RangeNuclearForcesTreaty,accusingRussiatobeinviolation,anassertioninwhichheissupportedbyNato.ThetradediscussionswithChinacontinueasthetwosuperpowersjockeyforleadershipintechnicalinnovationandfutureworlddomination.TellingChinathat“itmustincludereal,structuralchangetoendunfairtradepractices,reduceourchronictradedeficit,andprotectAmericanjobs”isquiteabigask.China’sstate-centricmodelisthebasisforChina’sfuturedomesticeconomicgrowthandoverseasexpansionanditisinseparablefromChina’sone-partypoliticalsystem.MrTrumphasnoshortageofinternationalsupportfortakingthisstridentapproachwithChina.Tohiscredit,heisquitewillingtobypasstheconventionaldiplomaticchannelstoputhisopponentsoffbalanceandthisoftenprovestobeasmuchofasurprisetoWashingtonasitisinBrussels,Moscow,
NewDelhiandBeijing.HeishappytotaketheleadoutfrontinattemptstocutdealsforAmerica,leavinghisunderlingstoworkoutthemechanicsofexecution.
So,whateverthepollssay,itisuptotheoppositionDemocratstofieldastrongopponentandtoassembleapowerfulmessage.InvokingasocialistagendawillallowtheRepublicanstorunaMcCarthyistcampaignthatcouldgainrealtractionwithvoters.IftheUSeconomycontinuestoout-performthenMrTrumpwillseehispopularityrise.Tothisend,aconclusionofpartoneoftheUS-Chinatradedispute,thebitconcerningmutualtariffs,willgiveaneconomicboosttobothsidesandtoglobaltrade,especiallyifeachsidecanclaimtowinsomething.Parttwo,concerningopenmarketcapitalismversusstatecapitalism,willtakeverymuchlongertoresolve.Bylinkingtheavoidanceoftariffescalation,andtheremovaloftheoriginaltariffs,withdemandsthatChinareininindustrialsubsidies,reduceforcedtechnologytransferandcrackdownonintellectualpropertytheftmakescomingtoanagreementthatmuchmoredifficult.Hence,escalationmaybemorelikelythanresolution.AnewcoldwaristakingshapewiththeUSanditsalliesononesideandChinaanditsalliesontheother.Actualmilitaryconfrontationmaybeavoidablebutwarsincyberspaceappearlikelyaseachnationviesfortechnologicalsupremacy,whetherbyfairmeansorfoul.
Shipping Markets Outlook 2019: Global Macro EnvironmentShipping Markets Outlook 2019: Global Macro Environment16 17
Global Macro Environment
We are facing a slowdown in China and Europe that the United States may not insulate itself from, while the US-China trade talks cast a shadow over markets.
We also have record low unemployment, rising wages, low interest rates and benign inflation - these pro-growth conditions should be enjoyed while they last.
The global economy is doing well in the context of geopolitical instability, rising nationalism and a race for technological supremacy between the two superpowers.
1. 2018 growth was solid but 2019 may prove to be softer.
3. …manufacturing activity…
2. The global rebound in trade…
4. ...and industrial production is decelerating.
Global GDP growth YoY % (Nominal)Source: IMF, Hartland Shipping
Global and China Manufacturing PMI (Seasonally Adjusted)Source: Thomson Reuters, Hartland Shipping
Global Trade growth YoY %Source: IMF, Hartland Shipping
Global industrial production and new export ordersSource: World bank, Hartland Shipping
5. Trade war tensions remain unsolved and elevated...
6. …which affected stock market performance last year.
7. Although unemployment levels reached record lows….
Current and threatened tarriffs between China and the US ($ Billion)Source: United State trade representative, Hartland Shipping
2018 Stock market indices performance YoY %Source: Hartland Shipping
Unemployment rateSource: Thomson Reuters, Hartland Shipping
Eurozone US UK
0
2%
4%
6%
8%
10%
12%
14%
2003
2003
2004
2005
2006
2007
2008
2008
2009 2010 2011
2012
2013
2013
2014
2015
2016
2017
2018
2019
% of
labo
ur fo
rce
-5.6%-6.2%
-3.9%-12.0%
-12.5%
-13.2%-12.1%
-13.6%-33.1%
-24.6%
DJIAS&P 500
NasdaqFTSE ASIFTSE 100
European Stoxx 600
Nikkei 225Hang Seng
Shanghai Composite
2018's % change
Shenzhen Composite
50
505
50
130
200
60
267US tariffs - Annual value of imports
Total US imports from China - 2017
Chinese tariffs - Annual value of imports
Total Chinese imports from US - 2017
Threatened additional tariffs1st Tranche 2nd Tranche
47
48
49
50
51
52
53
54
55
3.5%
4.0%
4.5%
5.0%
5.5%
Jun-17
Sep-17
Dec-17
Mar-18
Jun-18
Sep-18
Inde
x
YoY %
Global Industrial production (LHS) New export orders (RHS)
47
48
49
50
51
52
53
54
55
Jan-
16Ma
r-16
May-
16Ju
l-16
Sep-
16No
v-16
Jan-
17Ma
r-17
May-
17Ju
l-17
Sep-
17No
v-17
Jan-
18Ma
r-18
May-
18Ju
l-18
Sep-
18No
v-18
Inde
x
Global Manufacturing PMI China Caixin PMI
4%6%
11%
8%9% 8%
3%
-10%
13%
7%
3% 4% 4% 3% 2%
5% 4.2%
-15%
-10%
-5%
0%
5%
10%
15%
20022003200420052006200720082009201020112012201320142015201620172018
3.7%
2.3%
4.7%
3.7%
2.4%
4.7%
3.5%
2.1%
4.7%
World Developed market Emerging market
2017 2018e 2019f
Shipping Markets Outlook 2019: Global Macro EnvironmentShipping Markets Outlook 2019: Global Macro Environment18 19
8. …and wage growth is improving, albeit slowly...
9. …inflation expectations are revised down…
10. …partly supported by a cheaper oil price environment...
12. Policy divergence ended global synchronised growth.
14. …leading the Fed to hike interest rates 4 times last year…
16. This de-synchronization led to US dollar appreciation…
11. …and core inflation is expected to remain below target.
13. US: $1.5tn tax cuts stimulated investment and demand…
15. …while the ECB and the BoJ are not yet ready to tighten.
17. …pressurising EM servicing of dollar-denominated debt.
Wages growth YoY %Source: HSBC Global Research, Hartland Shipping
Consumer price index YoY %Source: HSBC Global Rsearch, Hartland Shipping
Brent spot priceSource: Thomson Reuters, Hartland Shipping
GDP growth by regionsSource: HSBC Global Research, Hartland Shipping
US interest ratesSource: Thomson Reuters, Hartland Shipping
US dollar IndexSource: Thomson Reuters, Hartland Shipping
Core Consumer Price Index YoY %Source: Thomson Reuters, Hartland Shipping
US Investment and domestic demand growthSource: World bank, Hartland Shipping
Euro Area and Japan interest ratesSource: Thomson Reuters, Hartland Shipping
US dollar-denominated credit to non-banks in EMEs, by regionSource: BIS, Hartland Shipping
0
5,000
10,000
15,000
20,000
25,000
30,000
Jan-
10
US$ P
Er DA
y
Jul-1
0Ja
n-11
Jul-1
1Ja
n-12
Jul-1
2Ja
n-13
Jul-1
3Ja
n-14
Jul-1
4Ja
n-15
Jul-1
5Ja
n-16
Jul-1
6Ja
n-17
Jul-1
7Ja
n-18
Jul-1
8Ja
n-19
Clarksons Average Bulker Earnings Avg earnings since 2010
Africa Middle EastAsia and PacificEuropeLatin America
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
2000
2001
2002
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2013
2014
2015
2016
2017
2018
US$ B
illio
n
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Jan-15 Jan-16 Jan-17 Jan-18 Jan-19
Inde
x
86
88
90
92
94
96
98
100
102
104
Jan-
17
Mar-
17
May-
17
Jul-1
7
Sep-
17
Nov-
17
Jan-
18
Mar-
18
May-
18
Jul-1
8
Sep-
18
Nov-
18
Jan-
19
Inde
x
-1.0%
0%
1.0%
1.5%
2.0%
2.5%
3.0%
Dec-09Dec-10
Dec-11Dec-12
Dec-13Dec-14
Dec-15Dec-16
Dec-17Dec-18
Euro Area Japan
0%
1.0%
1.5%
2.0%2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
Jan-09Jan-10
Jan-11Jan-12
Jan-13Jan-14
Jan-15Jan-16
Jan-17Jan-18
Jan-19
0%
1%
2%
3%
4%
5%
6%
2013
2014
2015
2016
2017
2018
YOY %
Domestic demand Investment
2.2%
6.9%
4.5%
2.5%
1.7%
2.9%
6.6%
4.2%
1.9%
1.6%
US China Asia-Pacific
Eurozone LatinAmerica
GDP growth 2017
GDP growth 2018
0
5,000
10,000
15,000
20,000
25,000
30,000
Jan-
10
US$ P
Er DA
y
Jul-1
0Ja
n-11
Jul-1
1Ja
n-12
Jul-1
2Ja
n-13
Jul-1
3Ja
n-14
Jul-1
4Ja
n-15
Jul-1
5Ja
n-16
Jul-1
6Ja
n-17
Jul-1
7Ja
n-18
Jul-1
8Ja
n-19
Clarksons Average Bulker Earnings Avg earnings since 2010
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
2016
2017
2018
2019
Eurozone US UK Japan
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Jan-15 Jan-16 Jan-17 Jan-18 Jan-19
Inde
x
2030
4050
607080
90100
110120
Jan-14Jun-14
Nov-14Apr-15
Sep-15Feb-16
Jul-16Dec-16
May-17Oct-17
Mar-18Aug-18
Jan-19
US$ p
er ba
rrel
s
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018
US Eurozone UK
US Eurozone UK
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018e 2019f
Shipping Markets Outlook 2019: Global Macro EnvironmentShipping Markets Outlook 2019: Global Macro Environment20 21
18. China slowdown is structural, 6-7% the new normal.
24. …prompting policy makers to use other means of stimulus…
26. The US trade war is adding further stress to the economy…
27. …by undermining domestic sentiment.20. …along with global offshore holdings…
22. Deleveraging slowed fixed asset investment…
19. Shadow banking has been reined in… 25. …including local government bonds and lower RRRs.
21. …and corporate debt has stabilised, but at a high level.
23. …especially in infrastructure…
China quarterly official GDPSource: Thomson Reuters, Hartland Shipping
Chinese local government special bonds issuanceSource: Thomson Reuters, Hartland Shipping
Share of goods imports affected by new tariffs, 2018Source: World bank, Hartland Shipping
China consumer confidence indexSource: Thomson Reuters, Hartland Shipping
Chinese Foreign Direct Investment into North America and EuropeSource: Baker & McKenzie, Hartland Shipping
China fixed asset investment YoY %Source: NBS, Hartland Shipping
China total credit & Core shadow banking items*Source: World Bank, Hartland Shipping
China required deposit reserve ratioSource: Thomson Reuters, Hartland Shipping
Chinese debt as % of GDPSource: World Bank, Hartland Shipping
China FAI in infrastructure YoY %Source: Thomson Reuters, Hartland Shipping
28. Car sales contracted for the first time in more than 20 years…
China passenger car sales YoY %Source: Thomson Reuters, Hartland Shipping
* Core shadow banking items include entrusted loans, trusted loans and undiscounted bankers’ acceptance.
-10%
0%
10%
20%
30%
40%
50%
60%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
China passenger car sale YoY %
90
95
100
105
110
115
120
125
20072008
20092010 2011
2012 2013 2014 2015 2016 2017 2018
Inde
x
0%
2%
4%
6%
8%
10%
12%
14%
United States
China World Mexico European Union
EMDEs ex. China
% sh
are o
f tot
al im
port
s
Major banks Minor banks
10%
12%
14%
16%
18%
20%
22%
24%
Feb-09Feb-10
Feb-11Feb-12
Feb-13Feb-14
Feb-15Feb-16
Feb-17Feb-18
DEC-18 30,000
35,000
40,000
45,000
50,000
55,000
60,000
65,000
70,000
75,000
JAN-17MAR-17
MAY-17JUL-17
SEP-17NOV-17
JAN-18MAR-18
MAY-18JUL-18
SEP-18NOV-18
Hund
red m
illio
ns of
CNY
0
5,000
10,000
15,000
20,000
25,000
30,000
Jan-
10
US$ P
Er DA
y
Jul-1
0Ja
n-11
Jul-1
1Ja
n-12
Jul-1
2Ja
n-13
Jul-1
3Ja
n-14
Jul-1
4Ja
n-15
Jul-1
5Ja
n-16
Jul-1
6Ja
n-17
Jul-1
7Ja
n-18
Jul-1
8Ja
n-19
Clarksons Average Bulker Earnings Avg earnings since 20100%
5%
10%
15%
20%
25%
Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 20180
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Jan-15 Jan-16 Jan-17 Jan-18 Jan-19
Inde
x
5%
6%6%
7%
7%8%
8%9%
9%
10%10%
Jan-17Mar-17
May-17Jul-17
Sep-17Nov-17
Jan-18Mar-18
May-18Jul-18
Sep-18Nov-18
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
20072008
20092010 2011
2012 2013 2014 2015 2016 2017 2018
% of
GDP
Non-financial enterprises Households
General government94
111
30
0
20
40
60
80
100
120
2016 2017 2018
US$ B
illio
n
Core shadow banking items* Total credit
-10%
-5%
0%
5%
10%
15%
20%
2016 2017 2018
YOY%
China GDPChina's 4th quarter
5%
6%
7%
8%
9%
10%
11%
12%
13%
Q1 20
09Q3
2009
Q1 20
10Q3
2010
Q1 20
11Q3
2011
Q1 20
12Q3
2012
Q1 20
13Q3
2013
Q1 20
14Q3
2014
Q1 20
15Q3
2015
Q1 20
16Q3
2016
Q1 20
17Q3
2017
Q1 20
18Q3
2018
Quar
terl
y %
Shipping Markets Outlook 2019Shipping Markets Outlook 201922 23
30. …with falling house sales.
32. …overall exports & imports dipped sharply in December...
29. …and the property market is cooling…
31. Old metrics are still positive but the economy is changing…
China residential and commercial house sale YoY %Source: Thomson Reuters, Hartland Shipping
China imports and exports YoY %Source: Thomson Reuters, Hartland Shipping
China real estate - domestic loans YoY %Source: Thomson Reuters, Hartland Shipping
Li Keqiang index YoY %Source: Thomson Reuters, Hartland Shipping
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Jan-15 Jan-16 Jan-17 Jan-18 Jan-19
Inde
x
-6
-5
-4
-3-2
-1
0
1
2
3
Mar-16May-16
Jul-16Sep-16
Nov-16Jan-17
Mar-17May-17
Jul-17Sep-17
Nov-17Jan-18
Mar-18May-18
Jul-18Sep-18
Nov-18Jan-19
China PMI manufacturing - New export ordersChina PMI Non-manufacturing - New exports order
6.7%
6.5%
6.4% 6.4%
6.5%
6.6%
6.7%
2Q18 3Q18 4Q18 1Q19 2Q19f 3Q19f 4Q19f
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
Jan-17Mar-17
May-17Jul-17
Sep-17Nov-17
Jan-18Mar-18
May-18Jul-18
Sep-18Nov-18
Jan-19
Exports Imports-16%
-11%
-6%
-1%
4%
9%
2012 2013 2014 2015 2016 2017 2018
Electricity output growth
Railway freight volume growth
GDP growth
0%
5%
10%15%
20%25%
30%35%
40%45%
Feb-
16Ma
r-16
Jun-
16Au
g-16
Oct-1
6De
c-16
Feb-
17Ma
r-17
Jun-
17Au
g-17
Oct-1
7De
c-17
Feb-
18Ma
r-18
Jun-
18Au
g-18
Oct-1
8De
c-18
YOY%
Commercial Residential
-15%
-10%-5%
0%5%
10%15%
20%
25%30%
Feb-
14Ma
y-14
Aug-
14No
v-14
Feb-
15Ma
y-15
Aug-
15No
v-15
Feb-
16Ma
y-16
Aug-
16No
v-16
Feb-
17Ma
y-17
Aug-
17No
v-17
Feb-
18Ma
y-18
Aug-
18No
v-18
China real estate - Domestic loans
33. …but supportive policies will be more evident as the year goes on…
China PMI - Contraction or expansionSource: Thomson Reuters, Hartland Shipping
34. …China has embarked on a choppy start to 2019. Much will depend on the size and effect of further economic stimulus.
China’s quarterly GDP growthSource: HSBC Global Research, Hartland Shipping
Chartbook
This is a brief commentary to the chartbook that gives us a rolling pictorial
sequence of how various shipping relevant issues are evolving.
TheIMFisforecastingworldeconomicgrowthtoslowfrom3.7%in2018to3.5%in2019withdevelopedmarketsslowingfrom2.4%to2.1%andemergingmarketsholdingsteadyat4.7%.Worldtradevolumesrecoveredtoafirmerrangeof4-5%year-on-yeargrowthin2017and2018fromaweakerrangeof2-4%growthoverthepreviousfiveyearsfrom2012to2016.GlobalandChinesepurchasingmanagers’indices(PMI)havebeenindeclinesincethestartof2018whileglobalindustrialproduction(IP)andnewexportordershavebeendeceleratingoverthesameperiod.US-Chinatradewarsremainunresolved,althoughwearehopingthatthepotentiallydebilitatingeffectsofescalationshouldleadtoanimminentcompromise.In2017,Chinaimportedsome$130billionofgoodsfromtheUSwhiletheUSimportedaround$505bnofgoodsfromChina.
TheUShasalreadyimposedimporttariffson$250bnofChinesegoods,intwotranchesof$50bnand$200bn,leavinganother$267bnatrisk.Meanwhile,Chinahasretaliatedon$110bnofUSimports,intwotranchesof$50bnand$60bn.China’stariffsaredesignedtotargetkeyRepublicanandTrumpsupportbaseswhiletheUSisconfidentthatitcanoutgunChinabyimposingdutiesonthetotalityofitsimportsinordertoreducethe2017$375bnannualtradedeficit.Sofar,thispolicyhasnotworkedastheUStradedeficitwithChinaroseto$419bnin2018.ThefactofvoluntarilyimposingtaxesofUSdomesticconsumersisnotarecipeforincreasingsalesandthusglobalstockmarketssoldofflastyear,withtheChineseindiceshitbyfarthehardest.Giventhehugedeficit,theChinesehavelessscopeforretaliationbutwillrelyupontheone-partystateandaperceivedgreatercapacityforsufferingtosquaretheoddswithvulnerableAmericanworkersandvoters.
UnemploymentlevelsintheUS,UKandEurozonereachedtheirlowestlevelsin15yearsin2018whilewagegrowthhasbeensteadilyrisinginthe1-3%peryearrangeoverthepastfiveyears.Inflationexpectationsacrosstheseregionsarebeingreviseddown,helpedbyloweroilpricesandtheprospectofslowerglobaleconomicgrowth.Thesuppressionofinterestratesthroughquantitativeeasinghasmadeborrowinganddebtservicingmanageablewhilepushingfinancialassetshigher.Thisnecessarypolicyremedyhasalsohurtsavers,pensionersandworkerswhohavelessbargainingpowerandlowerincomes.Wages
arerisingbut,ifcoreinflationremainsatorbelowcentralbanktargets,thenwagegrowthandreturnsonsavingsarelikelytocontinuebeingconstrained.Theincreasingadoptionofrobotics,artificialintelligence,part-timeandcasualworkingcontinuestoputpressureonlabour,makingitmoreofaprice-takerratherthanaprice-maker.
Thegloballysynchronisedgrowthof2016-17cametoanendin2018andnowwehavemoredivergentgrowthpaths.USGDPgrowthroseto2.9%in2018from2.2%in2017whileEurozonegrowthfellto1.9%lastyearfrom2.5%in2017.Chinesegrowthfellto6.6%in2018from6.9%inthepreviousyearwhiletheAsia-Pacificweakenedto4.2%lastyearfrom4.5%in2017.USdomesticdemandandinvestmentgotaboostfrom$1.5trillionintaxcutsandtherepatriationofoverseascorporateprofits.ThisenabledtheFederalReservetoraiseratesfourtimeslastyearonitspathto‘normalisation’.Thefadingeffectsofthetaxcutshaveledittopauseitsraterisesfornow.ThisisinresponsetoslowingChineseandglobalgrowth,thepossibilityofescalatingUStradetensionswithitspartners,andrisinggeopoliticalrisksasmulti-lateralismgiveswaytonationalism.TheECBandBoJhaveeitherfailedorbeenunabletoraiseratesandnowhavelittleroomtocutintheeventofarecession.
ResilientUSeconomicperformancehasseenthedollarstrengthenagainstabasketofcurrenciesputtingpressureonemergingmarketsfromtheMiddleEastandAfricatotheAsia-PacificandLatinAmericathathavegorgedonUS$-denominateddebt.OfparticularconcernisChina’sstructuralslowdownasittransitionsfromstatetoprivate,frommanufacturingtoservices,andfromheavypollutingindustrytolessenvironmentallydamagingeconomicactivity.China’sGDPgrowthrateof6.6%lastyearwasitslowestsince1990andissettofallfurther.Chineseshadowbankinghasbeenreinedin,totalcreditistrendingdown,overseasinvestmenthasbeendrasticallyreducedandcorporatedebthasstabilised,albeitatahighlevelofaround160%ofGDP.Thisdeleveragingprocesscausedfixedassetinvestmenttoshrinkin2018andforinfrastructurespendingtobecurtailed.
Thesehavebeenkeygrowthdriversinpreviousslowdownsbutnowadayssuchcentralgovernmentspendinggeneratesdiminishingreturnsandincreasedwastage.Inresponse,emphasishastransferredtothe
Shipping Markets Outlook 2019Shipping Markets Outlook 201924 25
regionsandlocalgovernmentspecialbondissuancehasincreasedandtherequiredreserveratios(RRR)ofbothmajorandminorbankshavebeensignificantlyreducedoverthecourseoflastyear.ChinesepremierLiKeqiang,inhisopeningaddresstotheNationalPeople’sCongressinBeijingon5March,announcedsomelimitedstimulusmeasures,includingtaxcutsandspendingincreases,inanattempttokeepthegrowthrateabovethe6%mark.ThethreatofescalatingUS-ChinatradewarshascausedChineseconsumerconfidencetowobbleasthereareunlikelytobeanywinnersiftheworld’stwolargesteconomiescontinueapolicyofraisingtit-for-tattariffs.
Chinesemanufacturingandnon-manufacturingPMIsindicateyear-on-yearshrinkageinnewexportordersinninemonthsof2018,possiblyreinforcingtheobservationthatstimulusmeasuresarehavinglesseffect,anddomesticcarsalescontractedforthefirsttimeinmorethantwodecadeslastyear.Ontopofallthis,thenormallyrobustdomesticrealestatemarkethaswitnessedmeaningfulloanshrinkageinalmosteverymonthof2018afterstrongloangrowthineverymonthof2017.Commercialrealestateandresidentialhousesaleshavebeenonadecliningtrendsince2016andfelltobelow5%year-on-yeargrowthin2018comparedwithabove30%intheearlymonthsof2016.LiKeqiang’sfavouriteeconomicindicatorsofelectricityconsumption,railfreightvolumesandloanssawthefirsttwogouparound8%year-on-yearwhileloangrowthslowedtothetuneofaround5%year-on-yearin2018.
TherelevanceoftheLiKeqiangIndexislessthanbeforeastheeconomyrotatesawayfrommanufacturingandheavyindustrytowardsgreateremphasisonconsumptionandservicesasrisingprosperitychangesspendingpatterns.XiJinping’scommitmenttothelargelyunreformedstate-ownedenterprises,attheexpenseoffastergrowingprivateenterprises,representsanotherpossiblethreattofuturegrowth.Astate-controlledeconomythatdirectsstate-ownedcapitaltowardsSOEsbothathomeandabroadshowsnovisionofatransformedfuture.ItalsoputsChinaoncollisioncoursewithmarket-basedeconomiesintheUS,EuropeandotherAsia.Chinaexperiencedasharpdipinexportsandimportsattheendof2018andthiscontinuedintoQ12019.Onthebrightside,evenapartialresolutionoftheUS-Chinatradespatmightreversethesedeclinesandleadtoamoreimaginativeandlessconfrontationaltradepolicy.
Asmentionedearlier,theUS-ChinatradedisputeisaboutmuchmorethantariffsandtheyawningUSdeficitwithChina.PresidentTrumphasmadeanysettlementofthetradedisputeconditionaluponChinaendingallegedunfairtradepractices,ceasingstatesubsidiesandwindingdownsupportofthestate-ownedenterprises.ItamountstoademandthatChinachangesitseconomicmodel,andthisissimplynotgoingto
happenanytimesoon,ifatall.TheUSlongagochoseademocraticsystemandanopenmarketeconomy.70yearsagoChinachoseasinglepartyautocracyandaclosedsocialistmarketeconomy.Theeconomicsystemsineachcountryareweddedtothepoliticalsystemsineachandhavebecomeinseparable.TheUSandChinaneedtodealwithtariffsandthetradedeficitseparatelyfromthemuchlongertermdiscussionofreformingChina’sstatisteconomyandmercantilisttradepolicy.
ShippingandtradewillbedamagedintheshorttermiftheUSandChinaareunabletocomeupwithacompromiseontariffsandtrade.ThatcouldserveasapreludetourgingChinatocontinuewithpastpledgestoreformtheSOEsandchannelmoresupporttoChina’sfastgrowingbutcash-starvedprivatesector.ButthisdoesrepresentadilemmaforChina’sleadership,asencouragingprivateenterpriseasanengineoffutureeconomicgrowthwillinevitablyunderminethecentralcontroloftheChineseCommunistParty.ThatiswhyPresidentXiJinpingprefersthesaferrouteofstickingwiththeunreformedandinefficientstate-ownedeconomy,asitshoresupthepartyandhisleadershipandcontainstheambitionsandpowerofthepeople.
Finally,wemightobservethattheChinesepeoplearebeginningtoshowsignsoflosingconfidenceintheirpoliticalclass,justasthisisevidentabroadincountriesrangingfromtheUKtotheUSandfromFrancetoGermany,andmanymorebesidesasdissatisfiedpopulismspreads.PresidentXiJinpingmayhavemadeastrategicmistakeinrollingouthis‘MadeinChina2025’campaignasthiswaseffectivelyakintothrowingdownthegauntletandchallengingtheUSforworldsupremacy.ThismanifestopledgemakesclearthatChinawishestoclosethegapwiththeUSinfuturetechnologysectorsrangingfromaerospaceandbiotechnologytoindustrialrobotsandelectricvehicles.Inaworldwheremuchtechnologyhasbothmilitaryandcivilianapplications,someinChinaseesuchanovertchallengetoAmericansupremacyasunnecessaryprovocation.
PresidentTrump’s‘AmericaFirst’response,datingbackaboutayearago,wastoinitiateaUS-ChinatradewarasameansofcontainingChina’saspirations,oftennowperceivedasthreats.Thishasputtheworld’stwolargesteconomiesatloggerheads.Thedriftbacktosupportingstate-ownedenterprisesattheexpenseofthefast-growthprivatesectorappearstobearetrogressivestep.ItcharacterisesMrXiasmoreMaoZedongandlessDengXiaoping,andasmoreofareactionarythanareformer.TheUScanrightlyclaimthatstatesubsidiesandstate-financedcompaniesrepresentunfaircompetitionininternationalmarketsandtheUShasgoodreasontohitbackatChina’saggressiveindustrialstrategy.TheUSvictimisationofChinesetelecomscompanyHuaweiisagoodexampleofhowsuspicionshaverisen.Itbegsthequestionofjust
howindependentasuccessfulprivatecompanycanbeasithasanoverridingobligationtoputthestatefirst.ItwillbeinstructivetoseehowthecasesoftheUSgovernmentversusHuawei,andvice-versa,areresolved.
WesternsuspicionofChina’soverseasexpansion,asseeninitsannexationofvastswathesoftheSouthChinaSeawithitsninedashlineanditsMarcoPoloinspiredBeltandRoadInitiative,willonlygrow.China’sdecadesofinsistingonintellectualpropertysharing,andanundefinedmeasureofIPtheft,haveprovidedeverygoodreasonfortheUSanditsalliestopushbackagainsttheChinesestateongroundsofnationalsecurity.ForthisdevelopmentalonemanypeoplewouldapplaudPresidentTrump.ThereformsthatMrTrumpisinsistingupon,suchasendingstatesubsidiesandprotectingintellectualpropertyrights,mightalsoendupbeinginthebestinterestsoftheChinesepeople.Hemayeventransitionfrombeingshort-termenemytolong-termfriend.AneconomicallyreformedChina,ledbyafast-growingandentrepreneurialprivatesector,willactuallybemuchmoreofacompetitivethreattotheUSanditsalliesthananeconomicallyunreformedChinaledbyalumberingandinefficientstate-ownedsector.
Shipping Markets Outlook 2019Shipping Markets Outlook 201926 27
Shipping Markets Outlook2019 Edition
The Dry Bulk Market“RainbowQuest”ImagecourtesyofMarineCapital
Shipping Markets Outlook 2019Shipping Markets Outlook 201928 29
The Dry Bulk Market
In the context of general uncertainty, shipping is involved in a dogged
recovery as we move further into 2019, trusting that even tepid demand
growth will reward a rare phase of supply discipline.
Thebroadestbarometerofthedrybulkmarket,theBDI,rosefrom1,230pointson2January2018to1,271pointsby24December2018,representingaminisculeriseofjust41points,or3.3%.Naturally,therewasplentyofvolatilityduringthecourseoftheyearasthemarketreachedapeakof1,774pointson24Julybeforetrendingbackdowntotheendoftheyear.Intimecharterequivalentearnings(TCE),theBaltic’sBCI-5TChadcapesizeaverageearningsstartingtheyearon$15,125dailyandendingiton$14,797perday,a2.2%declinefromstarttofinish.Theannualpeakwaspostedon6Augustwhenthereadingwasamorerespectable$27,283daily.Thesamefiguresforkamsarmax,asdefinedbytheBPI82-TCA,were$11,720atthestartand$12,484attheendof2018withayearlypeakof$16,110perdayon16October.
TheBSI58-TCA,coveringsupramaxaverageearnings,startedtheyearon$10,312perdayandendedit9.1%higheron$11,252dailyhavinghititsannualpeakof$13,431on11October.Finally,theBHSI-TCA,representingaveragehandysizeearnings,kickedofftheyearat$8,924andendediton$8,636perday,some3.2%lower,havinghitayearlypeakof$9,772dailyon25October.Allfourindicessufferedaweakfinishto2018followedbyapoorstartto2019.Thankfully,anabysmalJanuarywasatleastfollowedbyabouncebackinFebruaryforallsegments,apartfromcapesize,butwearestillwelldownonstartyearlevels.Capesizestarted2019on$15,344onlytofalltoanannuallowof$4,236perdayon8Marchfollowedbyawelcometurnbackupto$6,387by15March.Kamsarmaxaverageearningsstartedtheyearon$12,243beforefallingtoalowof$5,898on5Februaryandthenpullingbackto$8,876dailyby15March.Thesupramaxaveragestarted2019at$11,141beforedroppingtoalowof$4,837on6
Februaryandthenrecoveringbackto$8,709perdayby15March.Thesamefiguresforthesmallerhandysizewere$8,524atthestarttoalowof$4,198on7Februaryandthenbackupto$6,437perdayby15March.
The best gain in earnings was back in 2017…
TheaboveBalticExchangedataillustratesstartyear,peakyearandendyearaverageearningsin2018ineachmainsegment,followedbyadispiritingperformanceinQ12019,althoughthesewereallontheturnbackupbymidMarch.Averageannualearningsarealittlemoreupliftingastheystillmanagetoshowagentlyimprovingtrendacrosstheentirebulkcarriersector,buttheyalsodemonstratethatmostofthebiggainswerebookedthepreviousyearin2017.In2017,averageearningsforamoderncapesizewereup123%year-on-yearfrom$6,035to$13,475dailywhereas,in2018,theywereuponly4%to$14,026perday.Averageearningsforamodernpanamaxrosealmost58%year-on-yearin2017from$6,712to$10,570perdayand,in2018,theyincreasedafurther22%to$12,866daily.Thistrendwasrepeatedfurtherdownthesizescalewithaverageearningsforamodernsupramaxrising69%year-on-yearin2017from$6,264to$10,590perdaybut,in2018,managingonlyanincremental14%riseto$12,112daily.
Baltic FFAs – a good buy?
TheBalticExchangeForwardFreightAssessmentsdolittletocreatepositiveexpectations.Baseduponthe15Marchreadingsforamodern180,000-dwtcapesize,the5TCaveragewassetat$8,688in2Q19,$12,633in3Q19and$16,083in4Q19.GoingforwardtotheannualFFAs,on15Marchthefigureswere$12,988forCal20,$12,208
forCal21,$12,200forCal22,$12,575forCal23,$13,458forCal24,$13,650forCal25and$13,767forCal26.Givenwidespreadexpectationsofbettersupply-demandbalanceandraterecoveryahead,onecanimaginethattheselownumbersmaysendoutastrongbuysignaltothosewhotradepaper,asforwardcoverlookscheap.Attheotherendofthesizescale,thesamemightbesaidoftheBalticForwardAssessmentsfora58,000-dwtsupramax.On15March,the10TCS-FFAstoodat$9,825for2Q19,$10,629for3Q19and$11,238for4Q19.Forwardcovercouldbeboughtat$9,788forCal20,$9,108forCal21,$8,592forCal22,$8,163forCal23,andat$8,263forCal24,Cal25andCal26.Thereisnotmuchevidenceoftheanticipatedrecoveryintheseforwardfreightassessments.
Baltic SPAs – slower asset value appreciation in 2018
BalticExchangedatafor5-yearoldbulkcarriersshowsminorgainsinassetvaluesinthe12-monthperiodbetween2Jan2018and2Jan2019.Thisisareflectionofthemurkyeconomic,tradeandgeopoliticalbackdropandlowergrowthinspotmarketearningsin2018.A180,000-dwtcapesizewasup8.2%from$32.8mto$35.5min2018.Thiswasarelativelygentlegaincomparedtothe46.4%riseovertheprevious12-monthperiodfrom$22.4minearlyJanuary2017.A74,000-dwtpanamaxwasup5.3%from$20.5mto$21.6m.Thiscomparedwitha48.6%gainfrom$13.8movertheprevious12months.Finally,a58,000-dwtsupramaxwasup5.8%from$17.3mto$18.3m.Overtheprevious12-monthperiod,spanning2017,thenominalvaluehadrisen26.3%from$13.7m.Hence,thestrongvaluegainsof2017gavewaytomuchslowerassetvalueappreciationover2018reflectingthedecelerationofgainsinaverageearnings.
S&P activity snapshot in 2018
Theindexgainoverthecourseof2018fora5-yearoldcapesizewasmodestat8.2%andactualsalesseemedtobearthisout.InthecaseofelderlyJapanese-builtcapes,inearlyJanuary,theKerkis177,4892006wasreportedassoldfor$22.5mand,byearlyAugust,asistershiptheRoyalChorale177,544Mitsui2006wasreportedatthesameprice.InlateAugust,theNSSGrandeur176,882Mitsui2006wasreportedataslightlylower$22.0mand,inmidSeptember,thelargerCapeDover185,805Kawasaki2006wasreportedsoldforaslightlyhigher$23.0m.Therewasnotmuchmovementinpricesinthefirstninemonthsoftheyearandthen,inlateOctober,theoneyearyoungerPacificExplorer177,456Mitsui2007wasreportedatalower$21.0m.Therehavebeennoreportedsalesofcapesofthispopularvintagesincethen.
InearlyDecemberlastyear,UniseawasreportedasthepurchaseroftwomodernHyundai-builtcapesfromPILfor$33.0meach.TheyweretheShagangHongfa179,461HHI2011andtheShagangHongchang179,469HHI2011.BackinlateMay,theNewMighty179,851HHIC-Subic2011wasreportedatamuchlower$27.5m,thedifferenceaccountedforbyaweakermarketandaPhilippinediscountfortheHanjinSubicfacility.StarBulkwasontheacquisitiontrailin2018withpurchasesofthemini-capes,conventionalcapesandkamsarmaxsizesfromAugustea,SongaandE.R.Schiffahrt.ThelatterlateAugustpurchaseinvolvedsix179,000-dwtcapesizeunitsthatdeliveredfromKorean-controlledyards(HHI,HyundaiSamhoandDaewooMangalia)in2010,inacashandsharesdeal.
Theindexrisefora5-yearoldpanamaxroseonly5.4%during2018andsalesbasicallyreflectedthisratherflatchangeinvalues.Inthekamsarmaxsegment,thedifference
Since the bottom of the bulk carrier slump in early 2016, newbuilding
prices have risen in line with increased input costs. Along with
regulatory confusion, this has fortunately acted as a deterrent to
new vessel contracting and rendered the secondhand marketplace a
better hunting ground.
Shipping Markets Outlook 2019Shipping Markets Outlook 201930 31
inperceivedqualitybetweenAsianshipbuildingnationswasillustratedinreportedtransactions.InlateJanuary,theKeySpring80,596Universal2012wasmentionedashavingbeensoldfor$22.5mwhiletwomonthslater,inearlyMarch,theSeaAce81,755Longxue2012wasreportedatamuchlowerpriceof$18.5m.Thatsetanindicative$4m,or22%,premiumforJapaneseoverChinesebuilt.ByendOctober,theKorean-builtPrimeLily81,507SPP2012wasreportedataninbetweenpriceof$20.5m,insertingtheKorean-builtatthemidwaypointbetweenJapaneseandChinese.
Salesof10to15-yearoldconventionalpanamaxtonnagerevealedinconsistentpricing.InearlyFebruary,theDrake76,781Sasebo2006wasreportedsoldfor$13.6mandin,midApril,theoneyearolderDRBravo76,806Sasebo2005wasreportedat$12.6m.TowardstheendofJuly,thetwoyearyoungerLadyMariaOcean76,662Imabari2007wasmentionedasbeingsoldforadisappointing$13.0m.ByearlyOctober,theDoubleProsperity76,633Imabari2005wasreportedatthelowlevelof$10.6m.StarBulkalsopickeduptonnageinthissegmentofthemarketalongsideitscapesizeacquisitions.AspartoftheAugusteadeal,itscoopedupthree92,000-dwtpost-panamaxandfive82,000-dwtkamsarmax.TheyalldeliveredfromtopJapaneseandKoreanshipyardsbetween2010and2017.AspartoftheSongadeal,ittookovercontroloften80,000to83,000-dwtkamsarmax.TheyalldeliveredfromtopJapaneseandKoreanyardsbetween2008and2014.
The2018Balticindexgainfora5-yearoldsupramaxwasonly5.8%and,onceagain,thiswasbroadlybackedupbyactualsalesinthemarketplaceduringtheyear.Therewereplentyofsalesofthisclassin2018and10-yearold56,000-dwtunitsbuiltatJapanesecontrolledyardsprovedpopular.InmidJanuary,thePoseidonSW55,688Oshima
2008wasreportedsoldfor$12.5mwhereas,bymidJuly,theNaviosArmonia55,522Kawasaki2008wasreporteddoneatastronger$14.2m.ByMidNovember,themarkethadeasedoffabitandtheGeminiPioneer55,624Mitsui2008wasreportedsoldfor$13.6m.ItwasasimilarpatternforsatelliteJapaneseshipyardsas,inearlyFebruary,theAngelB58,679TsuneishiCebu2008wasreportedat$14.2mandthen,bylateJuly,theTschaikowsky58,790TsuneishiCebu2008wasreportedlydoneat$14.0m.ByearlyOctober,theMediFirenze58,722TsuneishiCebu2008wassaidtohavegoneforalowerpriceof$13.0m.
Therearealwaysgoodreasonsfordifferencesinsellingpricesrangingfromconditionandequipmenttosurveystatusandmarkettiming.Thesupramaxsecond-handmarketlostmomentuminthesecondhalfof2018andactuallydeclinedinQ12019.Theshipsareofcourseoneyearolderafterwehavemovedintothenewyearof2019but,whencombinedwithafallingmarket,thechangeinvaluescanbequitesevere.InmidFebruary,theAlsterBay55,430Kawasaki2008wasreportedsoldfor$12.0mwhichis$1.6mlowerthanthereportoftheGeminiPioneerabove.ScrollforwardtomidMarchandtheNordExpress58,785TsuneishiCebu2007wasreportedsoldfor$11.0m,quitealowpricebutmaybereflectiveofbeingoneyearolderthantheabovereportsandsoldintoaweakeningmarketwithpoorsentiment.
Dry bulk supply-demand balance
AccordingtoSINmacrodata,in2018,thebulkcarrierfleetexpandedbyjust2.9%from817.4m-dwtto841.2m-dwtwhiletotaldrybulktraderoseby2.3%inabsolutetermsandby2.7%intonnemileterms.Inotherwords,supplygrowthwasjustaheadofdemandgrowthin2018.Thisyear,adeliveryscheduleof42.4m-dwtindicatesmaximumfleetgrowthof
5.0%,butthiswilldwindlewithdemolitionandslippage.Drybulktradeisforecasttoexpandby2.3%inabsolutetermsandby3.1%intonnemiletermsin2019.Ifthesenumbersprovetobecorrectthenweshouldseeanotheryearofearningsgrowthandassetvaluegains,withmuchofthispostponeduntilthesecondhalfoftheyear.Thetotalbulkcarrierorderbookis88.5m-dwt,or10.5%ofthefleet,itslowestratiosince2002.Thelargestbulkcarriersaresettoseethegreatestfleetgrowthwhilemediumandsmallersizeswillseemoremodestexpansion.Areturntobettersupplyanddemandbalanceisessential,butweshouldnotforgetthatsupplygrowthexceededdemandgrowthformanyyearsinthelastdecade,meaningthatwehaveembeddedoversupply.
Brazil and China hold key to demand
Onthedemandside,thegreatestthreatstogrowthareUS-Chinatraderelationsandtheslowingglobaleconomy.Theironoretradeiscriticaltothebulkcarriersectorasitsetsthetonefromthetopdown.Monthlyimportsinthefinalquarterof2018weresubdued,with86.7mtinDecemberafter86.3mtinNovemberand88.4mtinOctober.The2018Chineseironoreimporttallywas1,064billiontonnes,downjustover1%fromthe2017annualrecordof1,075bt,thefirstannualdeclinesince2010,accordingtotheGeneralAdministrationofCustoms.ChinesesteelexportscontinuetofallasUSimporttariffsbiteandcompetitionfromIndia,RussiaandTurkeytakesitstoll.Steelmillswillresorttostockdrawdownandtotakinglowergradesofironoretorescueprofitmargins,whichfell70%in4Q18.In2019,Chinesesteeloutputissettodeclineonwaningdomesticandinternationaldemand.Thetragicdamruptureon25JanuaryatVale’sCorregodeFeijaoironoremine,aboveBrumadinhoinMinasGerais,hascostover300livesmakingittheworstenvironmentalaccidentinBrazil’shistory.Thiseventreinforcednegativesentimentinthedrybulksectorinthefirstquarter.
Vale’s problems
Valeannounceditsintentiontodecommissiontensimilardamsovera3-yearperiodatanestimatedcostof$1.3bn.NineothersuchupstreamdamshadalreadybeencompletelydecommissionedsincetheSamarcoMarianadamaccidentinNovember2015.Onaphasedbasis,thelatestannouncementwillinvolvetakingofflinesome40mt,orabout10%,ofVale’scurrentannualproduction.Thelosstotheseaborneironorespotmarketwouldbesignificant,as40mtrepresents
two-thirdsofthe60mtperyearthatisexportedfromBrazilonaspot,uncontractedbasis.Thisisestimatedtoequatetoaround65standard180,000-dwtcapesizeBrazil-FarEastroundvoyages.However,onemustaccountforphasingandalsofornewandrestartedoutputfromotherdomesticmines.ValemodestlyestimatesthatitsS11Dminewillraiseoutputby15mtthisyearwhileanother10mtofironorethatwastobefeedstockfor11mtofpelletswillnowbeexportedasfines.Thisstillleavesit15mtdown,butthisamountcanbecoveredintheexportmarketbylastDecember’srestartofAngloAmerican’sMinasRiomine.Itclosedearlylastyeartofixtwopipelineleaksandmanagedonly3.4mtofexportsin2018after17mtin2017.In2019,itshouldrecoverto19mt,leadingtoa15.6mtgainover2018.
Thedirepredictionsofcargobeinglosttothelargestbulkcarriersegmentsseemedtobeabitoverdoneandknee-jerkatthetime.Butthenewsdidhitsentimenthardwhencombinedwithvariousotherfactors.InearlyFebruary,thesituationgrewevenmurkierasaBraziliancourtorderedthatuseoftheLaranjeirasdamatVale’sBrucutumineinMinasGeraisbehalted,potentiallyaffecting30mtofannualproduction.Withindaysthemine’soperatinglicencewasrevoked.Thiswasindeedamoreserioussituationthanoriginallyenvisaged.ItsentthesharepricesofcompetingminerssuchasBHPandRiosoaring,andironorepriceswerefirmingupevenassteelpricesremainedflat.Partofthereasonforsuchapoorstarttothe2019capesizemarkethasbeenthetendencyforChinesesteelmillstodrawdowncheaperandlowerqualityportinventoriesthathavebeenverylarge.Theyhita2018peakof162mtinearlyJune2018,beforefallingbacktoanannuallowof137mtatend2018,andthenrecoveredto145mtbyendFebruary2019.Thisprocesshasbeenreinforcedbytherisingpriceofironore,flatsteelpricesandanuncertaindemandoutlook.ThesubstitutionofhighFeironfromBrazilwithlowerFeironfromAustraliatranslatesintoalossoftonnemiles.Thepotentialdropoffinseaborneironoretradewasmakingabadsituationevenworseforcapes.Then,on19March,ValeannouncedthattheBrucutususpensionwassoontoend,usheringinapossiblereprieveforcapesize.
Global seaborne iron ore trade
Itisworthtakingalookattheglobalprospectsfortheseaborneironoretrade.ThemostrecentFebruary2019DryBulkTradeOutlookcontainsupdatedestimatesfortotalseaborneironoretradeandthislatestversioninvolves
Interesting changes are evident in the demand side as we face
declining growth in major bulks and rising growth in minor bulks. The
former might be correlated with old school industrial production, as
they are dominated by iron ore and coal, while the latter are usually
considered to be better correlated with overall GDP growth.
Shipping Markets Outlook 2019Shipping Markets Outlook 201932 33
quiteconsiderabledowngradesfromJanuary.Itstoodat1,473mtin2017(up3.9%year-on-year);1,473mtin2018(nochange);1,480mtin2019(up0.5%)andat1,501mtin2020(up1.4%).Thisrepresentsthreeconsecutiveyearsofflatgrowthfrom2017.Brazil’sseaborneironoreexportshavebeenreviseddowntotakeintoaccountVale’sproductionproblems,mitigatedslightlybynewprojectsthatithascomingonstream.Inroundednumbers,itsexportsstoodat380mtin2017(+2.7%)andareestimatedtohaverisento388mtin2018(+2.0%).Theyareforecasttofallto370mtin2019(-4.6%),downfrom406mtinJanuary,andrecoverto397mtin2020(+7.4%),downfrom416mtinJanuary.Finally,China’sseaborneironoreimportsareshowingsignsofslowingdownaccordingtolatestestimates:1,058mtin2017(+5.0%);1,047mtin2018(-1.1%);1,048mtin2019(+0.1%)and1,059mtin2020(+1.0%).The1.1%declinein2018canbeattributedtoheavyportinventorydrawdown,increaseduseofsteelscrapandageneraleconomicgrowthslowdown.Goingforward,theriskisthatdemandforironoreandsteelwillplateauasgrowthslowsinatransitioningeconomy.
Other major dry bulk trades
ThegrainsandoilseedstradeshavebeenaffectedbytheongoingandunresolvedUS-Chinatradedispute.Inretaliation,Chinaimposed25%importdutiesonUSsoybeansandlookedtobuyreplacementsuppliesfromBrazilandotherbeans,processedsoyoilandsoybeanmealfromArgentina.TheravagesofAfricanswinefeveracrossChina’sprovinceshaveresultedinamassivepigcullwhichalsodentedimportdemandforsoybeansandsoybeanmeal.Inroundednumbers,Chinesesoybeanimportsfellover7%year-on-yearfrom95mtin2017to88mtin2018and,inthemonthofJanuaryofthisyear,suchtradefellby13%year-on-yeartoaround7.5mt.Infullyear2019,China’ssoybeanimportsareforecasttoreboundbyover5%to93mt,whichwillbeslightlydownon2017levels.RecentlyannouncedChinesepurchasesofsoybeans,ofupto10mtorso,areprobablypurchasesbystatebuyersforinventorybuilding,andthusexcludedfromthe25%importtariff.Overallglobalseabornetradeinsoybeansisexpectedtorecoverabout6%to158mtin2019afteraroundonly
2%growthin2018.Totalworldseabornetradeingrains(soybeans,wheat,corn,barley,sorghum,oatsandrye)wasflatat477mtyear-on-yearin2018andisforecasttorise4%to496mtin2019andby3%to511mtin2020.
TheglobaloilseedtradeisprovingtobesurprisinglyfungiblewithChinaabletobuynon-USoriginsoybeansfromBrazilandArgentinaandotherplacessuchasCanadaandtheUkraine.CanadaprocessesandconsumesitsowncropbutthisyearithastakenadvantageofhigherpricesinChinatoexportsomeofitsbeanstoChinawhileimportingcheaperUSbeansforitscrushersinanopportunisticpricearbitrage.Theglobalseabornegrainstrade,ataround500mtayear,isnotassignificantasironoreorcoal.Theglobalseabornetradeincoalroseover3%year-on-yearin2018to1,240mtandisforecasttoexpandbyalmost2%in2019to1,264mtandbyanother1.5%in2020to1,283mt.EstimatesandforecastsofChina’sseabornecokingcoalimportsareflatataround36mtin2018(down16%on2017’s43mt)risingonlymarginallyto36.5mtin2019and2020.Thesamenumbersforseabornethermalcoalare191mtin2018(whichwasup10%year-on-year)fallingto184mtin2019(-4%)and176mtin2020(-4%).FallingChinesecoalimportswouldseemtobeconsistentwithdecliningindustrialoutput,asthegovernmenttacklesovercapacityandpollution,andaslowingeconomy.
Incontrast,India’sseabornethermalcoalimportsarerisingwithanestimateof161mtin2018(up7%year-on-year)risingto170mtin2019(+5%)andto175mtin2020(+3%).JapaneseandSouthKoreanseabornethermalcoalimportsarequiteflatoverthe2018to2020periodaveragingabout131mtand117mtayearrespectively,thustheyareunabletocompensateforChina’sretreat.Duringthis3-yearperiod,Japan’sseabornecokingcoalimportsareexpectedtobeflatatabout55mtayearwhileSouthKorea’sareestimatedtobeconstantataround25mtayear.Indiancokingcoalimportsbysea,incontrast,areestimatedat60mtin2018(+14%year-on-year),risingto63mtin2019(+6%)andto66mtin2020(+5%).AtatimeofslowingdemandinChina,itisencouragingtoseethatIndiaisgeneratingextrademandthatpartiallycompensatesforChina’sloss.
Dry Bulk Market
The capesize segment has delinked from the others as Vale’s production problems, and other supply interruptions, have temporarily cut seaborne iron ore supplies.
Sentiment was poorly affected in the first quarter of this year but, by the second half of 2019, better supply and demand fundamentals should assert themselves.
We continue to believe that IMO 2020 and other regulations will further cut effective tonnage supply through a combination of rising scrapping and slower steaming.
0
5,000
10,000
15,000
20,000
25,000
30,000
Jan-
10
US$ P
Er DA
y
Jul-1
0Ja
n-11
Jul-1
1Ja
n-12
Jul-1
2Ja
n-13
Jul-1
3Ja
n-14
Jul-1
4Ja
n-15
Jul-1
5Ja
n-16
Jul-1
6Ja
n-17
Jul-1
7Ja
n-18
Jul-1
8Ja
n-19
Clarksons Average Bulker Earnings Avg earnings since 2010
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Jan-15 Jan-16 Jan-17 Jan-18 Jan-19
Inde
x
3,500
8,500
13,500
18,500
23,500
28,500
33,500
Sep
Oct
Nov
Dec
Jan
Feb
Mar
US$ p
er da
y
2017 & 2018 2018 & 2019
- 2,000
Capesize Panamax Supramax* Handysize
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
US$ p
er da
y
2011 Avg 2018 Avg
1. Average earnings enjoyed their best year since 2011…
2. …but capes did badly in Q4 2018, and even worse in Q1 2019
3. The BDI stayed above 1,000 points for most of last year…
4. …but upside earning potential became restrained by…
Average earnings comparison by segment typeSource: Baltic Exchange, Hartland Shipping
Capesize earnings in the Sep-Mar period by comparisonSource: Baltic Exchange, Hartland Shipping
Baltic Dry IndexSource: Baltic Exchange, Hartland Shipping
Average monthly bulker earningsSource: CRS, Hartland Shipping
Shipping Markets Outlook 2019: Dry Bulk MarketShipping Markets Outlook 2019: Dry Bulk Market34 35
0
50
100
150
200
250
0-5 yrs
6-10 yrs
11-15 yrs
16-20 yrs
21-25 yrs
26-30 yrs
No of
ship
s
Handysize Supramax Panamax Capesize
-1%
0%
1%
2%
3%
4%
5%
6%
7%
2011 2012 2013 2014 2015 2016 2017 2018
YOY %
World seaborne dry bulk trade (tonne-miles)World seaborne dry bulk trade (tonnes)
0102030405060708090
0100
200300400500600700800900
100020
0520
0620
0720
0820
0920
1020
1120
1220
1320
1420
1520
1620
1720
18
DWT
No of
ship
s
Net deliveries by no (LHS) Net deliveries by DWT (RHS)
-1,000
-500
0
500
1,000
1,500
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010 2011
2012
2013
2014
2015
2016
2017
2018
No of
ship
s
Total Bulkcarrier Deliveries Total Bulkcarrier DemolitionS
0
50
100
150
200
250
300
350
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
20092010 2011
2012 2013 2014 2015 2016 2017 2018
M-dw
t
Slip
page
rat
e
Annual Slippage rates (LHS) Bulkcarrier Orderbook (RHS)0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
YOY %
7. We had fewer deliveries, but also much less demolition.
9. …while seaborne trade growth expanded at a slower pace.
6. …on the back of falling slippage rates.
8. Therefore net deliveries were on par with 2017…
10. Middle-aged Handysize and Supramax were popular…
Bulkcarrier annual fleet developmentSource: CRS, Hartland Shipping
Bulkcarrier deliveries and demolitionsSource: CRS, Hartland Shipping
Drybulk seaborne trade growthSource: CRS, Hartland Shipping
Bulkcarrier annual slippage and orderbookSource: CRS, Hartland Shipping
Bulkcarrier net deliveriesSource: CRS, Hartland Shipping
Bulkcarrier second-hand sales by segment and age rangeSource: CRS, Hartland Shipping
5. …faster than expected fleet growth…
0%
1%
2%
3%
4%
5%
6%
2016 2017 2018
YOY %
Major bulk Minor bulk
2.9% 3.0%3.3%
2.8%
0%
1%
2%
3%
4%
2017 2018e 2019f 2020f
Flee
t Gro
wth
0
50
100
150
200
250
300
350
400
450
2019 2020 2021+
No of
ship
s
Capesize
Panamax
Supramax
Handysize
0
50
100
150
200
250
300
350
400
450
2016 2017 2018
No of
ship
s
Handysize Supramax Panamax Capesize
-15%
-10%
-5%
0%
5%
10%
15%
0
2
4
6
8
10
12
Jan-
16Ma
r-16
May-
16Ju
l-16
Sep-
16No
v-16
Jan-
17Ma
r-17
May-
17Ju
l-17
Sep-
17No
v-17
Jan-
18Ma
r-18
May-
18Ju
l-18
Sep-
18No
v-18
Jan-
19
Bulk carrier monthly contracting (LHS)
Bulkcarrier NB Price Index YOY% (RHS)
M-dw
t
0
5
10
15
20
25
30
35
20092010 2011
2012 2013 2014 2015 2016 2017 2018 2019
US$ M
illio
n
10-y old Supramax 10-y old Handysize
Avg 10-yr old supramax Avg 10-yr old handysize
11. …helping to push values close to their post GFC average.
13. This resulted in slightly fewer orders when compared to 2017…
15. …suggests that fleet growth will be above 3% this year.
12. Higher NB prices terminated strong ordering of Q1 2018.
14. …and the delivery schedule over the next two years...
16. 2018’s demand growth was dominated by minor bulks.
Supramax and Handysize 10-year old valuesSource: Hartland Shipping
Bulkcarrier contractingSource: CRS, Hartland Shipping
Drybulk fleet growthSource: CRS, Hartland Shipping
Bulkcarrier monthly contracting and newbuilding price indexSource: CRS, Hartland Shipping
Drybulk orderbook delivery scheduleSource: CRS, Hartland Shipping
Drybulk seaborne trade growthSource: CRS, Hartland Shipping
Shipping Markets Outlook 2019: Dry Bulk MarketShipping Markets Outlook 2019: Dry Bulk Market36 37
Infrastructure Manufacturing
Real estate Total FAI
0%
5%
10%
15%
20%
25%
30%
Q2 2014Q3 2014Q4 2014Q1 2015Q2 2015Q3 2015Q4 2015Q1 2016Q2 2016Q3 2016Q4 2016Q1 2017Q2 2017Q3 2017Q4 2017Q1 2018Q2 2018Q3 2018Q4 2018
50
55
60
65
70
75
80
85
90
95
Jan-
17
Mar-
17
MAy-
17
Jul-1
7
Sep-
17
Nov-
17
Jan-
18
Mar-
18
May-
18
Jul-1
8
Sep-
18
Nov-
18
Jan-
19
Mar-
19
US $
per t
onne
Iron ore 62% Fe - CFR China
135
140
145
150
155
160
165
Jan-18 Jul-18 Jan-19
Mill
ion t
onne
s
020406080
100120140160180
APr-13APr-14
APr-15APr-16
APr-17APr-18
APr-19
US$ p
er to
nne
Iron ore 65% Fe fines Iron ore 62% Fe fines
740760780800820840860880900920940
2016 2017 2018
Mill
ion t
onne
s
0.5
0.6
0.7
0.8
0.9
1.0
1.1
2009
Bill
ion T
onne
s
2010 2011 2012 2013 2014 2015 2016 2017 2018
17. Iron ore imports peaked in 2017 but 2018 still over 1bt.
19. …as China raised use of higher grades and steel scrap…
21. Steel mill margins being squeezed by higher ore prices…
18. Despite this, steel production reached another record…
20. …as well as drawing down its iron ore port stocks.
22. …and uncertainty about the size of future stimulus…
China annual iron ore importsSource: Thomson Reuters, Hartland Shipping
Iron ore pricesSource: Thomson Reuters, Hartland Shipping
Iron ore pricesSource: Thomson Reuters, Hartland Shipping
China annual crude steel productionSource: Thomson Reuters, Hartland Shipping
China iron ore inventoriesSource: Thomson Reuters, Hartland Shipping
China fixed asset investment YoY % growthSource: Thomson Reuters, Hartland Shipping
-2
0
2
4
6
8
10
12
-2
0
2
4
6
8
10
Jan-
16Ap
r-16
Jul-1
6Oc
t-16
Jan-
17Ap
r-17
Jul-1
7Oc
t-17
Jan-
18Ap
r-18
Jul-1
8Oc
t-18
Jan-
19Ap
r-19
Mill
ion t
onne
s
Mill
ion t
onne
s
Soybean imports from US - Trade flows (Feb through Marare projections) (LHS)Soybean imports from Brazil - Trade flows (RHS)
-5%
0%
5%
10%
15%
20%
2000 2001
2002
2003
2004
2005
2006
2007
2008
2009 2010 2011
2012
2013
2014
2015
2016
2017
2018
2019
F20
20F
Drybulk fleet growth (M-dwt)Drybulk seaborne trade growth (Tonne-miles)
-15
-10
-5
0
5
10
15
RussiaBrazil
Canada US EU
Ukraine
Argentina
Australia
YOY c
hang
es (m
illio
n ton
nes)
-6%-4%-2%0%2%4%6%8%10%12%
0
5
10
15
20
25
30
35
40
Mar-
12Se
p-12
Mar1
3Se
p-13
Mar-
14Se
p-14
Mar-
15Se
p-15
Mar-
16Se
p-16
Mar-
17Se
p-17
Mar-
18Se
p-18
YOY%
Mill
ion t
onne
s
Thermal coal imports (LHS)Thermal power electricity YOY % (RHS)
-10%
-5%
0%
5%
10%
15%
20%
2017 2018
-20
-10
0
10
20
30
40
50
60
2017 2018e 2019f
Mill
ion t
onne
s
23. …leaves little room for more import demand this year.
25. …while thermal coal imports rose on higher electricity use.
27. …while trade wars upset seasonal export flows.
24. Low steel prices and winter cuts reduced coking coal imports…
26. Grain exports stayed flat last year on a net basis…
28. Nonetheless, supply and demand are coming into better balance!
China iron ore incremental importsSource: CRS, Hartland Shipping
China thermal coal imports and electricity consumptionSource: Thomson Reuters, Hartland Shipping
China soybean imports from US and BrazilSource: Thomson Reuters, Hartland Shipping
China coking coal imports YoY%Source: CRS, Hartland Shipping
2018 Grain exports, main changes by countrySource: Thomson Reuters, Hartland Shipping
Drybulk supply & demand balanceSource: CRS, Hartland Shipping
Shipping Markets Outlook 2019Shipping Markets Outlook 201938 39
Chartbook
In our chartbook we can see in graphic terms how the dry bulk sector has
performed in recent years, thus providing some context for this year and
last.
Bulkcarrierearningshavebeenslowtopickupbuttheyareimprovingnonetheless.Infact,averageearningsacrossthebulkcarriersectorin2018werethebestsince2011,albeitstillbelow2011levelsineachsegment.Capesizeaveraged$15,465dailyin2018,justbehindthe$15,639perdaythattheyearnedin2011.Panamaxwereat$11,654dailyin2018comparedwith$14,000perdayin2011;supramaxwereat$12,783versus$13,814andhandysizewereat$8,700comparedwith$10,552perday.Westillhaveawaytogotogetbackevento2011averageearnings.However,capesizewerenotsofarbehind2011andwouldhaveexceededthoselevelsbutforadisappointingperformanceoverthepastsixmonths.On8March,theBCI-5TCsunktoa2019annuallowof$4,236perdaybuthassincebegunatentativerecovery.
AmoregenericmeasurementistheBalticDryIndex.TheBDIaveraged1,353pointsin2018,18%uponthe1,145pointreadingof2017,anditsbestyearsince2011whenitaveraged1,549points.ThisyearwehaveunexpectedlyhitthedoldrumswiththeBDIplungingtoa2019lowof595pointson11February.EveryonehadexpectedabouncefollowingChineseNewYearbutithasnotbeenforthcoming.MiningproblemsinBrazilandtheshadowcastbytheunresolvedUS-Chinatradewarsaredamagingtobothtradevolumesandsentiment.Lookingfurtherback,wehavewitnessedsteadyimprovementssincethebeginningof2016whentheBDIsanktoanall-timelowof290pointson10February.Averagebulkcarrierearningsrecoveredfromalowof$3,636dailyinFebruary2016toaninterimhighof$14,297perdayinDecember2017.InFebruary2019,wefoundourselvesbackdownto$6,637dailyandwonderingwhentheimprovingsupply-demanddynamicswouldkickin,overwhelmanynegativesentiment,andfinallytakerateshigher.
Fleetdevelopmentinthebulkcarriersectorhasslowedinrecentyearsbuthasyettorecoverfromtheexcessesofthe2004to2008period.Theover-orderingofthoseyearswasdrip-fedintothemarketoverthefollowingfiveyearsormore,evenaftercancellationsandconversions,andthisstillprovedtobetoomuchfordemandgrowthtocontendwith.From2004to2008,year-on-yearfleetgrowthwasrunningatbetween6%and7%ayear,after
whichitaccelerated.In2009,itrosebyover10%,in2010by17%,in2011bycloseto11%,andin2012byover10%.Bytheendof2012thefleetwascloseto688mt-dwt.Since2012,wehaveseenaslowerrateofyear-on-yearfleetgrowthasmarketforceshavereducednewsupplyandhelpedtocompensateforchronicembeddedoversupply.Besides,ownershadlittlemoneytospendandbankslittleappetitetolend.Thegrowthratesubsequentlyslippedtobelow6%in2013,tojustover4%in2014andthentobetween2%and3%inthefollowingyearstoend2018.Theend2018fleetstoodatjustunder841mt-dwt.
Thebulkcarrierorderbookhasprogressivelyfallensincethe2008marketcrash,althoughdeliveryslippagerateshaveremainedhighandvolatileuntilquiterecently.Slippageincludesghostorders,miscountedoptions,cancellations,default,negotiateddelaysandnon-negotiateddelays.Thisprocesscreatesalotofuncertaintyoverfuturesupplygrowthbut,astimepassesandmoreshipsdeliver,theactualsituationbecomesclearer.Thebulkcarrierorderbookhasfallenfrom326mt-dwtatthestartof2009to91mt-dwtatthebeginningof2019whilebulkcarrierannualslippagerates,expressedasapercentageoftheoverallorderbook,averagedaround30%intheyearsbetween2009and2015.Theverypoormarketof2016sawtheslippageratespikeupto42%,asownerssucceededinstallingdeliveriesfromtheshipyards,beforefallingbackto27%in2017and14%in2018.
Since2008,bulkcarrierdeliverieshitapeakin2012of1,253unitstotalling100.7mt-dwt.2012wasalsothepeakdemolitionyearwith590unitsof33.4mt-dwtleavingthefleet.Marketconditionsdictatedthatasmorenewshipsdeliveredmoreoldshipshadtomakeway.By2018,deliverieshadsunktoa10-yearlowof293unitsof28.2mt-dwtwhilegraduallyimprovingearningsandvaluessentdemolitiontoan11-yearlowof57unitsof4.5mt-dwt.Thesimultaneousreductionintherateofdeliveriesandscrappingsawnetfleetgrowthinthesectorof235unitsof23.8mt-dwtin2018following232unitsof22.5mt-dwtin2017.Boththeseyearscomparefavourablywiththepeakpost-2008yearof2010whichsawnetfleetgrowthof906unitsof74.9mt-dwt.Weareslowlyreturningtoearlyboomgrowthlevelsasseenin2005whennetfleetgrowthstood
at300unitsof22.6mt-dwtand2004with249unitsof19.2mt-dwt.Before2004,fleetgrowthranatlowerlevels.
Turningtothedemandside,weappeartobecomingtotheendofa15-yearperiodofChinese-driventurbochargeddemandgrowth.Thisstartedin2003followingChina’sentryintotheWTOattheendof2001andmayhavecometoanendin2017.Worldseabornetrade,intonne-mileterms,wasexpandingatjust2%year-on-yearin2001and1%in2002beforejumpingto7%in2003andto10%in2004.Importantly,thisunexpectedboostindemandcaughtsupplyonthehopandittooksomeyearsbeforewegotthetime-delayedsupply-sideresponsethatculminatedinegregiousover-ordering.Tonne-miletradegrowthmaintained6-7%annualexpansionbetween2005and2007beforecollapsingtojust1%in2008andthencontractingby3%in2009.Bythen,thesectorwascommittedtofantasylevelsofsupplyjustasdemandwasbeginningtocool.2010enjoyeda13%year-on-yeardemandsnapback,setagainstthebaseeffectsof2009’scontraction,anddemandthengrewatanannualrateof6%eachyearbetween2011and2014.Wehavesinceslowedto3%in2018withasimilarsubduedlevelpredictedfor2019and2020.
Undersuchcircumstancesofstructurallyslowerdemandgrowthitisevenmoreimportantthaneverthatsupplybekeptundercontrol.On5March,2019,openingtheNationalPeople’sCongressinBeijing,ChinesepremierLiKeqianginformedtheworldthatChineseGDPgrowthwillcontinuetoslowafterpostingitsslowestratesince1990at6.6%lastyear.Thisyear,thetargetgrowthratehasbeenloweredtobetween6.0%and6.5%.ThereissomedegreeofmessaginggoingonhereasChinaiskeentoheadoffanyescalationinitstradedisputeandtariffwarwiththeUS.FallingChinesedemandisaproductofChina’sshifttowardsamoreconsumer-drivenandservice-basedeconomy.Astheworld’ssecondlargesteconomyaftertheUS,a6%growthrateisstillrespectableinthecontextofUSgrowthofaround3%in2018.BothcountriesareenduringaneconomicslowdownasUSgrowth,atanannualisedrate,slowedfrom4.2%in2Q18,to3.4%in3Q18,to2.6%in4Q18,anditissettoslowfurtherin2019.IftheUSandChinacanseeawaytounwindingexistingtariffsandavoidingnewones,thentheireconomiesandtheglobaleconomywillbeinabetterplace.PremierLialludedtotoughtimesaheadandannouncedalimitedseriesofstimulusmeasuresrangingfromlowerVATratestoRmb800bn($120bn)inlocalgovernmentbondissuancetofundinfrastructurespending.
Accordingtoreportedsalesinthebulkcarrierspacein2018,themostinterestwasgeneratedbythehandysizeandsupramaxsegments.Themostpopularagegroupwasfrom6to10yearsofage.Inthisagegroup,65handysizetotalling1.9mt-dwtand82supramaxtotalling4.6mt-dwtwerereportedsoldlastyear.Thiswasalsothemostpopularageprofileforlargerpanamaxandcapesizesegmentswith31capesizeof5.1mt-dwtand43
panamaxof3.6mt-dwtreportedsold.Thekeeninterestinhandysizeandsupramaxbulkcarriershelpedtorestore10-yearoldvaluestoaroundthepost-GFCaverageof$12.0mforhandysizeand$15.5mforsupramax.Sincethebottomofthebulkcarrierslumpinearly2016,newbuildingpriceshaveriseninlinewithincreasedinputcosts.Alongwithregulatoryconfusion,thishasfortunatelyactedasadeterrenttonewvesselcontractingandrenderedthesecondhandmarketplaceabetterhuntingground.Forexample,newbuildingpricesfelleachmonthonayear-on-yearbasisfromthebeginningof2016totheendof1Q17.Fromthatpoint,themonthlychangeintheNewbuildingPriceIndexwentfroma1%year-on-yeargaininApril2017toan8%gaininDecember2017.
TherisingpricetrendledtoastrongmonthofcontractinginDecember2017of70unitsof9.3mt-dwt,followedby50unitsof7.9mt-dwtinJanuary2018.MaybeitwasacaseofFOMO,fearofmissingout.Ordersstartedtailingoffbymid-2018aspricesshowedinexcessof10%gainseachmonthonthepricesinthesamemonthofthepreviousyear.Itillustrateshoweveryonewantsabargainbutittakesawhiletoidentifythetrend,anditalsohelpstohavethecompanyofotherswhenmakingsuchlargeinvestments.Acombinationofanimprovingearningsmarketandrisingpricesdefinitelyaffectedcontractingbehaviourasbulkcarrierordersbynumberwentfrom64in2016,upto379in2017,andbackto307in2018.
Thedeliveryscheduleforthecurrentbulkcarrierorderbookisnaturallyconcentratedon2019and2020withamuchthinnerdeliveryschedulefor2021,sofaratleast.40.5mt-dwtisscheduledtodeliverin2019,41.3mt-dwtin2020,12.1mt-dwtin2021,and0.9m-dwtin2022andbeyond.The94.8mt-dwtbulkcarrierdeliveryscheduleisbrokendownas50.9mt-dwtofcapesize,23.9mt-dwtofpanamax,15.1mt-dwtofsupramaxand4.9mt-dwtofhandysize.Theaverageunitsizeonorderineachsegmentis236,318-dwtincapesize,82,833-dwtinpanamax,61,840-dwtinsupramaxand33,618-dwtinhandysize.Overall,recentandfuturegrowthinthedrybulkfleetisputat2.9%in2017andestimatedat3.0%in2018andthenforecastat3.3%in2019and2.8%in2020.Whatreallymattersistheestimatedforecastsfor2019and2020astheseshouldbemoreorlesssetinstonebynow.Thecapesizesegmentisforecasttogrowby3.6%in2019and4.3%in2020,panamaxby4.0%in2019and3.3%in2020,supramaxat3.0%in2019followedby1.0%in2020,andhandysizeby1.4%in2019followedby0.2%in2020.Hence,thehandysizesegmentfacesthemostbenignsupplygrowth.
Interestingchangesareevidentinthedemandsideaswefacedeclininggrowthinmajorbulksandrisinggrowthinminorbulks.Theformermightbecorrelatedwitholdschoolindustrialproduction,astheyaredominatedbyironoreandcoal,whilethelatterareusuallyconsideredtobebettercorrelatedwithoverallGDPgrowth.Majorbulks,
Shipping Markets Outlook 2019Shipping Markets Outlook 201940 41
Shipping Markets Outlook2019 Edition
The Tanker Market
carriedmostlybylargerbulkcarriers,rose3%in2016,5%in2017andjust1%in2018whileminorbulks,carriedmostlybysmallerbulkcarriers,sawflatgrowthin2016,followedby3%in2017and4%in2018.Significantly,wemaybeseeinganinflectionpointinChina’sironoreimportswhichhavebeenrisingsteadilysincethe2008shockoftheGFC.In2009,China’sironoreimportsstoodat614.6mtrisingsteadilytoapeakof1,058mtin2017.Then,lastyearin2018,theyfellback1%year-on-yearto1,047mt.Wewillneedtomonitortheimportdatafor2019toassesswhetherornotChinaisapproaching‘peaksteel’.Theanswerisprobablynot,asChinaisraisingthequalityoftheironoreitimports,thusincreasingefficiencyandneedinglessproduct.Itisalsousingmoresteelscrapforprocessinginelectricarcfurnaces.China’scrudesteelproductionhasbeensteadilyrisingfrom804.8mtin2016,to867.5mtin2017andto927.5mtin2018.
Sincethebeginningof2016,Chinahasbeenrampingupitspurchaseofhighergradesofironore,thussupportingawideningpricedifferentialbetween65%and62%FeironorefinesCFRTianjin.Theswitchtohighergradesincreasesefficiencyandalsolowerspollution,andonecannotunder-estimatetheurgencyofthedrivetoreducepollutioninChina’smaincities.However,onemustalsorespectChina’sabilitytopragmaticallychangecoursewhenthefactschange.TheFeijaominedisasterinJanuary,andacourtrulinginFebruary,couldhaveshutinasmuchas70mtofValeproduction.Thisistheequivalentof18%ofBrazil’sexportsand5%ofglobalseabornesupply.TheresultingfirminginglobalironorepricespromptedmanyChinesesteelmillstoswitchbacktolowergrades,orevenseekalternativefeedstock.ThefinalneteffectwilldependupontheactualrampupofVale’sS11Dmine,thereturntoformofAnglo’sMinasRiomine,andanyotherBraziliancontributionsthatmightclosetheactualsupplygap.Thenegativeimpactforthebiggestshipsinthecapesizesegment,andabove,isalreadyreflectedintheawfulQ1averageearnings.Ithasnegativelyaffectedsentimentwithtimecharterequivalentratesfallingtobelow$5,000dailyinfirsthalfMarchfromover$16,000inearlyJanuary.
AnotherfactorforChinesesteelmillsistheirexistinginventoriesofironoreaswellastheirportstocks.Theserosequiteconsiderablyin2018from151mtinearly2018
toapeakof162mtinearlyJunebeforefallingbacktoanannuallowof137mtattheendoftheyear.Itisneverquiteclearwhatproportionoftheseinventoriesisbeyondusefromaqualityperspectiveorbeyondsalefromapriceperspective.Anyway,sincetheendoflastyearinventorieshavebeenbuildingagainandwerebackupto145mtbytheendofFebruary.ThereasonsforthisrestockingmayhavebeeninfluencedbythetimingoftheChineseNewYearholidays;butalso,purchasesmayhaveincreasedtoprotectagainstthepossibilityofsupplydisruptionfromBrazil.ThereissomethingofaneconomicclashbetweentherecenttrendofrisingironorepricesandfallingChinesedomesticsteelpriceswiththeShanghaiSteelPriceIndexdownover15%from140attheendofDecember2018to118attheendofFebruary.Fortunately,ChineseironoreimportsarelikelytobesupportedbytheenforcedreductionofChineselowgradeandillegalminingintheinterestsofhigherqualityandlowerpollution.Chinesedomesticironoreoutputhasfallenfromamonthlyaverageofabout130mtin2014tolessthan70mtamonthin2018.
WecanonlyspeculateastotheprospectsforChineseironoreimportsoverthebalanceof2019giventhecurrentdisconnectbetweenironoreinputpricesandsteeloutputprices.Thesituationshouldnormalisesoonenoughoncewegetabetterideaofironoresupplyandsteeldemand.Asthingsstand,China’sironoreimportsfelltoa10-monthlowof83.1mtinFebruary,after91.3mtinJanuary,andwereabout1.5%belowthe84.3mtofFebruary2018.TheJan-Feb2019totalcameinat174.4mt,being5.5%belowtheJan-Feb2018tallyof184.6mt.ThereisalsothequestionoftheamountofnewcapitalthatwillbeinvestedinChineseinfrastructureasstimulusisgeneratinglessbangperbuckinvestedandChinesebanksarebecomingdangerouslyover-extended.PremierLiKeqiang’srecentannouncementattheNPCdidnothintatastimulusprogrammelargeenoughtoreallymovetheneedle.Chinaisalsoamajorimporterofcoalbuttheseimportshavebeenunderdownwardpressurefromslowergrowth,lowersteelprices,domesticenvironmentalissuesandtacticaltradedisputeswithAustralia.China’sgrainsimportsin2018sawariseinRussianandBrazilianimportsthankstobumpercropsandadeclineinAustralianandArgentinianimportsduetodrought.
Shipping Markets Outlook 2019Shipping Markets Outlook 201942 43
The Tanker Market
Tankers had a dreadful year for most of 2018 before a rousing final quarter
illustrated just how quickly fortunes can change.
Tankershadadreadfulyearformostof2018beforearousingfinalquarterillustratedjusthowquicklyfortunescanchange.AccordingtoSINdata,thelargercrudeoiltankersegmentsperformedbroadlyinlinewithoneanotherin2018.AverageearningsforamodernVLCCcameinat$15,561dailyfortheyear,whileamodernsuezmaxwasat$16,466andamodernaframaxwasat$16,175perday.Theseannualaverageswouldhavebeenmuchlowerbutforbeingredeemedbyastrongfourthquarterwhenspotearningsspikeduptoandbeyond$50,000perdayineachofthelargecrudeoiltankersegments.
UptomidMarch2019,wehaveseenaV-shapedperformanceinspotmarketVLCCearningssothat,intheyearto15March,amodernVLCChasaveraged$26,924perday.Incontrast,amodernsuezmaxhasenduredslidingearningssincethebeginningoftheyearbuthasstillmanagedtoaverage$23,784daily,notsofarbehindtheVLCC.Amodernaframaxhasfollowedasimilarpathtothesuezmax,withearningshavingcomeoffsharplysincethestartoftheyear,givingayear-to-dateaverageof$24,169perday.Justasin2018theybroadlytrackedoneanother,andsotooin2019sofar,butatanaverageof55%abovefullyear2018earnings.
BalticExchangedataindicatesthattheVLCC-TCEpeakedat$35,772on3Decemberbeforesinking91%toatroughof$3,110on8February,backtoapeakof$22,793on1March,andthenbackdownto$15,021on15March.Suchvolatilityisnotforthefaint-hearted.TheSuezmax-TCEfell81%fromitspeakof$50,633on24DecemberandthenfellthroughoutQ1toatroughof$7,054on15March,withnosignsofaturnaround.Meanwhile,theAframax-TCEhasfallen70%invaluefromitsQ4peakof$44,167on19Decemberto$14,949on15March.IthasatleastrecoveredfromitsQ1troughof$10,843perdayasrecordedon12February.
Finally,onthecleanside,MRearningsaveraged$8,750perdayin2018andwere52%higherat$13,286dailyintheyearto15March.EarningshavebeeninsteadydeclineinQ12019butarestillbenefittingfromthegradualsteppingdownfromthemuchstrongerlevelsrecordedinQ4lastyear.BalticExchangedatashowsthattheMRAtlanticBasketpeakedat$33,118on12Decemberandhassincefallen58%toareadingof$13,791on15March.Theprospectsforthebalanceof2019shouldbebrighteroncethebettersupplyanddemandfundamentalsassertthemselves,andaswegetclosertotheregulatorychallengesof2020.
2018 still saw tanker asset values rise
TankerassetvaluesmadeahesitantrecoveryoverthecourseoflastyearaccordingtoBalticExchangedatathattracks5-yearoldtankervalues.Inthe12monthsbetweenearlyJanuary2018andearlyJanuary2019,a305,000-dwtVLCCwasup4.6%from$61.4mto$64.2m;a105,000-dwtaframaxwasup5.2%from$29.5mto$31.0manda51,000-dwtMRwasup11.5%from$23.7mto$26.3m.ItwasaKingCanutelikeachievementforassetvaluestoriseagainsttheincomingtideofdisappointingearnings.
Intheearlymonthsof2019wearestillwitnessingimprovementsinnominalpricesdespitethegenerallyweakerearningsenvironment.TheBaltic’smeasurementof5-yearoldvaluesseestheVLCCup4.5%from$64.2minearlyJanuaryto$67.1mon18March.Similarly,theBaltic’s5-yearoldaframaxisup6.8%from$31.0minearlyJanuaryto$33.1mon18Marchandits5-yearMRisup5.3%from$26.3mto$27.7moverthesametimeframe.Buyinginterestisstrongbaseduponbeliefinanearningsrecoveryoverthecourseof2019.
In2019,afterareasonablefirstquarterperformance,weareexpectingfurtherimprovementsinaverageearningsthatwilltakeassetvalueshigher.TheTankerSecondhandPriceIndex
hasshownsimilarvolatilitytospotearnings.Itwentfrom110pointsinDecember2018to117inJanuary,to117.5inFebruaryandthendownto114.5bymidMarch.ThestrongupwardsadjustmentinJanuarywasbaseduponthemarketrallyinQ4whichhasgraduallydissipatedasweapproachtheendofQ1.
Tanker Asset Sales
VLCCs
InFebruary2018,OceanYieldpurchasedfour319,000-dwtHHI-builtVLCCresalesfromKykladesMaritimeforareported$335menbloc,givingaunitpriceof$83.75mwithdeliveryinQ2andQ32019.Itwasacomplexinvestmentdealinvolvinga15-yearbareboatcharterbacktoclientsofthesellersanda5-yearsub-timechartertoanindustrialenduser,believedtobeKochIndustries.Thesellershaveoptionstobuythevesselsbackatpre-agreedstrikepricesaftersevenyearsintothecharter.Theseweretheonlyresalesrecordedlastyear.InmidJune,Euronavsoldsix300,000-dwtSWS-builtVLCCstoInternationalSeawaysforareportedenblocpriceof$434masasidedealtoitspurchaseoftheGener8fleet.FiveofthesehaddeliveredfromtheChineseyardin2016andtheotheronein2015.
SomeolderVLCCswerealsosoldstartingwiththeSeaLatitude309,285-dwtHHI2001reportedinAugustat$22.5mfromAgritradetoOceanTankers.InSeptember,theSeawaysSakura298,530Hitachi2001wasreportedsoldbyInternationalSeawaystoHellenicTankersfor$18.5mandsometendayslaterthesisterFrontAriake298,530-dwtHitachi2001wasreportedsoldforahigher$20.7mbyShipFinancetoundisclosedinterests.ItwasrumouredthattheshiphadgonetobuyerswhowillconvertittoanFPSO,andthepurchaseprocessusuallyattractsapremiumprice.InNovember,theAlterEgoI309,371Samsung2001wasreportedsoldbyNGMEnergytoKunlunShippingfor$21.5m.
HigherpriceshavebeenachievedthisyearforsimilarvintageVLCCsincluding,inJanuary,thePacificGlory299,999Imabari
2001reportedsoldfor$23.5mfromSinokorMerchantMarinetoKunlunShippingand,inFebruary,theVLSakura298,530Hitachi2001whichwasreportedsoldfor$24.0mfromHellenicTankerstoFPSOoperatorsNathalinGroup.ThislatestsalewouldsuggestthatHellenicTankerspocketeda$5.5mor30%profitinlessthansixmonthsinresellingthistankertotheThaioffshorecompany.Itconfirmsthefirmingtrendinassetvaluessincethebeginningof2018.
Suezmax
Therewerefewnotabledealsinthesuezmaxspacein2018but,inSeptember,CentralShippingofMonacowasreportedtohavesoldtworesale157,000-dwttankerstoPolembrosfor$65.0meachwhichwilldeliverfromHyundaiSamhoin2020.InNovember,IconwasreportedastheselleroftheShamrock156,516-dwtRongsheng2011toNavigarefor$30.0m.Inthesamemonth,CepsawasreportedtohavesolditsToldeoSpirit149,990Daewoo2005toEurotankersforalittleover$19.0m.InJanuarythisyear,EurotankerswasreportedastheselleroftheirvintageEurohope159,539-dwtDaewoo1999toMiddleEastbuyersfor$12.9m.
Aframax
Therewasmoreactivityintheaframaxcrudetankersegment.InFebruary,HansaShippingwasreportedtohavesolditsHSCarmen113,033-dwtHyundaiSamho2003for$11.0mtoCoralShipping.Inthesamemonth,MaerskTankerswaslinkedwiththesaleofitsMaerskPrivilege105,483-dwtSumitomo2003for$12.5mtoWinsonOil.ByJune,EneselwasreportedtohavesoldapairofsistershipaframaxtankerstoThenamaris,beingthePantelisandtheSparto,both114,500-dwtSamsung2004,for$11.5meach.ComeJuly,K-LinewasthereportedselleroftheRiverEternity105,445-dwtSumitomo2006toGreekbuyersfor$13.25m.
InNovember,DHTwasreportedtohavesolditsDHTSophie112,045-dwtHyundaiSamho2003for$11.9mand
We have a constrained supply side and the prospect of IMO 2020
disruption to effective tonnage supply growth. We are less clear on
trade flows as the US ramps up its crude oil exports while Opec and
Russia cut their output by 1.2m-bpd or more to protect oil prices.
Shipping Markets Outlook 2019Shipping Markets Outlook 201944 45
itsDHTCathy111,928-dwtHyundaiSamho2004for$12.4m,bothtoHorizonTankers.Alsoatthattime,HansawaslinkedtothesaleofitsHSTosca115,635-dwtHHI2004for$13.0mtoUnionMaritime.MoremodernshipsincludedthereportoftheGloryCrescent105,405-dwtHHI2013fromMitsubishitoAGShippingfor$24.5m.Finally,inJanuary,VikenShippingwasreportedtohavesoldatrioof115,341-dwtSamsung-builtshipstoMiddleEastbuyers:theTroviken(2006),ToftevikenandTelleviken(both2005)for$48.5mintotal.
MR
TherewasplentyofactivityintheMRsecond-handsegmentin2018,althoughvalueswerefairlyflatduringtheyear,asillustratedbytheMarchreportedsaleofthePacificRainbow45,986-dwtShinKurushima2008for$16.0mfromTaiheyotoMaritecandtheDecemberreportedsaleoftheAyesha47,134-dwtHMD2008for$16.0mfromProductShippingtoNorden.InJanuary,theMarineExpress45,902-dwtShinKurushima2009wasreportedsoldbyMitsuiWarehousetoundisclosedinterestsfor$16.0mand,inFebruary,theQueenExpress45,902-dwtShinKurushima2009wasreportedsoldbyFuyoKaiuntoTransoceanMaritime,alsofor$16.0m.Laterinthesamemonth,thesamebuyerswerelinkedtothepurchaseoftheHighStrength46,646-dwtNaikai2009for$16.4mfromD’Amico.Buyingandsellinginteresthasbeenkeeninthissegment.
InSeptember2017,ScorpioTankerssoldfive50,000-dwtHMD2012-builtMRproducttankerstoBoComLeasing.Thereportedunitpricewas$27.5meachwitha7yearsbareboatcharterbackat$9,025dailypervessel,withthree1-yearextensionoptionsandpurchaseoptionsfromendyeartwo.Assumingthesedetailstobecorrect,thenthisisaclassicexampleofone-wayoptionality,inthisinstanceallagainstthelessor.Theproducttankerhighlightsof2018werefivefollow-ondealsannouncedbetweenMayandJuly.Theyinvolved23MRsand5LR2sfromtheScorpiostable.ThebuyerswereAvicLeasing,HuarongLeasing,CMBLeasing,ICBCLeasingandoneotherundisclosedfinancialinstitution.Thetypicalmodelwas7-8yearsbareboatcharterback,purchaseoptionsfromendyearthree,andpurchaseobligationsatcharterexpiry.InthiswayScorpiowasabletodestressitsbalancesheetwhilestillkeepingoperationalcontroloftheassets.
Tanker supply and demand balance
Thetotaltankerfleet(crudeandproduct)roseonlymarginallyin2018,byjust1.1%,goingfrom581.9m-dwtto588.1m-dwt.Thecombineddeliveryschedulefor2019is41.3m-dwt,orjust7.0%ofthestartyearfleet.Thiswillreduceduringthecourseoftheyearwithscrappingandslippage.Thetotalorderbookissetat11.3%ofthefleet,whichishistoricallylow.Insimpleroundednumbers,in2018totaltankersupplyrose1%againsttotaltankerdemandof2%.In2019,supplyanddemandareexpectedtoriseby3%each.Drillingdown,crudetankerfleetgrowthwasonly0.2%in2018andforecasttoexpandby3.6%in2019whilecrudetankerdemandwasat2.2%in2018andforecasttogrowby3.6%in2019.Supplyanddemandiscomingintobalancebutwestillhaveatonnageoverhangfromprioryearsofoversupplyingactualdemandgrowth.
Theproducttankerfleetgrewby1.6%in2018andisforecasttoexpandbyanother2.6%in2019.Thiscompareswithproducttankerdemandrising2.3%in2018andforecastdemandgrowthof3.2%in2019.Thissupply-demandcombinationsuggeststhatgoodtimeslieaheadforcleantankers.WehaveaconstrainedsupplysideandtheprospectofIMO2020disruptiontoeffectivetonnagesupplygrowth.WearelessclearontradeflowsastheUSrampsupitscrudeoilexportswhileOpecandRussiacuttheiroutputby1.2m-bpdormoretoprotectoilprices.BothVenezuelaandIranaresufferingfromdwindlingoutputandexportsastheUSsubjectsbothcountriestosanctions.InVenezuela,theUSdoesnotrecognisethere-electionofPresidentMaduroandinIrantheUSwantstochokeoffoilincomewhichitsuspectsisfinancingIran’snuclearweaponambitions.
Rising US crude output
TheUSgovernmentistighteningitssanctionsontheoilindustriesofIranandVenezuelaandthisisgivingtheoilbearspauseforthought.USproductionandexportoflightsweetgradescontinuestoriseastheEIAputaverageproductionat11.0m-bpdin2018andisforecastingUSoutputgrowthof1.4m-bpdin2019to12.4m-bpdandthenanother0.8m-bpdin2020to13.2m-bpd.ThiswilltakeUSoutputwellclearofRussiaandSaudiArabiathatarepartofanOpec-plusgroupthathaspledgedtoreduceproductiontocounterbalancetherelentless
riseinUSoutput.Asitstands,theUSisexpectedtoeclipsetheOpec-plusreductionallonitsownthisyear.WithreducedoutputfromsanctionsandunreliableoutputfromvariousAfricanproducersthemarketmaybetippedintoshortagein2019,thuspushingupoilprices.BymidMarch,Brentwasupto$67abarrelfroma52-weeklowof$50abarrelonChristmasEve.
Oil trading patterns
Theseabornetradingofcrudeoilandoilproductsfacesashake-upasrefinersjockeyforthesweetorsourcrudefeedstockthatareoptimalfortheirrefiningsystems.However,inmanywaysnotmuchhaschanged.IMO2020willseearound2.5m-bpdofheavyfueloil(HFO)replacedbyIMOcompliantlowsulphurfueloil(LSFO)orMGO.ThenewerrefinerieseastofSuezarebestplacedtoproduceLSFOandcandosowithsweetorsourcrudeswiththechoicedrivenmainlybytherelativecostofeach.ThisshouldreinforceAsiandemandforimportedcrudeoil,thussupportinglong-haulcrudeshipmentsfromtheAtlantictotheIndianOceanandtheFarEast,whilealsounderpinninglong-hauloilproductshipmentsfromeastofSuezintoconsumermarketsintheAtlantic.Thelong-haulmovementofcrudefromwesttoeastandofproductfromeasttowestisapatternthathasexistedformanyyearsalready,withIMO2020settogiveitasignificantboost.
China crude imports
Inthelargestcrudeoiltankersegment,itisworryingthat65VLCCsaresettodeliverover2019,with11havingalreadydeliveredinJanuary,3inFebruaryandanother51scheduledtodeliveroverthebalanceoftheyear.VLCCsinparticulararefacingthedisruptionoflowerexportsfromSaudiArabia,Iran,RussiaandVenezuelaasacombinationofsanctionsandoutputcutstakeeffect.AtleastChinaisstillraisingitsoilimports.In2018,China’stotalcrudeoilimportsaveraged9.2m-bpd,up10%year-on-year,accordingtoChinesecustomsdata.Itsetmonthlyrecordhighsin4Q18(i.e.higherthananymonthpreceding4Q18)at9.6m-bpdinOctober,10.4m-bpdinNovember(itshighestever,andup8.5%year-on-year)and10.3m-bpdinDecember.Thiswaslargelyinspiredbytheteapotrefineriesrushingtotakeuptheirannualimportallocations,possiblyanticipatingimminentpriceincreasesshouldtheChinesecentralgovernmentimposetariffsonimportedUScrudeoil.InJanuary2019,China’scrudeoilimportswereup5.1%year-on-yearto
10.1m-bpd,followedby10.2m-bpdinFebruary,upalmost22%onthe8.4m-bpdofayearago.Thisisapromisingstarttotheyear.IncrementaldemandisbeinghelpedbythegradualrampingupofthroughputattwonewChineserefinerystart-ups:HengliPetrochemicalandZhejiangPetrochemical.
US-China trade tensions
Earlierthisyear,Reutersreportedthatoiltradershadviewedthe1MarchdeadlinefortheresolutionofUS-Chinatradefrictionasthemostsignificantdateinthecalendar.On25February,theUSpresidentblinkedfirstandannouncedthatgoodprogressinthebilateraltalkswouldwarrantanindefinitedelaytothetariffescalationdeadlinesothattheUSandChinacouldcutadeal.Ithasbecomeevidentthatthetradewarbetweenthesetwosuperpowersisalreadyaffectingglobalgrowthevenatthelowertarifflevels,amplejustificationfortryingtoavoidanincrease.Thismayonlybeatruceinamuchlongerwar.Thereistheshort-termdiscussionaroundtariffsandthebilateraltradebalanceandthelong-termpoliticalissueofreformoftheChineseeconomicmodel.TheUSistakingexceptiontoChina’sformofstatecapitalismthatisgroundedintheonepartystate.Itinvolvescentralandlocalgovernmentsupportofstate-ownedenterprisesandislubricatedbypolicybankloansandsubsidies.
Thiscreatesaclashwiththewesternconceptofopenmarketeconomiesandalevelplayingfieldthatofficially,atleast,outlawsstateaid.ItshouldbepossibleforChinatogiveadequatepledgestoincreasethepurchaseofUSagriculturalandcapitalgoods,openupitsdomesticmarketandcrackdownonintellectualcopyrightbreaches.Theeconomicreformagendaisoneforthebackburnerasitwillrunandrunanditcanonlygetinthewayofachievingdeliverablegoalsonthemoreimmediatetradeissues.Thissimmeringdisputebetweentheworld’stwolargesteconomiesistransmittingnegativedemandimpulsesaroundtheworld,eatingintotheglobalconsumptionofmiddledistillatesusedintransport,manufacturing,miningandfarming.DistillateconsumptionhasbeencloselycorrelatedwiththeUSandglobalbusinesscycleoverthepast50years.WecanimaginethatevenapartialresolutionoftheUS-Chinatradeissueswillgiveaboosttothetankertradesasitwillclearthewayfornewinvestmentandstrongereconomicgrowth.
The newer refineries east of Suez are best placed to produce LSFO and
can do so with sweet or sour crudes with the choice driven mainly by
the relative cost of each. long-haul movement of crude from west to
east and of product from east to west is a pattern that has existed for
many years already, with IMO 2020 set to give it a significant boost.
Distillate consumption has been closely correlated with the US and
global business cycle over the past 50 years. We can imagine that
even a partial resolution of the US-China trade issues will give a
boost to the tanker trades as it will clear the way for new investment
and stronger economic growth.
Shipping Markets Outlook 2019Shipping Markets Outlook 201946 47
The Tanker Market Global oil demand is still rising despite slower global economic growth. The IEA forecasts global oil demand growth of 1.4% in 2019. Seaborne oil demand is forecast at over 3%.
Lower crude output from Opec, Russia, Iran and Venezuela favour more long-haul west to east exports from non-Opec Atlantic producers. The converse should apply to products.
This year we foresee both crude and product seaborne demand exceeding crude and product tanker supply in what promises to be a harbinger of better rates and values.
2. …helped by higher OPEC production in Aug-Nov 2018…
4. …led to a surplus in the second half of 2018. 8. Strong Chinese and Indian crude import growth helped…
1. The rise and fall of oil prices in 2018….
3. …offsetting lower Iranian exports as sanctions bit…
5. It was also a reflection of the status of OECD commercial inventories.
6. Absolute growth in the global seaborne trade of crude oil and oil products weakened last year…
7. ...despite stronger gains in oil product tonne-mile trade.
Opec and non-Opec monthly productionSource: EIA, Hartland Shipping
World oil supply and demand balanceSource: IEA, Hartland Shipping
China and India crude oil importsSource: EIA, Hartland Shipping
Brent and WTI quarterly average priceSource: HSBC Global Research, Hartland Shipping
Iran crude oil exportsSource: Thomson Reuters, Hartland Shipping
OECD, crude and product commercial inventoriesSource: Thomson Reuters, Hartland Shipping
Crude and product seaborne tradeSource: CRS, Hartland Shipping
Crude and product seaborne trade (tonne-miles YoY%)Source: CRS, Hartland Shipping
-1.5
-1.0
-0.5
0
0.5
1.0
1.5
2.0
96
97
98
99
100
101
102
103
1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18
MBPD
MBPD
Total stock change & Misc (RHS) Demand (LHS) Supply (LHS)
0%
1%
2%
3%
4%
5%
6%
7%
Oil product trade Crude oil trade2016 2017 2018
YOY %
9%
1%
5%
14%
10% 10%
0%
2%
4%
6%
8%
10%
12%
14%
16%
2016 2017 2018India Crude oil imports Yoy % China crude oil imports Yoy %
YOY %
0
0.5
1.0
1.5
2.0
2.5
3.0
Jan-16Apr-16
Jul-16Oct-16Jan-17
Apr-17Jul-17Oct-17
Jan-18Apr-18
Jul-18Oct-18Jan-19
Mbpd
56
5758
59
6061
6263
6465
30.0
30.5
31.0
31.5
32.0
32.5
Jan-
18Fe
b-18
Mar-
18Ap
r-18
May-
18Ju
n-18
Jul-1
8Au
g-18
Sep-
18Oc
t-18
Nov-
18De
c-18
Jan-
19
Mbpd
Opec monthly production (LHS)Non-Opec monthly production (RHS)
-4%
-2%
0%
2%
4%
6%
8%
2014 2015 2016 2017 2018
YOY %
(ton
nes)
Oil product Crude oil50
55
60
65
70
75
80
Brent WTI
US$/
Barr
el
1Q18 2Q18 3Q18 4Q18
-500
50
100
150 200
250
300
2,600
2,700
2,800
2,900
3,000
3,100
Feb - 17
Mar-
Apr- May
Jun
Jul - 17 -
-
- - -
Jan - 18
Feb
Mar - 18
Apr - 18
May - 18
Jun - 18
Jul - 18
Aug - 18
Sep - 18
Oct - 18
Nov - 18
Dec - 18
Jan - 19
Feb - 19
Mar - 17
Apr - 17- May - 17
Jun - 17
Aug - 17-
Sep - 17- Oct - 17
-
Nov - 17-
Dec - 17-
Feb - 18
Mill
ion b
arre
ls
Mill
ion b
arre
ls
2017-18-19 estimated surplus (RHS) OECD, Crude and Product commercial inventories (LHS)Latest 5-yrs avg (2012-17) & (2013-18) & (2014-19)(LHS)
Jan - 17
Shipping Markets Outlook 2019Shipping Markets Outlook 201948 49
10. Overall, US crude oil export growth played a big part…
16. … but a rebound in Brazilian oil output is expected to partially offset the loss…
15. Sanctions on Iran and Venezuela, with the OPEC cuts, is reducing the supply of medium and sour crude grades…
12. …while production is reaching new highs…
14. This left Opec and its allies with no choice but to curtail output yet again this year, with an intended 1.2m-bpd cut in 2019.
9. …while US sales to Europe offset falling Venezuela exports.
17. …and IMO 2020 is expected to lift demand for light sweet grades.
18. Tankers endured another difficult year but the last quarter proved how quickly earnings can recover…
11. …supported by a deepening WTI discount...
13. …with plenty of potential for additional new supply.
US crude exports and US crude imports from OPEC countriesSource: Thomson Reuters, Hartland Shipping
2019 Incremental oil supply forecastSource: Clarksons, Hartland Shipping
Crude differential - Heavy vs light gradeSource: Thomson Reuters, Hartland Shipping
US total crude imports and US crude productionSource: Thomson Reuters, Hartland Shipping
Oil demand growth, US oil supply growth and OPEC and allies production cutsSource: EIA, Hartland Shipping
US Gulf crude exports to Europe and Venezuela crude exportsSource: Thomson Reuters, Hartland Shipping
Oil product demand forecastsSource: Argus, Hartland Shipping
Average crude oil and product tankers earningsSource: CRS, Hartland Shipping
WTI discount versus BrentSource: Thomson Reuters, Hartland Shipping
Drilled but uncompleted rig count - Permian BasinSource: Baker Hughes, Hartland Shipping
1.5
2.0
-1.2-1.5
-1
-0.5
0
0.5
1
1.5
2
2.5
2019
Mbpd
Global oil demand growth expectationUS oil supply growth Opec & Allies production cut
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
Jan-14Mar-14
May-14Jul-14
Sep-14Nov-14
Jan-15Mar-15
May-15Jul-15
Sep-15Nov-15
Jan-16Mar-16
May-16Jul-16
Sep-16Nov-16
Jan-17Mar-17
May-17Jul-17
Sep-17Nov-17
Jan-18Mar-18
May-18Jul-18
Sep-18Nov-18
Jan-19
US$P
D
COT PT
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
Mar-
14Ju
n-14
Sep-
14De
c-14
Mar-
15Ju
n-15
Sep-
15De
c-15
Mar-
16Ju
n-16
Sep-
16De
c-16
Mar-
17Ju
n-17
Sep-
17De
c-17
Mar-
18Ju
n-18
Sep-
18De
c-18
No of
DUC
6
7
8
9
10
11
12
13
6
7
8
9
10
11
12
13
Jan-
13
MBPD
MBPD
May-
13Se
p-13
Jan-
14Ma
y-14
Sep-
14Ja
n-15
May-
15Se
p-15
Jan-
16Ma
y-16
Sep-
16Ja
n-17
May-
17Se
p-17
Jan-
18Ma
y-18
Sep-
18
Imports (RHS) Production (LHS)Imports (RHS) Production (LHS)
7.2
7.4
7.6
7.8
8.2
8.4
8.6
7.0
7.2
7.4
7.6
7.8
8.0
8.2
8.4
8.6
-0.5
0
0.5
1
1.5
2
LPG & Ethane Naphtha Gasoline Jet-Kero Diesel Fuel oil
Incr
emen
tal C
hang
e (Mb
pd)
2018e2019f2020f2021f
-14
-12
-10
-8
-6
-4
-2
0
2
4
Feb-
14
US$
Jun-
14
Oct-1
4
Feb-
15
Jun-
15
Oct-1
5
Feb-
16
Jun-
16
Oct-1
6
Feb-
17
Jun-
17
Oct-1
7
Feb-
18
Jun-
18
Oct-1
8-0.8
-0.6
-0.4
-0.2
0
0.2
0.4
Iran Venezuela Brazil
MBpd
2019F 2020F
0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Jan-
16Ma
r-16
May-
16Ju
l-16
Sep-
16No
v-16
Jan-
17Ma
r-17
May-
17Ju
l-17
Sep-
17No
v-17
Jan-
18Ma
r-18
May-
18Ju
l-18
Sep-
18No
v-18
Mbpd
Exports US Crude import from OPEC countries
-4
-3.5
-3
-2.5
-2
-1.5
-1
-0.5
0
0.5
Feb-14
US$
Feb-15 Feb-16 Feb-17 Feb-18 Feb-19Urals - North Sea Brent light crude differentials
0
0.5
1.0
1.5
2.0
2.5
0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Jan-
15
May-
15
Sep-
15
Jan-
16
May-
16
Sep-
16
Jan-
17
May-
17
Sep-
17
Jan-
18
May-
18
Sep-
18
Jan-
19
Mill
ion b
arre
ls
Million barrels
US Gulf crude export to Europe (LHS)Venezuela - crude export (RHS)
Shipping Markets Outlook 2019Shipping Markets Outlook 201950 51
19. Attractive second-hand values rose on strong buying interest. 22. …and in the small to medium size product tankers…
20. The pace of deliveries slowed, but still remained elevated. 23. …helped to minimise fleet growth in 2018.
21. Active crude tanker scrapping, particularly in the medium to large size segments… 24. The OB/FL ratio stayed at its lowest level on record…
Change in asset values by segment and age group (Jan-18 to Jan-19)Source: Hartland Shipping
Oil product tanker quarterly demolitionsSource: CRS, Hartland Shipping
Quarterly vessels deliveriesSource: CRS, Hartland Shipping
Crude oil and product tanker fleet growthSource: CRS, Hartland Shipping
Crude oil tanker quarterly demolitionsSource: CRS, Hartland Shipping
Tanker orderbook as a percentage of the fleetSource: CRS, Hartland Shipping
0
1
2
3
4
5
6
7
8
1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q17 4Q18 1Q19 qtd
Mill
ion D
WT
vlcc
suezmax
aframax
panamax
0%
5%10%15%20%25%30%
35%40%45%50%
0
100
200
300
400
500
600
700
19961998
20002002
20042006
20082010 2012 2014 2016 2018
M-DW
T
FL/OB Ratio
Tanker Fleet Development (LHS) Fleet/OB Ratio (RHS)
0
2
4
6
8
10
12
14
1Q16
2Q16
3Q16
4Q16 1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
Q1-2
019q
td
Mill
ion D
WT
PT COT
0%
1%
2%
3%
4%
5%
6%
7%
2017 2018
PT COT
15% 13% 15%
27%
13%18%
32%
20%14%
10%16%
47%
3% 4%
-9% -8%
8%12%
5% 3%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
Resa
le
5-yr
old
10-y
r old
15-y
r old
Resa
le
5-yr
old
10-y
r old
15-y
r old
Resa
le
5-yr
old
10-y
r old
15-y
r old
Resa
le
5-yr
old
10-y
r old
15-y
r old
Resa
le
5-yr
old
10-y
r old
15-y
r old
VLCC Suezmax Aframax LR1 MR
0
0.5
1.0
1.5
2.0
2.5
1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19qtd
MILL
ION D
WT
LR2LR1MRHandySmall
Shipping Markets Outlook 2019Shipping Markets Outlook 201952 53
Chartbook
Turning to the chartbook, we can see a pictorial time-line of what
happened in the oil and tanker world in 2018, starting with crude oil price
fluctuations.
Lastyear,Brentpricesended30%higheryear-on-yearwhileWTIwasup27%.ThetwogradestrackedeachotherandenjoyedtheirstrongestquartersinQ2andQ3beforeplunginginQ4onfearsofUS-ledoversupplyatatimeofslowingglobaleconomicgrowth.InitsbestquarterBrentaveraged$75.80inQ3andinitsworst$67.30inQ1.ForWTI,itsbestquarterwas$69.50inQ3anditsworstwas$59.00inQ4.WTIwasatasignificantdiscounttoBrentallyear,afunctionofitbeingoversuppliedintheUSwherethereisinsufficientrefiningdemandforsuchlightergrades.Shaleoilproductionisrisingfasterthanpipelineandportinfrastructurecangetittomarket.ThiscausessuppliestobuildupatCushingandpricestofall.Fortunately,thereisexportdemandforWTIinEuropeandAsiabutChinesebuyershavebeenholdingbackfrombuyingUScrudewhilethetwocountriesareatloggerheadsovertradeissues.
ThecooperationagreementbetweenOpecandthenon-Opec11,ledbyRussia,tocutoutputinthefaceofrisingnon-Opecsupply,heldupwellin2018.Non-Opecproductionroseallyeargoingfrom59.3m-bpdatthestartto62.6m-bpdattheendof2018whileOpecoutputfellfrom32.0m-bpdto31.4-bpdoverthecourseoftheyear.ByendJanuary2019,non-Opecoutputhadrisensharplyto64.4m-bpdwhileOpecoutputhadfallenfurtherto30.9m-bpd.RenewaloftheOpec-Russiaagreementwillseethemtargetcombinedcutsof1.2m-bpdduring2019despitetheimpactofUS-ledsanctionsonIranandVenezuelathatarereducingtheiroutputandexports.In2018,Iraniancrudeoilexportsfellfromayearlypeakof2.6m-bpdattheendofMaytoanannuallowof0.7m-bpdbyendDecember,whileVenezuelancrudeoilexportsoscillatedintherangeof1.1to1.4m-bpdin2018,wellshortofthe1.9m-bpdthatitexportedinearly2017.VenezuelanoutputandexportswillcontinuetoreduceunderUSsanctions.Conversely,totalUSoilproductionrosetoanaverageof11.0m-bpdin2018,accordingtotheEIA,andisforecasttoriseto12.4m-bpdin2019andto13.2m-bpdin2020.
[By4Q18,globaloildemandhadhitapeakof100.9m-bpdwhileglobaloilsupplywasonemillionbarrelshigherat101.9m-bpd,accordingtotheIEA.By4Q19,worldoildemandisforecasttoriseto102.2m-bpdwhile
worldoilsupplyisestimatedtohit102.4m-bpd.Thus,a1.3m-bpdincreaseindemandwillbemetbyamuchsmaller0.5m-bpdincreaseinsupply,withanarrowingoverhangsuggestingthatoilpricesmayfindsupport.OECDcommercialinventorieshaddeclinedoverthecourseof2017,fromjustover3.0billionbarrelstojustabove2.8billionbarrels,takingthembackto5-yearaveragelevels.ThishelpedoilpricesrecoverinQ2andQ3beforereturningtoasmallsurplusinQ4andconsequentiallylowerprices.USstrategicoilreservesfellfrom696millionbarrelsinearly2017to691millionbarrelsinearly2019,whileUScommercialoilinventoriesfellfrom483millionbarrelsinearly2017to440millionbarrelsatthestartof2019.]
Inits15MarchOilMarketReport,theIEAnotedthatglobaloildemandgrowthslowedto0.95m-bpdinQ42018,a0.3m-bpdreductioncomparedwith4Q2017.ThiswasputdowntoslowerOECDdemand,withlargefallsinEuropeandAsiaandslowerdemandintheAmericas.Despitethis,itisstayingwithitspreviousestimatesandforecastsofglobaloildemandgrowthof1.3m-bpdin2018and1.4m-bpdin2019.Thisislargelypremisedonstrongerdemandgrowthinnon-OECDcountries,especiallypartsoftheMiddleEastandAsia.Globaloiloutputwasat99.7m-bpdinFebruary,up1.5m-bpdonayearago,ledbytheUSandothernon-Opecproducers.Itreckonsthatnon-Opecproductiongrowthwillslowfromarecord2.8m-bpdin2018to1.8m-bpdin2019.
TheIEAclaimsthatVenezuelanoutputstabilisedataround1.2m-bpdinrecentmonthsbeforedroppingoffinrecentweeks.AftertheOpec-plus1.2m-bpdcuts,itputsOpec’seffectivesparecapacityat2.8m-bpd.IranandVenezuelaareexcludedfromthecalculation.MuchofthissparecapacityiscrudeoilofsimilarqualitytoVenezuela’sexports,thusmajorsupplydisruptioncanbeavoidedevenifVenezuela’sproductionfallsfurther.Atpresent,supplyanddemandareseentobeinbalance.ThebiggamechangerfortheIEAisitsestimatethattheUSwillbecomeanetoilexporteronanannualaveragebasisby2021.AsCanadianoilproductionisalsorising,withmostofitgoingtoUSrefiners,UScrudewillbefreedupforexport.ThisyearUSseaborneoiltradewillmoveintosurplusandnetexportswillrisetonearly4m-bpdby2024.
25. …thanks to relatively low ordering.
26. The COT delivery schedule is slowing, except VLCC/Aframax...
27. …while 70% of the product tankers on order are MRs.
Crude oil and product tanker contractingSource: CRS, Hartland Shipping
Crude oil tanker delivery scheduleSource: CRS, Hartland Shipping
Oil product tanker delivery scheduleSource: CRS, Hartland Shipping
0
20
40
60
80
100
120
140
2019 2020 2021+
No of
Ship
s
LR2 LR1 MR Handy
-4%-2%0%2%4%6%8%
10%12%14%16%
2000 2001
2002
2003
2004
2005
2006
2007
2008
2009 2010 2011
2012
2013
2014
2015
2016
2017
2018
2019
f20
20f
Seaborne product trade growth (Tonne-mile)Product tanker fleet growth (M-dwt)
YOY%
0
20
40
60
80
100
120
140
2019 2020 2021+
No of
Ship
s
VLCCSuezmaxAframaxPanamax
-10%-8%-6%-4%-2%0%2%4%6%8%10%12%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010 2011
2012
2013
2014
2015
2016
2017
2018
2019
f20
20f
Seaborne crude trade growth (Tonne-mile)Crude tanker fleet growth (M-dwt)
YOY%
269
129154
427
227
424
86
286
193
100
50
100
150
200
250
300
350
400
450
2010 20112012 2013 2014 2015 2016 2017 2018
2019ytd
No of
Vess
els
Crude Oil TankerProduct Tanker
28. Overall we are at an inflection point in the crude sector… 29. …and so too in the product sector. Better times lie ahead!
Crude tanker supply and demand balanceSource: CRS, Hartland Shipping
Product tanker supply and demand balanceSource: CRS, Hartland Shipping
Shipping Markets Outlook 2019Shipping Markets Outlook 201954 55
FebruaryorMarch,althougha2-millionbarrelVLCCshipmentofUScrudeissettoarriveinChinainmidApril.
USsanctionsonVenezuelaareopeningupmoreexportopportunitiesforUScrudeasVenezuela’sproductionandexportsdecline.Itscrudeoilexportsfellfromanaverageof1.55m-bpdin2017to1.29m-bpdin2018andlatestfiguresshowthatitsexportstumbledtojust0.71m-bpdinFebruary2019.TotalUScrudeoilproductionhasrisenfrom9.2m-bpdinJanuary2016toanall-timerecordof12.0m-bpdinJanuary2019,a30%gaininthreeyears,afteraveraging11.0m-bpdin2018.ThishasledtoanincreaseinUSexportsandadownwardtrendinUSimports,particularlyofOpeccrude.ThisisgeopoliticallyhelpfulasitreducesAmericandependenceuponOpec.Instead,theUSfindsitselfcompetingwithOpecforcrudeoilsalesinglobalmarkets.UScrudeoilexportshaverisenaroundfive-foldfromJanuary2016whenitexportedonly0.49m-bpd.InQ42018,itexported2.33m-bpdinOctober,2.61m-bpdinNovemberand2.51m-bpdinDecember.SinceJanuary2016,UScrudeoilimportsarestillholdingataround8.0m-bpdasitneedstoimportheaviergradesofcrudeoilthanitproducesdomesticallyforitsrefiningcomplexintheGulfofMexico.However,USimportsofOpeccrudehavefallenfromanaverageof3.18m-bpdin2016,to3.12m-bpdin2017andto2.62m-bpdin2018.
UScrudeexportshavebeenhelpedbyoverseasdemandforlightsweetcrudeandbythefactthattransportandpipelinebottlenecksintheUShaveledtoaglutofWTIaroundCushing,Oklahoma,theWTIstorageandpricingpoint.ThishasmeantthatWTIhasbeentradingatawidediscounttoBrentwhichhasmadeitanattractivebuyintheFarEast,evenafteraddinginthecostsofpipelineandseabornetransportation.In4Q16,Brenttradedatabouta$2abarrelpremiumtoWTIbutsincethenithasbeenatadiscountasUScrudeoilproductionhassteadilyrampedup.In4Q18,thisdiscountwentoutasfaras$12abarrel.ThedrilledbutuncompletedrigcountinthePermianBasinstandsatover4,000unitsupfromaround1,200onlythreeyearsago.Thiscreatesthepotentialtoeasilyincreaseproductionshouldpricesjustifyit.
Oilmarketsupplyanddemandisprecariouslybalanced,whichmightexplainwhyhedgefundsareflippingbetweenbeinglongandshort.Risingproductionoflightersweetgrades,especiallyfromtheUSbutalsoBrazil,isinconflictwithfallingproductionofheaviersourgrades,fromthelikesofIranandVenezuela.ThissituationisbeingexacerbatedbythevoluntaryRussianandOpecoutputcutsofsimilarheaviergradesfromMiddleEasternproducerssuchasSaudiArabia,KuwaitandtheUAE.Urals,ahighsulphurRussiancrude,wouldnormallytradeatadiscounttolowsulphurBrentfromtheNorthSea.Typically,overrecentyears,thisdiscounthasbeenupto$3.5abarrelcomparedwithBrentbut,inearly2019,itis
tradingonaparitybasis.Changestooutputandpricingsuggestthatthereiscurrentlyasurplusofthelightercrudeoilgradesthateasilyconverttomiddledistillatessuchasgasoline,dieselandjet.Atthesametime,thereisarelativeshortageofthemediumtoheaviergradesthatareindemandfromcomplexrefineries,andoftheresidualfuelsthatareusedasHFOinshipenginesforpropulsionandbyutilitiesforpowergeneration.
IMO 2020
Fromashippingperspective,theimplicationisthatthereisplentyoffeedstockfor0.5%sulphurLSFObutlessfeedstockforupto3.5%sulphurHFO.Thissuggeststhatthepricespreadbetweenthetwomaynarrowifthecurrentmarketdynamicspersist,whichseemslikelyatpresent.Theshippingindustrywasexpectingapricedeltaof$250-300atonnebetweenHFOandLSFOby2020;thishasbeenregardedasanattractivemarginandmighteasilyjustifyfittingscrubberstocertainlargerships.However,attheendofFebruary,thefuturesmarketwasshowingalowerdiscountof$175-185atonneforcalendar2020.AsmorerefineriesupgradetheirHFOoutputtomorerefinedgrades,andasmoreshipsfitscrubbers,theavailabilityofHFOwillfallanditspricewillrise.Conversely,theabundanceoflightsweetcrudeinthemarketmakesitscheapertoproducemiddledistillates,demandforwhichmaybeunderpressureastheglobaleconomyslows.Hence,wehaveapincermovementthatwillmostlikelycompresstheHFO-LSFOspread.
Atthispointwereturntotankerearningstakingalonger5-yearperspectivefromthebeginningof2014.Averagecrudetankerearningshaveoutperformedaverageproducttankerearningsoverthisperiod.ThelargecrudetankerannualaverageearningsarederivedfromthecombinationoftheVLCC,suezmaxandaframaxsegments.In2014,theymanaged£27,393daily;in2015,$49,663perday;in2016,$30,503daily;in2017,$15,880perday;andin2018,$15,969daily.Theaverageearningsfortheselargecrudetankershavesettledataround$15,900perdayinthelasttwoyearsof2018and2017,abouthalfthelevelof2016and68%belowthelevelof2015.Stillpositivedemandgrowthandrestrainedsupplygrowthindicatethatweshouldbeinforacyclicalrecoveryinearningsin2019.ThelargeproducttankerannualaverageearningsarederivedfromthecombinationoftheLR2,LR1andMRsegments.In2014,theyachieved$16,016daily;in2015,$26,537perday;in2016,$14,584daily;in2017,$10,023perday;andin2018,$9,751daily.The$9,900perdayaverageofthelasttwoyearswas32%lowerthan2016and63%lowerthanthebestyearof2015.Likecrudetankers,thesupplyanddemanddatasuggeststhatwearedueforacyclicalrecoveryinearningsin2019.
Despitetheweakearningsof2018,investorshavebeenanticipatingbettertimesaheadandlastyeartheywere
TherisingprofileoftheUSinglobaloilmarketsprovidesgreaterchoicetoconsumersandgivesAmericasecurityofsupplyatatimeoftensegeopolitics.BeingabletogenerateextrataxrevenuesfromexportingoilisgoodfortheUSatatimeofexpandingannualbudgetdeficits.
Growthintheseabornetradeofcrudeoilandoilproductssloweddownin2018,partiallyexplainingthedismalearningsenvironmentinallbutthelastquarter.Afternegativeyear-on-yeargrowthin2014therewasabouncebackin2015whencrudeoiltraderose3.8%andproducttraderose7.3%.Thereaftergrowthslowed,to4.1%forcrudetradeand3.9%forproducttradein2016andto3.3%forcrudeand1.9%forproductin2017.Lastyear,in2018,bothcrudeandproducttradegrewbyjust1.3%eachto2,039milliontonnesforcrudeandto1,080mtforproduct.Globalcrudetradeisforecasttoriseinabsolutetermsby1.7%in2019and3.0%in2020whileglobalproducttradeisestimatedtorise3.0%in2019followedby4.0%in2020.Thesewouldbepositivedevelopmentsaftersuchlacklustredemandgrowthin2018,allthemoresoasfleetsupplygrowthshouldbeconstrainedinboth2019and2020.Putanotherandbetterway,intonnemileterms,thedemandoutlookisevenbetter.Crudetradegrewby6%in2016,6%in2017and3%in2018whileproducttraderoseby4%in2016,1%in2017and3%in2018.Intonnemileterms,crudetradeisforecasttoriseby4%in2019and5%in2020andproducttradeisforecasttoincreaseby3%in2019and5%in2020.
UnderpinningtheglobalgrowthincrudeoiltradingonthebuysidewereChinaandIndia.China’scrudeoilimportsrose14%year-on-yearin2016,followedby10%in2017and10%in2018whileIndia’scrudeoilimportsincreased9%in2016,followedby1%in2017and5%in
2018.China’scrudeoilimportsamountedto464milliontonnesin2018,upfrom420mtin2017,whileIndia’scrudeoilimportscameto227mtin2018,upfrom216mtin2017.Fortwofastgrowthcountrieseachwithpopulationsofcloseto1.4billionpeople,China’scrudeoilimportswererunningatdoublethatofIndia’slastyear.UnderpinningglobalgrowthincrudeoiltradingonthesellsidewastheUSwithitsenormousgainsinoutput.Sincetheliftingofthebanoncrudeexports,on18December2015,theUShasfoundoverseasexportmarketsforitsmostlylightsweetgradesofcrude.Beforethatdate,itcouldonlyexportcondensateandthatwasinverysmallvolumes.
InEurope,ithadawillingbuyerfortheselightergradesandso,fromvirtuallyzeroexportstoEuropein2014,itwentto4.12millionbarrels(11,288-bpd)in2015,to7.47mb(20,466-bpd)in2016,to10.61mb(29,068-bpd)in2017andto23.68mb(64,877-bpd)in2018.Wehaveseenspectacularyear-on-yeargrowthinUScrudeoilexportstoEuropebutthetotal2018figureisstillinsignificantwhencomparedwithChina.AccordingtoChinesecustomsdata,Chinaimportedanaverageof245,616-bpdofcrudeoilandoilproductsin2018,25%upon2017.ItimportedminimalvolumessinceJulyandnothinginDecember.TheEIAputsthe2018averageofcrudeoilimportsat219,340-bpd,thedifferencebeingtheproductimports.The2018totalwouldhavebeenhigherbutforzeroChineseimportsofUScrudeoilinAugust,SeptemberandOctoberandonly8,000-bpdinNovemberand97,000-bpdinDecember.Chinesebuyersheldback,probablyinsolidaritywithnationalinterest,despiteUScrudenotbeingonthetarifflist.Thisyear,weunderstandfromReutersthatnoUScrudewasimportedbyChinainJanuary.Noneisscheduledtoarriveineither
Shipping Markets Outlook 2019Shipping Markets Outlook 201956 57
Shipping Markets Outlook2019 Edition
The Containership Market
preparedtopayuptosecuresecond-handtankersathistoricallydepressedvaluations.Thebestyear-on-yearassetvaluegainsineachsegmentin2018were:27%fora15-yearoldVLCC;32%fora10-yearoldsuezmax;47%fora15-yearoldaframax;4%fora5-yearoldLR1;and12%fora5-yearoldMR.Totaltankerdeliveriesremainedquiteelevatedin2018at281unitsof28.3m-dwtafter2017’s336unitsof38.0m-dwt.Halfwaythroughthefirstquarterof2019wehadalreadytakendeliveryofanother57unitsof7.3m-dwt.Indeadweightterms,crudetankerseasilyoutdidproducttankers,astobeexpected.Onegoodthingaboutthepoorearningsoflastyearisthattheyencouragedahigherrateofscrapping.Inthecrudesector,19.1m-dwtofcrudeoiltankersweredispatchedtothebreakersin2018after9.8m-dwtin2017.Inearly2019,littlehasbeenscrapped.Intheproductsector,6.9m-dwtwassentfordemolitionin2018after4.3m-dwtin2017.Thescrappingwasmarginalrelativetodeliveriesbutitallhelpstowardsachievingbettersupply-demandbalance.
Future fleet growth
Futuretankerfleetgrowth,crudeplusproducts,willbeslowerforthenextfewyearsasfewershipshavebeenordered.Atthebeginningof2017,78.4m-dwtwasonorderagainstafleetof555.2m-dwt,givinganOB/FLratioof14.1%.Atthestartof2018,74.2m-dwtwasonorderagainstafleetof581.8m-dwt,givinganOB/FLratioof12.7%.Attheoutsetof2019,67.8m-dwtwasonorderagainstafleetof587.7m-dwt,givinganOB/FLratioof11.5%.ThisisthelowestOB/FLratiosince1997whenitwasat7.9%.Withthelowestfleetgrowthinover20yearsthisyearweexpectthatdemandcanholdupsufficientlytodeliverstrongerearnings,leadingtohigherassetvalues.2018wasamorerestrainedyearoftankerorderingcomparedwith2017andthatshouldfeedthrough.Bysegment,VLCCsaw42ordersin2018after56in2017;suezmax23after27;aframax28after64;LR26following32andMR71following95.Thecrudetankerdeliveryschedulestandsat123unitsof25.7m-dwtin2019;88of17.7m-dwtin2020;and26of5.1m-dwtin2021andbeyond.VLCCandaframaxcrudetankersdominatedeliveriesoverthisyearandnext.Theproducttankerscheduleisat124unitsof7.0m-dwtin2019;66of3.8m-dwtin2020;and20of1.7m-dwtin2021andbeyond.ItisdominatedbyMRs.ThecrudetankerOB/FLratioisat12%whiletheproductOB/FLratioisat8%.
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The Containership Market
The container market continues to suffer from top-down oversupply as all
carriers take delivery of large ships to achieve economies of scale.
Fleet growth
Therateofoverallcellularfleetcapacitygrowthisthankfullyslowing.Aftergrowthof5.6%infullyear2018thefleetisforecasttoexpandbyonly2.9%in2019and3.2%in2020.TheupcomingIMO2020rulesmightsubtractuptoanother1%fromeffectivefleetgrowthasmanyshipswillbetakenoutofservicetoretrofitscrubbersandthehighercostofcompliantfuelshouldencouragebothmorescrappingandmoreslow-steaming.SlowernetfleetgrowthatatimeofaweakeningglobaleconomyisapositivedevelopmentasfuturedemandgrowthisputatriskbyUS-Chinatradefrictionthatmayraisethepriceofgoodsandlowerpurchaseinterest.Themainreasonthatfleetgrowthismoderatingisthattherearefewershipsonorderaftermanyyearsofoversupplyingthemarket.Thismoderationinthesupplysideisaproductofmanyyearsofunexcitingfreightratesandtimecharterreturnsaswellasalesssupportivebankingsector.
Orderbook
Theorderbookforshipsof15,000-teuandlargerwasat66unitstotalling1.32m-teuattheendof2018,being53%bynumberand56%bycapacityofthetradingfleetinthissizeof125unitstotalling2.34m-teu.However,attheendof2018,thetotalcellularorderbookwasat2.86m-teuagainstatotalcellularfleetof22.01m-teu.Thisputsthetotalcontainershiporderbooktofleetratioatitslowestlevelinover20yearsatjust13%,butitisheavilyskewedtolargerships.Duringthecourseof2018,thefleetofshipsof15,000-teuandlargerexpandedby33.5%withamuchlower10.5%expansioninthenextsizedownof12,000to14,999-teu.Inthesizesbelow12,000-teutherewasnegligiblegrowthin2018,with3.6%growthinthe8,000to11,999-teusegmentand2.2%inthefeedersizesfrom100to2,999-teu.Intheintermediatecategoriesspanning3,000to7,999-teutherewasnonoticeablechange.Giventhesesupplysidedynamics,thereshouldbescopeforanimprovementintheearningsofsub8,000-teushipsoverthenextfewyears.
Supply and demand balance
2018sawsupplyanddemandcomeintobetterbalancewithglobalcontainertradegrowing4.3%year-on-yearto200.7m-teufrom192.4m-teuin2017.Meanwhile,onthesupplyside,thecellularfleetexpandedbyaslightlylarger
5.6%from20.85m-teuto22.01m-teu.Lastyear,tradegrowthwasfairlyevenlydistributedacrossthemaintradelanes.TheTranspacificbenefitedfromQ4frontloadingaheadofpossibletariffincreasesandAsia-Europeshowedsignsofweakness,aforetasteoftheweakerEuropeaneconomicdatathatisnowcomingthrough.Thebasecaseforecastfor2019isfortradegrowthof4.1%to209.0m-teuagainstfleetgrowthof2.9%to22.65m-teuand,for2020,tradegrowthof4.0%to217.4m-teuagainstfleetgrowthof3.2%to23.38m-teu.So,onaverage,weshouldseetradegrowthoutpacefleetgrowthby1%peryearin2019and2020.Thisshouldhaveapositiveeffectonfreightrates,earningsandvaluesalthoughmuchwilldependuponthemicrosupplyanddemandbalanceswithineachshipsegmentandthetradelanesuponwhichtheyoperate.
TC rate and earning indices
TheClarksonContainershipTimecharterRateIndexaveraged60pointsin2018,28%uponfullyear2017.Theimprovementinperformancedisguisedwhatwasavolatileyear,goodinthefirsthalfandpoorinthesecond.Itstartedtheyearat54.4inJanuaryandrosetoapeakof68.0inJuneonlytoslidebackto52.1byDecember.Intimecharterequivalentterms(TCE)thisrepresentedashiftupfrom$10,148dailyinJanuaryto$13,732perdayinJuneandthenbackto$11,260dailyinDecember.InJanuarythisrosemarginallymonth-on-monthto$11,273perday.TheTimecharterEarningsIndexsawaveragetimecharterratesrise36%from$9,035dailyin2017to$12,311perdayin2018.Thatisastepintherightdirectionandthisshouldcontinuein2019and2020asthesupply-demandbalanceimproves.Betterdemandgrowthinregionalandnonmain-lanetradesshouldsupportimprovingTCratesforsmallershipsof5,000-teuandunder,especiallythelargerfeedersizes.
Segmental TC rates
Despitethepoorendtolastyear,annualaveragetimecharterratesdidimproveyear-on-yearin2018inallofthetrampshipsegments.Thedatashowsthatageared1,000-teuunitwasearning21.6%morein2018comparedwith2017,upto$7,467from$6,412perday.Ageared1,700-teuvesselwasup33.6%to$9,675from$7,242daily.Agearless2,000-teuunitwasup32.9%to$9,508from$7,154perdaywhileagearless2,750-teuunitwas22.9%strongerto$10,813from$8,800daily.Aclassic32.2mnarrowbeampanamaxvesselof4,400-teuwasup44.3%to$11,096from$7,692
daily.Thishasbeenaremarkablerecoveryforasegmentthatwaslargelywrittenoffintherun-uptotheopeningofthenewsetoflocksinthePanamaCanalon26June2016.Averageannualearningshadslumpedtojust$4,979perdayin2016from$11,817dailyin2015.However,latestfixturesinearly2019suggestthata4,400-teuclassicpanamaxisnowearningabitunder$8,500perdaywhileawide-beam(37.0m)5,000-teuvesselisbeingpaidover$15,000daily.
Inthewide-beamintermediatesizeof6,800-teuearningsrose10.4%in2018to$14,542perdayfrom$13,171dailyin2017.In2019year-to-date,averageearningshavegotofftoapoorstartwithallsegmentstradingdownonthelevelsthattheyachievedlastyear.Afterthefirsttwomonthsof2019nominal6-12monthcharterratesarelanguishingatlowlevels.A1,000-teuunitisaveraging$6,039daily,a1,700-teuisat$6,994perday,a2,000-teuat$7,361daily,a2,750-teuat$8,639perday,a4,400-teuat$8,306dailyanda6,800-teuat$12,844perday.SomeofthecurrentweaknessmightbeattributedtotherushofactivityinthefinalmonthsoflastyearasshipperstriedtobeattheanticipatedriseinUS-Chinatariffsthatwerescheduledtobeappliedatthebeginningof2019.Thedeadlineforraisingtariffswasthen
extendedinearlyDecemberto1March2019and,morerecently,theyhavebeenputonindefiniteholdasthetwosidesareallowedmorebreathingspacetostrikeadeal.
Asset values and ship sales
Theweakearningsmarkethastemporarilyblownofftracktheassetvaluegainsofrecentyears.Takingnominalendyearvalues,a10-yearold1,700-teuunitrosefrom$5.5min2016to$9.0min2017andto$10.5min2018.Thishasnowslippedbackto$9.5m.A10-yearold2,750-teuvesselincreasedfrom$5.8min2016to$10.8min2017andto$13.5min2018.Thishasnowtrackedbackonemillionto$12.5m.A5-yearold4,500-teuclassicpanamaxrosefromalowly$7.0min2016to$12.5min2017andto$15.5min2018.Thishassincesoftenedto$15.0mbutitstillrepresentsamorethandoublinginvaluesincethelowpointofend2016.Severalbuyers,suchasSeaspanandKMTC,hadthevisiontobuyinthedipof2016andtheyhaveprofitedhandsomely,onpaper,frombuyingatatimewhenthisclassicpanamaxsegmentwasatitsmostdistressed.
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Onthesalesside,aseriesof10,000-teuvesselsthatdeliveredfromDalianShipbuildingin2014weresoldinJanuarythisyearfor$267menbloc.TheCSCLSpring,CSCLSummer,CSCLWinterandCSCLBohaiSeaweresoldbyCoscoShippingDevelopmenttoJapan’sFinancialProductsGroupwithan8.5-yearbareboatcharterbackworth$248m,equatingtoabareboatrateofjustunder$20,000perday.Thecharter-freevaluewasestimatedat$228m.CSDhasanoptiontobuytheshipsfouryearsaftertheleasescommenceandagainaftersevenyearsandthreemonths.CSDwillcontinuetotimecharterthevesselsouttoCoscoShippingLinesunderseparatearrangements.
InOctoberlastyear,NYKwasreportedtohavesoldtheNYKAphrodite6,492-teuIHI2003toclientsofCyprusMaritimefor$13.0m.LastJune,NYKwasreportedtohavesoldtheNYKTerra6,500-teuHHI2008for$25.0mtoclientsofSeaConsortium.Afewweeksearlier,DianaContainershipswasreportedtohavesoldthesimilarPuelo6,541-teuHHI2006toclientsofNissenKaiunfor$20.5m.Ataroundthesametime,DianawasalsoreportedtohavesoldtheHamburg6,494-teuKoyo2009totheMPCGroupfor$21.0m.AndinApril2018,NautilusHoldingswaslinkedtothesaleofitsTexasandWashington6,969-teuHHI2009toclientsofMSCfor$27.5meach.
InlateOctoberlastyear,TechnomarwasassociatedwiththesaleoftheclassicpanamaxArgos4,250-teuNewYZJ2012toclientsofBorealisfor$14.7m.AlsoinOctober,PacificInternationalLines(PIL)wasreportedtohavesoldthreeclassicpanamaxshipsenbloctoclientsofMingshengFinancialLeasing.TheseweretheKotaKarim3,081-teuToyohashi2006,theKotaLawa4,253-teuDalian2008andtheKotaLihat4,335-teuDalian2013foratotalconsiderationof$88.9m.InJuly,DioryxMaritimewasreportedtohavesolditsPatraikos4,498-teuHyundaiSamho2010toundisclosedinterestsfor$15.0mand,inthesamemonth,NSCSchiffahrtwaslinkedtothesalesofthetwoclassicpanamaxsistershipsBahiaandBenito4,308-teuHHIC-Subic2009toclientsofMangrovePartnersfor$13.9meach.
BackinJunelastyear,Delphiswasrumouredtohavesoldfourwide-beam(37.3m)sistershipstoOceanYield.TheseweretheBarcelonaExpress,DetroitExpress,GenoaExpressandLivornoExpressall3,832-teuHHIC-Subic2014atanundisclosedprice.AlsoinJune,C-POffenwasreportedtohavesoldtheclassicpanamaxsistershipsANLWarraguiandCPOJacksonvilleboth4,225-teuHHI2009toclientsofBorealisforaround$14.4meach.Borealiswasalsolinkedtothepurchaseofthe
CircularQuay3,534-teuShanghaiShipyard2009fromtheSchultegroupfor$11.6m.InMay,DioryxMaritimewassaidtohavesolditsCorinthiakos4,498-teuHyundaiSamho2010toclientsofAsiaticLloydfor$15.0m.
InMarch2018,DianaContainershipswaslinkedwiththesaleoftheCentaurusandSagittaboth3,426-teuTKMSNordseewerke2010totheMPCGroupfor$12.3meach.LastJanuary,Dianawassaidtohavesoldthewide-beam(40.0m)sistershipsGreatandMarchboth5,576-teuKoyo2004toclientsofTechnomarfor$11.0meach.Therehasbeenalotofactivityinthefeedersizes.InFebruarythisyear,H.SchuldtwasreportedtohavesoldsistershipsIndependentAccordandIndependentConceptboth1,574-teuYangzijiang2007toclientsofContshipsfor$6.0meach.InJanuary,H.ScheperswaslinkedtothesaleoftheArianandTammoboth1,345-teuYangzijiang2011toclientsofContshipsfor$8.5meach.
InDecemberlastyear,theNavigiagroupwasreportedtohavesoldfoursistershipstoclientsofJRShippingforanenbloctotalof$37.0m.TheseweretheAalderdijk,Akerdijk,AlsterdijkandAmerdijkall1,440-teuSainty2011.AlsoinDecember,theKalkavanGroupwasreportedastheselleroftheCaferDedeandIbrahimDedeboth1,878-teuSedefGemi2008toGreekbuyersfor$9.0meach.InNovember,Heung-AShippingwaslinkedtothesaleofitsHeung-ALaemChabang1,785-teuDaeSun2016toKotokuKaiunfor$20.0m.BackinOctober,HartmannwasreportedtohavesoldfoursistershipstoclientsofPacific&Atlanticfor$6.0meach.TheseweretheFrisiaAller,FrisiaAlster,FrisiaIllerandFrisiaInnall1,114-teuSPDayang2007excepttheFrisiaInn2008.
InJunelastyear,NSBNiederelbewasreportedtohavesolditsBuxharmony2,702-teuHowaldtswerkeWerft2007toclientsofSITCfor$14.25mwhile,inMay,ThomasSchultewasassociatedwiththesaleofitsVictoriaSchulte2,478-teuAkerOstsee2005toMPCContainersfor$11.8m.MPCwasalsoreportedinMarchasthebuyeroffive1,200to1,500-teuvesselsbeingtheSimaPerfect,SimaPrestige,SimaPride,SimaSadaiandSimaSapphireallbuiltatPeeneWerftanddeliveredbetween2004and2007.ThesellerwasSimatechShippingandtheenblocpricewasquotedas$41.9m.
InFebruary2018,MPCwasthereportedbuyerof12shipsfromtheAhrenkielfleetrangingfrom1,300to2,800-teuthatwerebuiltinChinaandKoreaanddeliveredbetween2006and2012foranenblocpriceof$139.5m.InJanuary,MPCwaslinkedwithatrioofsistershipsbeingtheCamellia,DahliaandVioletall2,824-teuHMD2006fromNautilusHoldingsatunitpricesrangingbetween$10.5mand$10.9m
each.Lastly,inearlyJanuarylastyear,ReedereiO.MartenwasreportedtohavesoldtwosistershipstoAtlanticaShippingfor$7.5meach.TheyweretheO.M.AgarumandO.M.Iridiumboth2,007-teuSPZhejiang2008.
Newbuilding ordering
LatestnewsisthatMaerskLinehassecuredleasefinancingfor13newfeedercontainershipsof2,200-teueach.FiveofthesewillbebuiltatJiangnanShipyardinChinaandownedbyICBCFinancialLeasing.Thereportedunitpriceis$20meachtobecharteredbyMaerskonunknownterms.AnotherfiveunitswillbebuiltatImabariinJapanandafurtherthreeunitswillbeconstructedbyZhoushanChanghonginChina.ThedeliveriesarescheduledfromQ42020toendQ22021.TheyareintendedforMaerskLine’sintra-Asiatradeandwillreplaceolderlessefficientcharteredandownedtonnagethatwillbephasedoutoverthenextfewyears.Assuch,thismoveisintendedasfleetreplacementandongoingoptimisationratherthanaddingnetnewcapacity.Maerskplansnonewordersoflargevesselsbefore2020anditaimstokeepitsoverallfleetsizeataroundthe4.0m-teumark.ThisorderwinforJiangnanfollowsfour2,400-teuunitsthatitsecuredinJanuary.ThesewereplacedbyAtlanticGenevaforchartertoSinokorMerchantMarineandarescheduledfordeliveryin2021.
Regional trade changes
MaerskBroker’sanalysisofyear-on-yeargrowthinregionalcontainervolumesbyimportregionshowsanoverallslowergrowthtrend.EuropeanandMediterraneanimportswereup4.5%in2017andbyasimilar4.3%in2018.NorthAmericanimportswereup5.2%in2017followedbyastronger6.5%in2018.EastandSouthEastAsianimportswereup4.5%in2017andbyaweaker2.6%in2018.SouthandWestAsianimportswere4.5%strongerin2017followedbyaweaker2.0%growthratein2018.SubSaharanAfricanimportswereup8.2%in2017followedby5.9%in2018.Oceaniaimportsweresteadyat3.3%inbothyearswhileCentralandSouthAmericanimportswereup6.8%in2017followedby4.0%in2018.Inaggregate,thisequatedto4.9%globalimportgrowthin2017followedbyaslower3.7%growthratein2018.Meanwhile,for2019,Clarksonprojectsmain-lanetradegrowthof1.9%andnonmain-lanetradegrowthof5.1%.ThisisallsubjecttochangewhileweawaittheoutcomeoftheongoingSino-UStradediscussions.
Top ten trades
MaerskBroker’sanalysisofyear-on-yeargrowthinthetoptentradesshowsasimilaroverallslowdown.EastandSouthEastAsiatoEastandSouthEastAsiawasup4.1%in2017followedbyafirmer4.8%in2018.EastandSouthEastAsiatoNorthAmericawasup4.8%in2017followedbyastronger6.4%in2018.EastandSouthEastAsiatoEuropewasup4.5%in2017followedbyaweaker2.2%in2018.NorthAmericatoEastandSouthEastAsiagrewby1.7%in2017onlytoshrink5.9%in2018.EuropetoEastandSouthEastAsiawasup5.7%in2017butcontractedby2.3%in2018.EastandSouthEastAsiatoSouthandWestAsiawasup4.2%in2017onlytoshrink3.3%in2018.EuropetoEuropewas4.0%upin2017followedbyafirmer6.5%in2018.EuropetoNorthAmericarose8.3%in2017and6.3%in2018.EuropetoSouthandWestAsiawasup1.3%in2017and2.2%in2018.Finally,EastandSouthEastAsiatoCentralandSouthAmericarose7.9%in2017followedby3.5%in2018.
Weaknesswasdetectedontheback-haultradesintoEastandSouthEastAsiafrombothNorthAmericaandEuropewhichweresignificantlyaffectedbyChina’simportbanonvarioustypesofwaste.Otherwise,importsintoIndiaandWestAsiafromtheFarEastwerealsonegativelyimpactedbyweakerdemand.IntraFarEasttraderemainedstrong,risingto4.8%in2018from4.1%in2017,andhead-haulFarEasttoNorthAmericaroseto6.4%in2018from4.8%in2017.TherewasamajorboosttoeastboundTranspacifictradesinthelastquarterof2018asUSimportersrampedupactivityaheadofanticipatedtariffhikesonaraftofChinesegoods.Head-haulFarEasttoEuropetradedisappointedin2018asithalvedto2.2%after4.5%in2017,aforwardindicatorofweakereconomicgrowthandlowerconsumerspendingacrossmostofEurope.Forinstance,Germangrowthfelltojust1.5%in2018whilstItalyslippedintotechnicalrecessioninthelasttwoquarters.
Consolidation and oversupply
Afterconsolidation,thetoptenrankingofcontaineroperatorshaschanged.StillinfirstplaceisMaerskLine,furtherenlargedhavingtakenoverHamburg-Süd,with4.04m-teudeployedofwhich2.41m-teuisowned.InsecondplaceisMSCwith3.26m-teudeployedofwhich1.29m-teuisowned.Thesetoptwocarriersarelinkedviathe2Malliance.InthirdplaceisChinaCoscowhichhasshotuptherankshavingtakenoverCSCLandOOCL.Ithas2.77m-teu
Despite depressed freight rates arising from the oversupply of
megaships there is still no cessation of orders for such units, just
a slowdown. It is made easier by the appetite of Chinese financial
leasing companies to own such ships against long-term leases.
In an uncertain demand environment, with protectionist trade wars
threatening to escalate, it is important to keep managing net new
supply down to a minimum. Consolidation amongst the mainline
container carriers should help this process.
Shipping Markets Outlook 2019Shipping Markets Outlook 201962 63
deployedofwhich1.97m-teuisowned.InfourthplaceistheimaginativeFrenchcarrierCMACGMwith2.63m-teudeployedofwhich1.15m-teuisowned.GermancarrierHapag-Lloydisinfifthplacewith1.63m-teudeployedofwhich1.04m-teuareonitsownbooks.ThenextfiveplacesaretakenbyONE(thelongawaitedJapanesemergerofNYK,MOLandK-Line),thenTaiwan’sEvergreenandYangMing,nextSingapore’sPILandfinallySouthKorea’sHMM.HyundaiMerchantMarinetookoverthemantleofquasiSouthKoreanstatecarrierafterthedemiseofHanjin,butnotbeforeitnarrowlyavoidedbankruptcyitself.Nowitisbusyexpandingitsfleetwiththehelpofstatefinancing.Ithasthelargestorderbookofanycarrierat20shipsaggregating398,400-teu.Thisismorethantwicethesizeofitscurrentownedfleetcapacityof192,291-teu.
Intermsofshipsonorder,attheendofFebruaryandbeforethelatestannouncementsMaerskhadonlythreeshipsonordertotalling34,048-teu.Itplanstokeepitsfleetataroundthe4.0m-teumark.MSChas11shipsof242,000-teuonorderwhileCoscoalsohas11of159,382-teulinedup.CMACGMhas15unitstotalling214,500-teuwhilefifthplacedHapag-Lloydhasnothingatallonorder.ThetopfivecharterownersareSeaspanwith0.91m-teuunderownership,Costamarewith0.49m-teu,C-POffenwith0.47m-teu,ShoeiKisenwith0.40m-teu(and0.48m-teuonorder)andBoComLeasingwith0.36m-teu.Maerskowns2.6-timesthecapacityofthelargestcharterowner,Seaspan,provingthatthecarriersstillhavetocarryalotofassetsonthebalancesheet.TheriseoftheChineseleasingcompaniesseesBoComLeasingappearinfifthplaceintheranksofcharterownerswhilecompatriotMingshengBankisintwelfthplace.
Thematically,thecontainershipsectorcontinuestobeover-orderedandover-tonnageddespiterecentroundsofconsolidationthathaveseenMaersktakeoverHamburg-Süd,CMACGMtakeoverAPL,andCoscoabsorbOOCL.Itisacaseoftopdownoversupplywherebyeachcarrierattemptstoreduceunitcostsbyapplyingthelargestpossibleshipstoanygivenroute.Thiscascadesunsuitablylargeshipsontoothertradelanes,depressingratesonthoseroutes.Theprocessinevitablyinvolvesorderingnewandlargershipsandtheendresultislowerunitfreightonallthemaintradelanes.Despitedepressedfreightratesarisingfromtheoversupplyofmegashipsthereisstillnocessationofordersforsuchunits,justaslowdown.ItismadeeasierbytheappetiteofChinesefinancialleasingcompaniestoownsuchshipsagainstlong-termleases.Thisenablesthecarrierstomodernisetheirfleetswithoutputtingtoomuchstrainonthebalancesheet.However,theavailabilityofsuchfinancingiscontributingtooversupplyasitpanderstodemandforeverlargerships.
No.1Chineselessor,ICBCLeasing,isreportedtohaveadded$3.2billionofnewbusinessin2018whileNo.3,CMBLeasing,issaidtohaveadded$1.5billionofnewbusinesstoitsbooks.Itisnotclearwhethersuchlarge90%LTVloansareavailableintheconventionalbanksector,withoutwhichtheseshipsmaynotgetorderedinthefirstplace.Thus,
onecanseehowtheleasingcompanies,intheireffortstowinnewbusinessandsupportChineseshipyards,areperpetuatingovercapacityanddepressingfutureearnings.RecentordersgeneratedsomeconcernsattheMarineMoneyShanghaiconferenceinearlyMarch2019.MinshengFinancialLeasingsuggestedthatthelendingparametersbeingapplieddonotmatchtherealfundamentals,withthelessorsactuallyexceedingthelevelthattheircreditstatuscansupport.Themainlinecarriershaverecentlyenduredsometoughoperatingyearsoflowearningsandyettheystillhaveaddedcapitalexpenditure,increasingpressureontheirbalancesheets.MaerskLineistheonlycarrierwithaninvestmentgradeBBBratingfromS&P.
ItisreckonedthatChineseleasingcompanieshaveover$50billioninshippingassetshavingenteredtheshippingsectorasrecentlyas2007,althoughactivityhasreallysteppedupsince2013.Themarketleaders,ICBCLeasingandBocomLeasing,pushedtheirshippinginvestmentportfoliosabovethe$10billionmarkin2017and2018respectively.Aftermorethantenyearsofprolificgrowth,andtheentryofnonfinancialinstitutionssuchashedgefundsandprivateequity,traditionalbankfinanceisabouttoreturn.Lendingmarginshaverisentomorerespectableandcompetitivelevelswhilethemainshippingsectorsareatacyclicallowpoint.TraditionalshippingbanksarelikelytoincreasetheirlendingtoshippingatatimewhenChineselessorsreducetheiractivity.Manyearlyleasingdealskeptalltheriskswiththelessorsandalmostnonewiththelessees.TypicaloperatingleasesinvolvedhighLTVfinancing,flexiblecharterperiods,generouscalloptionsandanabsenceofputoptions.Theoptionalitywasallormainlyontheoperator’sside.Thisischangingastheleasingcompaniesgainexperience.Asfortraditionallenders,thecostandtermsofborrowingareexpectedtorisewhichwillactasawelcomedeterrenttoborrowersandhelptodiminishsupplysideexpansion.
Shift to LNG
CMACGMstartedtheshifttodualfuelLNGpropulsion,andisinvestingevenmorecapitalinleapfroggingIMO2020andlookingfurtherforwardtonewglobalcarbonrulessettotakeeffectfrom2050.CMACGMisfittingLNGmembranetankstoaseriesofnine22,000-teuships,withfivebeingbuiltatHudongandfouratSWSinChina.Eachwillhavean18,600-cbmGTTMarkIIImembraneLNGtankandwillbepoweredbyWinterthurlow-pressure,two-stoke12x92DFengineswhose12-cylindersareratedat63,840kWat80rpm.Totaliscontractedtosupply300,000tonnesperyearofLNGfuellingtothesenineshipsviaaspeciallybuiltbunkertankerthatcanbepositionedinNorthWestEuropeontheAsia-Europetradelaneonwhichtheywilloperate.TheLNGBVwillbe18,600-cbmandwillbeownedjointlybyTotalandMitsuiOSK,managedbyMOSKandbuiltatHudong.
Thelatestexampleofdual-fuelshipsalsoinvolvesCMACGM.ICBCFinancialLeaseandCMBFinancialLeasingarereportedtobefinalisingaseriesoften15,500-teuships,tobe
builtatCSSCshipyards,withfiveforeachbank.ReportssuggestthatfiveunitswillbebuiltbyHudongwithanLNGdual-fueloptionatmorethan$130meachandtheotherfivewillbebuiltbyJiangnanwithhybridscrubbersfittedataround$110meach.Theinexcessof$1.2billionorderwillbefinancedwithahigh90%leverageratio,meaningloansofover$1billionandequityaslowas$120million.FrenchcarrierCMACGMwillbethebareboatchartererforatermofovertenyearsatwhichpointitwillbeobligatedtobuytheshipsatapre-agreedstrikeprices.Suchafinancialleasestructureremovestheresidualvalueriskfromthelenderandleavesitexposedonlytoperformancerisk.
Coscoissaidtobelookingatevenlargershipsofupto25,000-teuthatwouldbedeployedoneast-westroutes.ThedesignsideisbeingdonebytheShanghaiShipandShippingResearchInstitute(SSSRI)anditisregardedtobeofstrategicimportanceasitwillsupportthemaritimeelementofChina’sBeltandRoadInitiative(BRI).Therearetworeasonswhythisupwardshiftmaynothappen.ThefirstisinCMACGM’sbackwardstepfrom22,000-teuto15,500-teushipsasperitslatestorders.Thismaybetacitrecognitionthatthereisstillaneedforshipsclosertothe15,000-teusizewhichcanoffermuchgreateroperationalflexibilityasthe22,000-teuunitsarecurrentlylimitedtoeast-westroutes.TheotheristhattheUS-ChinatradeconflicthaschangedthepublicperceptionofBRI.ChineseinvestmentinandfinancingofinfrastructurealongthemaritimerouteisgoodbothfortherecipientcountryandforChina,asitfacilitatesresourceextractionandexports.ButiftheborrowingnationfailstorepaytheloansfromChinesepolicybanksthendebtforequityswapscanseetheChinesestate
becometheownerofcriticalinfrastructure.Forexample,inDecember2017aChinesestate-ownedcompany,ChinaMerchants,tookcontroloftheSriLankanportofHambantotaplus15,000acresofsurroundingland.Itwassurrenderedundera99-yearleaseaftertheSriLankanstatewasunabletorepayextensiveloansfromChina.Theporthadbeenbuiltbystate-ownedChinaHarbor.
Analternativetodebtfinancingisequityfinancingintheformofforeigndirectinvestment(FDI).AgoodexampleisSriLanka’sColomboPortCityprojectthatwasstartedinlate2014.ThisisoneofmanyexamplesofChineseforeigndirectinvestmentflowingintoSriLankanseaports,airportsandhighwaysusingChineseconstructioncompaniesbackedbystatefinance.ChineseFDIhasalsobeenflowingintoPakistan,theMaldivesandBangladeshwhicheffectivelyencirclesIndiawithChineseinfluence.ForChina,dominanceoftheIndianOceanisakeypartofits21stCenturyMaritimeSilkRoadinitiative.Whenfinished,itsColomboPortCitywillrivalDubaitothewestandSingaporetotheeastasaregionalhubforfinance,tradeandtourismanditwillenableChinatoaccessandworkthemarketsofthevastIndianSubcontinent.ThelatestnewsisthatItalyhasnowendorsedtheBRIandthisprovidesChinawithagatewayintoEurope.ThisisaverysensitiveissueastheUSisthreateningEuropeancountriesthatuseHuawei5Gtechnologyofbeingcutofffromintelligencesharing.TheUSisconcernedaboutthesecurityrisksofworkingwithaChinesetechnologyprovider,evenonethatistoallappearancesaprivatecompany.Globaltradeisintheprocessofbeingheavilypoliticised.
Shipping Markets Outlook 2019Shipping Markets Outlook 201964 65
149 150
183
223
137
309
185
140
50
100
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2012 2013 2014 2015 2016 2017 2018 2019
No of
Vess
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0
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60
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100
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160
180
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Inde
x
SH Price Index NB Prices Index
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
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er Da
y
16,000
Q1-2016
Q2-2016
Q3-2016
Q4-2016Q1-2
017
Q2-2017
Q3-2017
Q4-2017Q1-2
018
Q2-2018
Q3-2018
Q4-2018
Q1-2019TD
7,131 9,035 12,311
0
2,000
4,000
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er Da
y
16,000
Q1-2016
Q2-2016
Q3-2016
Q4-2016Q1-2
017
Q2-2017
Q3-2017
Q4-2017Q1-2
018
Q2-2018
Q3-2018
Q4-2018
Q1-2019TD
7,131 9,035 12,311
0
200
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0
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4,000
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12,000
14,000
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er Da
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16,000
Q1-2016
Q2-2016
Q3-2016
Q4-2016Q1-2
017
Q2-2017
Q3-2017
Q4-2017Q1-2
018
Q2-2018
Q3-2018
Q4-2018
Q1-2019TD
7,131 9,035 12,311
149 150
183
223
137
309
185
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2012 2013 2014 2015 2016 2017 2018 2019
No of
Vess
els
The Containership Market The container market is still suffering from top-down oversupply despite consolidation. The carriers are still ordering ever-larger ships to reduce unit costs and gain market share.
The Chinese financial leasing companies have deployed major capital to the container sector while state carrier Cosco seems determined to expand in support of its Belt and Road Initiative.
The tramp sector looks more promising from a supply perspective, implying rising time charter rates. Overall, supply and demand balance is improving, but better on some routes than others.
1. SCFI Comprehensive freight index : a poor five years…
3. NB prices have become expensive relative to SH values.
2. …TC rates, however, have been increasing.
4. Last year, there were fewer SH deals compared with 2017…
SCFI Comprehensive indexSource: CRS, Hartland Shipping
Containership NB vs SH pricesSource: CRS, Hartland Shipping
Clarksons containership earnings indexSource: CRS, Hartland Shipping
Containership secondhand salesSource: CRS, Hartland Shipping
5. …and NB contracting has been on the rise.
6. However, the orderbook has been in gradual decline…
7. …resulting in the lowest OB/Fleet ratio since records began.
Containership contractingSource: CRS, Hartland Shipping
Containership orderbookSource: CRS, Hartland Shipping
The containership orderbook/fleet ratioSource: CRS, Hartland Shipping
0
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6,0007,0008,000
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Shipping Markets Outlook 2019Shipping Markets Outlook 201966 67
8. Demolition levels disappointed in 2018 with higher net deliveries compared with the last 2 years.
9. Most deliveries are the smaller feeder up to ULCV… 10. …with demolition almost entirely below 6,000-teu.
11. The supply and demand outlook is in balance, but the challenge remains embedded historic oversupply.
Containership deliveries vs demolitionsSource: CRS, Hartland Shipping
Containership deliveries by sizeSource: CRS, Hartland Shipping
Containership demolitions by sizeSource: CRS, Hartland Shipping
Containership supply and demand balanceSource: Alphaliner, Hartland Shipping
Chartbook
Our chartbook sets out a graphic illustration of how the container market
has evolved in recent years.
TheShanghaiContainerisedFreightIndex(SCFI),ameasureofChinaexportfreightratesacrossacomprehensivebasketofroutes,hashadaturbulenttenyears.Forthefirstsixyearsfrom2009theindextradedmostlyabove1,000pointsandthenforthefouryearssince2014ithastradedalmostentirelybelowthe1,000pointline.Itisagoodreflectionofthesupply-demandbalanceandinrecentyearssupply,especiallyofthelargestships,hastendedtoexceeddemand.Averagetimecharterrates,asmeasuredbyabasketoftypicalsmallertrampships,haveimprovedsteadilyoverthepastthreeyearsrising27%from$7,131dailyin2016to$9,035perdayin2017andthenupanother37%to$12,311dailyin2018.TheSecondhandPriceIndexhaslooselyfollowedtheSCFIinaweakeningtrendfrom2012.However,theNewbuildingPriceIndexpartedcompanywiththeSecondhandPriceIndexfromaround2010whenrisinginputcostswerereflectedinhighernewbuildingpricesdespitetheweaknessinsecondhandearningsandvalues.
Thenumberofconcludedsecondhandcontainershipsalesdealshasdeclinedinrecentyearsfromapeakof309transactionsin2017to185in2018.Conversely,thetighteningregulatoryenvironment(IMO2020,ballastwatermanagementandemissionscontrols)hasencouragedinvestmentinnewshipsthatcanincorporatecompliantsystemsratherthanaddressthecomplexityofretrofitting.Thenumberofnewcontainershipordershasincreasedfrom99in2016,to141in2017andto204in2018.Theaverageunitsizeoftheseordersrosefrom2,984-teuin2016,to6,060-teuin2017andto6,092-teuin2018.Inspiteofthispatternofincreasedordering,thetotalorderbookitselfhasbeeningradualdeclinesince2016asthepaceofdeliverieshasexceededtherateofnewordering.Thetotalorderbookofcellularcontainershipshasdeclinedfrom4.06m-teuin2016,to3.30m-teuin2017,to3.00m-teuin2018andto2.76m-teubyendFebruary2019.Theannualaveragecontainershiporderbooktofleetratio,at12.8%today,isthelowestsincerecordsbeganin1996,andiswelldownontheall-timepeakof60.8%in2008.
Since2015,deliverieshavebeenrisingwhiledemolitionhasbeenfalling.Atotalof1.66m-teuofcellularcapacitydeliveredin2015,followedby0.91m-teuin2016,1.17m-teuin2017and1.29m-teuin2018.Meanwhile,demolitionfellfrom0.65m-teuin2016,to0.40m-teuin2017andto0.12m-teuin2018.Giventhemoremodernprofileoflargerships,demolitionhasbeenlimitedinrecentyearstoshipsgenerallyunder6,000-teu.Inearly2019,70%oftheorderbook(2.01m-teuoutof2.89m-teu)comprisedshipsof12,000-teuandlargerwhileinthepastthreeyearsthefeedersizesupto3,000-teuhaveseenthehighestnumberofshipdeliveriesofanysegment:67in2016,78in2017and92in2018.Incapacitytermsthisamountedto96,180-teuin2016,126,784-teuin2017and159,479-teuin2018.Thiscapacityincreaseinthesmallerfeedersizeswasdwarfedbythelowernumber,butmuchhighercapacity,ofshipsof12,000-teuandover:29unitsof475,640-teuin2016,43unitsof732,013-teuin2017and52unitsof895,705-teuin2018.
Thecontainermarketcollapsedin2009,onlytobouncebackverysharplyin2010,sincewhenithasbeenaconstantlychallengingmarket.Supplygrowthhastendedtoexceeddemandgrowthinmostyearsapartfrom2016and2017.In2019and2020weshouldseedemandgrowthnarrowlyexceedingsupplygrowth.However,wemustbearinmindthatsomestructuralovercapacityexiststhatneedstobeburntoffbeforeearningsandvaluescanreallymoveupstronglyfromwherewearetoday.Inanuncertaindemandenvironment,withprotectionisttradewarsthreateningtoescalate,itisimportanttokeepmanagingnetnewsupplydowntoaminimum.Consolidationamongstthemainlinecontainercarriersshouldhelpthisprocess.Thereisprobablynotmuchscopeforfurtherconsolidationafterrecentmergers,sotheemphasisshouldnowshifttoimprovingservicelevelsandraisingreturns.Inwhatisstillafragmentedindustry,whatisrequiredandwhatisdoneareoftentwoquitedifferentthings.
-1,000
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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019f 2020f
DemandSupply
Shipping Markets Outlook 2019: Containership Market 69 Shipping Markets Outlook 201968 Shipping Markets Outlook 2018: The Newbuilding Market
Shipping Markets Outlook2019 Edition
Appendices
Conclusion
All three main sectors face relatively benign supply growth over the next
two years. This delivers a perfect opportunity for supply and demand to
achieve better balance and for earnings and values to rise.
Thekeyfeatureisthatorderbooksareathistoricallylowpercentagesofthetradingfleets.Regulatorychangeshouldfurtherrestrictfleetgrowthasshipsaretakenoutofservicetoretrofitscrubbersandballastwatertreatmentsystems.Thecostofsuchretrofittingwillbetoomuchforcertainsizesofgenerallysmallershipsandthatshouldincreasetherateofdemolition.TheIMO2020rulesonlimitingthesulphurcontentinmarinefuelareprobablyoneofthebiggestgamechangersinthehistoryofshipping,althoughwearenotyetentirelyclearontheintendedenforcementproceduresoronthedegreeofflexibilitythatmightbepermittedintheearlyimplementationstages.Thehighercostoffuelwillalmostcertainlyextendandenhanceslowsteamingwhichwillreduceeffectivetonnagesupply.
ThedemandsideisatpresentcloudedbyUSinitiatedtradewarswithitsneighbours,EuropeandAsia–and,
inparticular,China.Apartialortotalresolutionwillgiveaboosttotheglobaleconomyandtoseabornetrade.Regardlessofthisbigissue,wearestillexpectingpositivedemandgrowthinallthreesectorswiththeextentofthatgrowthlargelyconditionedbyUSgovernmentpolicy.Thecurrentadministrationprefersplayingtothecrowdovergettingthingsdone.PlayingtocrowdsbringsusbacktoPaulMcCartney.AsweproceedalonganduptheLongandWindingRoadwehopetoreach,nothisHighParkFarm,butthefabledsunlituplandsofabettermarket.Wehopetolingerthereforawhile,andenjoythewarmththatthiswillbring,beforewegooverthebrowofthehillanddowntheotherside.Boththesupplyanddemandsidesoftheequationfaceadoseofuncertaintybut,ifallworksoutinourfavour,thenweshouldhavesomegoodtimesaheadofus.
Shipping Markets Outlook 2019Shipping Markets Outlook 201970 71
AppendicesThis document has been prepared by Hartland Shipping Services Limited
and is being made available to a limited number of recipients for general
information purposes only.
TheinformationcontainedinthisdocumenthasbeenprovidedbythesourcesreferencedhereinandhasnotbeenindependentlyverifiedbyHartlandShippingServicesLimited.Exceptinthecaseoffraudulentmisrepresentation,noresponsibilityorliabilityisacceptedforitsaccuracyorsufficiency.Norepresentationsorwarrantiesaregivenastotheachievementorreasonablenessof,andnorelianceshouldbeplacedon,anyprojections,estimatesforecastsortargetscontainedherein.Any projections, estimates, forecasts and targets are not a reliable indicator of future performance.HartlandShippingServicesLimiteddoesnotundertaketoprovideanyadditionalinformationortoremedyanyomissionsinorfromthisdocument.
Thisdocumentisconfidentialandmayonlybeusedforthepurposesdescribedabove.ThisdocumentmaynotbedistributedwithouttheexpresswrittenagreementofHartlandShippingServicesLimited.AllcontactandanyquestionsrelatingtothisdocumentmustbedirectedthroughthefollowingpersonatHartlandShippingServicesLimited:
NigelBPrentis Director/HeadofShippingConsultancy HartlandShippingServicesLondon E-mail:nigel.prentis@hartlandshipping.com
Byacceptingthisdocument,recipientsagreetobe boundbytheforegoinglimitations.
Informationinthisdocumentwaspreparedasof15March2019.
A Note on Sources
Thisreportnecessarilydrawsonawiderangeofsources,includingourownresearchandnetworkofcontactsandcorrespondentsworld-wide.Anumberofthirdpartysourceshavealsobeenused,includingArgusFundamentals,AXSAlphaliner,theBalticExchange,ChinaIronandSteelAssociation(CISA),CIAFactbook,ClarksonResearchServicesLtd,ContainerisationInternational,theEconomist,Equasis,theFinancialTimes,FISIronOreSwapsReport,HSBCBankplc,HSBCGlobalResearch,theInternationalEnergyAgency,theInternationalGrainsCouncil,InternationalMonetaryFund(IMF),Lloyd’sList,Lloyd’sShipping
Economist,Lloyd’sRegister-Fairplay,MaerskBrokerContainerCharterMarketMonthly,MoneyWeek,MorganStanley,NationalBureauofStatisticsofChina,OrganisationofPetroleumExportingCountries(OPEC),PetroleumEconomist,ThomsonReutersDatastream,ThomsonReutersEikon,UnitedNationsConferenceonTradeandDevelopment(UNCTAD),USDepartmentofAgriculture(USDA),USDepartmentofEnergy(EnergyInformationAdministration),WorldBankGlobalEconomicProspects,WorldSteelAssociation.Wegratefullyacknowledgeallofthese.
A Note from Clarkson Research Services Ltd
ClarksonResearchServicesLimited(CRSL)havenotreviewedthecontextofanyofthestatisticsorinformationcontainedinthecommentariesandallstatisticsandinformationwereobtainedbyHartlandShippingServicesLimitedfromstandardCRSLpublishedsources.Furthermore,CRSLhavenotcarriedoutanyformofduediligenceexerciseontheinformation,aswouldbethecasewithfinanceraisingdocumentationsuchasInitialPublicOffering(IPOs)orBondPlacements.ThereforerelianceonthestatisticsandinformationcontainedwithinthecommentarieswillbefortheriskofthepartyrelyingontheinformationandCRSLdoesnotacceptanyliabilitywhatsoeverforrelyingonthestatisticsorinformation.
InsofarasthestatisticalandgraphicalmarketinformationcomesfromCRSL,CRSLpointsoutthatsuchinformationisdrawnfromtheCRSLdatabaseandothersources.CRSLhasadvisedthat:(i)someinformationinCRSL’sdatabaseisderivedfromestimatesorsubjectivejudgements;and(ii)theinformationinthedatabasesofothermaritimedatacollectionagenciesmaydifferfromtheinformationinCRSL’sdatabase;and(iii)whilstCRSLhastakenreasonablecareinthecompilationofthestatisticalandgraphicalinformationandbelievesittobeaccurateandcorrect,datacompilationissubjecttolimitedauditandvalidationproceduresandmayaccordinglycontainerrors;and(iv)CRSL,itsagents,officersandemployeesdonotacceptliabilityforanylosssufferedinconsequenceofrelianceonsuchinformationorinanyothermanner;and(v)theprovisionofsuchinformationdoesnotobviateanyneedtomakeappropriatefurtherenquiries;(vi)theprovisionofsuchinformationisnotanendorsementofanycommercialpoliciesand/oranyconclusionsbyCRSL.
Shipping Markets Outlook 2019 Edition
About us
Shipping Markets Outlook 2019Shipping Markets Outlook 201972 73
About us
WeareHartlandShippingServicesLimited.WebeganinHongKongin1981asWardleyShippingServices,awhollyownedsubsidiaryofWardleyLimited,themerchantbankingarmoftheHongKongandShanghaiBankingCorporation.In2001webecameHSBCShippingServices,awhollyownedsubsidiaryofHSBCBank,oneoftheworld’sleadingfinancialservicescompanies.InAugust2012anagreementwasreachedwithHSBCforthebusinesstobesoldtomembersoftheseniormanagementteam,andthecompanywasrenamedHartlandShippingServicesLimited.AspartofthesaleHartlandhasbeenretainedtoprovideshippingconsultancyservicestotheHSBCGroupworldwide.
Our services
Ourshipbrokingservicesinclude:
• Newbuildingcontracting• Second-handsaleandpurchase• Drycargochartering• Tankerperiodchartering
Ourresearchandconsultingservicesinclude:
• Marketresearch• Vesselvaluationandfleetanalysis• Commercialduediligence,corporateand assetrestructuring
• Feasibilitystudiesandbusinessriskassessment• Bespokeconsultancyprojects
Wewelcomeyoutocontactuswithregardtoanyoftheservicesweoffer.
Contact usLondonOffice 28BedfordStreet CoventGarden London WC2E9ED
Telephone:+442030771600 Fax:+442072409603 E-mail:snpuk@hartlandshipping.com newbuild@hartlandshipping.com chartuk@hartlandshipping.com consult@hartlandshipping.com
ShanghaiOffice Suite2113,HSBCBuilding 8CenturyAvenue Shanghai, 200120
Telephone:+862120280618 Fax:+862150120694 newbuild@hartlandshipping.com
SingaporeOffice 85ACircularRoad Singapore049437
Telephone:+6567020400
www.hartlandshipping.com
Shipping Markets Outlook 2019Shipping Markets Outlook 201974 75
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