Tortoise and Hare: Shipping’s slow race to a steady recovery

Faced with the ‘double whammy’ of the end of the China commodity demand boom and a Saudi contrived collapse of oil prices, it’s been a tough time for shipping over the past years. The obvious question of, “so what’s the future?”, is clearly on everyone’s mind. SeaBlog’s quest for the answer is often assisted by a morning review of the ‘Hellenic Shipping Times’ (HST). It’s a free daily e-publication that provides ongoing commentary from both international and Piraeus based shipping experts. Are the Greeks worth watching? They’re the beneficial owners of the world’s largest shipping fleet. No prizes for guessing the answer.

Today’s ‘Hellenic Shipping Times’ review provides a still cautious but positive scenario for the future. It also seems to be the case that caution will continue for some time yet. The primary problem being the ongoing battle between controlling overcapacity, economic development and bank subsidised shipyards that are ‘giving it away’ in terms of new build costs. This massive contradiction and the shipping cycles it generates have existed for literally hundreds of years. Despite the efforts of the WTO, they cannot be regulated away on an international basis. Nor can unpredictable shock events that sometimes occur and intensify these cycles.

HST articles that caught SeaBlog’s eye included a report from Dry Bulk Freight News on steady growth in China’s iron ore imports that are up 3.6% from the same time in 2016. SeaBlog notes a likely connection with China’s intensive drive on their ‘One Belt. One Road’ project and the associated rise of steel prices in China market. The other connected factor seems to be the reported rise and stabilisation of Capesize charter rates that are now at about USD 18,000 per day and a long and much happier way from the abysmal rates of 2016.

The Baltic Dry Index (BDI) is also up at 1,187 points marking a solid return to a + 1,000 position that seems tending towards staying that way. Good news for iron ore miners, shippers, bulk ship owners and the myriad of supporting maritime industries and services that facilitate the carriage of iron ore cargoes by sea.

News of the VLCC tanker market and its current problems with overcapacity are covered in an interview with Frontline. Their assessment being that “the market will begin to improve in 2018 as the pace of deliveries of newbuilding vessels slows and vessels are retired from the global fleet. There are nearly 110 VLCCs built in 2000 or earlier that continue to operate. This is roughly equal to the current VLCC order book. At some point in time these older vessels will permanently exit the fleet. We believe that increased scrapping is inevitable in the near term, driven by the weak spot market and the increased scrap value of tankers, which is up by approximately 50 percent year on year”.

 Other helpful news for the tanker market relates to a huge new increase in refining capacity in Vietnam in order to support the demands of its citizens and rising middle class. It seems that Vietnam’s offshore oil is now too expensive to produce and transport to its local refineries. VLCC’s will now be required to transport imported crude oil form the Middle East and other sources. The first cargo of 270,000 tonnes of Kuwait Crude has just been delivered and more is reportedly on the way. As noted by London brokers, Gibsons, “These additional barrels will soak up more VLCC tonnage on an additional route for a sector presently under pressure to absorb fleet supply.” 

 Banks and ship finance are also in HST’s news with an optimistic report from Danish Ship Finance (DSF) that the shipping industry is marching, albeit slowly, into a more prosperous future. Their assessment remarks included, “Firstly, the global order book as a percentage of the operating fleet has dropped to below 10%. Secondly, the market is generally quite upbeat about the prospects for economic growth in the coming years. Lastly, the implementation of new environmental requirements for vessels is widely expected to lead to the scrapping of older vessels on a greater scale than would otherwise have been the case”. Despite this, DSF will be focusing on stronger shipowners who have made it through the worst of the shipping crises. Hardly surprising in a world where a number of large shipping banks have been forced to sell off their ship loan portfolios at a heavy discount.

In summary, HST’s news signposts that the worst seems to be over for most shipping sectors, with the unfortunate exception of the offshore industry that is still in crisis. The issue now is for shipping to maintain momentum in a global economy that is doing better but is still subject to serious disruption from unpredictable events. There is also the predictable issue of the return of overcapacity as market excitement builds towards another deadly round of Greenspan’s now famous ‘irrational exuberance’ experience. In such circumstances, can the cautious shipping Tortoises retain their sure and steady pace towards recovery and profit or will the asset play Hares rush to build more ships in another effort to generate quick sale and purchase profits for themselves and their investors?

These shipping market issues and related topics will be reviewed and discussed during the upcoming BI Norwegian Business School/SeaProf ‘Key Elements of Shipping’ course scheduled for 10 – 12 October at the Amara Hotel in Singapore. Our speakers are all top industry professionals and academics. They bring their knowledge and personal experiences to the classroom to share and engage with course participants.

We look forward to seeing you.

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