Peter Sand - BIMCO Bulletin


ECONOMY | PETER SAND NOVEMBER 2018 SHIPPING MARKET ANALYSIS Use tabs to navigate to pages Macroeconomics Dry bulk tanker Container Macroeconomics Adverse trade politics and rising trade barriers are challenging the industry New global export orders (goods) fell for the first time in two years, as the Global PMI indicator dropped to 49.7 in September from 50.3 in August, ending two years of solid trade growth. Moreover, the rate of expansion in production fell to a two-year low at 52.4. If we put this into a longer-term perspective, global trade grew quite slowly between 2012-2016. Is this a return to the new normal slow growth environment? It could very well be. After two years of brighter prospects for economic growth and trade, prosperity has been brought down by adverse trade politics. The trajectory is already being felt by the shipping industry. According to IHS Markit, overall business confidence for the year ahead fell to its gloomiest level for two years. This suggests that global economic growth may weaken more in coming months and quarters. As the risks highlighted by the International Monetary Fund (IMF) in its world Economic Outlook report back in April have now materialised (among them an escalation of the trade war), the IMF now expects global economic growth to stall in 2018 and 2019, staying unchanged from 2017 at 3.7%. Prosperity has been brought down by adverse trade politics 50 = no change on prior month 60 60 55 55 50 50 45 45 40 40 35 35 30 2006 30 2007 2008 2009 Manufacturing output 2010 2011 2012 2013 2014 2015 Services business activity 2016 2017 2018 New export orders (goods) Source: BIMCO, IHS Markit, JPMorgan Note: Shown above is a GDP-weighted average of the survey manufacturing and services indices. Real GDP growth by country group, year over year 10 10 8 8 6 6 4 4 2 2 0 0 -2 -2 -4 1980 82 84 86 88 90 92 94 96 98 2000 02 04 06 08 10 12 14 16 18 20 22 -4 Percentage change As global GDP growth is set to slow down, absolute trade volumes will do so too. Advanced economies are projected to have the slowest growth and, because of their high trade-to-GDP multiplier, global volumes will be disproportionately affected. Real GDP growth in emerging and developing economies is higher but, because of a lower trade multiplier, volumes will not rise much more than GDP. Chief Shipping Analyst at BIMCO Global PMI Index The ongoing trade war, which is impacting the shipping industry in many aspects, takes its toll onshore as well. Looking at the forecast for real GDP growth in the next five years, its clear that the growth of advanced economies will peak at 2.4% in 2018, followed by a slide down to 1.5% in 2023. That negative development is sharply contrasted by emerging markets and developing economies, which are set to flatten in 2019 at 4.7% and peak in 2020 at 4.9%, before dropping to 4.8% in 2022-2023. Peter Sand World Advanced economies Percentage change The effects of rising barriers to trade, capital flowing out of emerging market economies, and the elevated geopolitical risk are now clear to everyone. Emerging/developing economies Source: BIMCO, IMF, World Economic Outlook (October 2018) Note: Grey area denotes projections. This naturally brings a challenging trade outlook for the shipping industry on both sides of the world. Europe As mentioned in our last report, EU manufacturing output stabilised in July and has remained unchanged since. Despite this, the IMF revised down its estimate for GDP growth in Germany and France for 2018 and 2019. This comes on top of downward revisions in the IMFs April issue of World Economic Outlook too. In short, all the early-year optimism has now evaporated. On trade policies, the European Union (EU) is currently in the final stages of negotiating the terms of Brexit. On a more positive note, the EU has launched negotiations with Australia and New Zealand aiming to strike a comprehensive trade agreement. Trade in goods between EU and the two counterparties amounted to 56.7bn in 2017 (USD 64.5bn). Us The normalisation of monetary politics continues in the US as interest rates are raised. On 26 September 2018, the Federal Reserve (the Fed) hiked interest rates by 0.25 to reach 2.25%. From 16 December 2008 until 17 December 2015, the rate was at a record low of 0.25% the lowest Fed funds rate possible. During 2018, the rate was raised three times as the Fed projects steady GDP growth for the US. It forecasts US GDP growth of between two and three per cent, the unemployment rate, currently at 3.7%, to reach 3.5% in 2019-2020, and that there will be little inflation or deflation. A sweet spot in economic terms. Source: Chappatte, The New York Times As of early November, the US had placed tariffs on goods worth USD 250bn, in addition to other trade barriers put in place for steel and aluminium. This most recent round is particularly harmful to containerised imports from China. BIMCO analyses the trade war impacts on the shipping industry and reports on it regularly. asia Asia excluding Japan and China appears to be faring better right now than its two giants (Japan and China). But size does matter and, from a shipping perspective, we need the worlds second- and thirdlargest economies to do well in order to thrive. Being entangled in a trade war with the US, China has added tariffs to goods worth USD 113bn during 2018. As opposed to the US, China seems to respond to extra tariffs by reducing imports swiftly and dramatically. This goes for imports of crude oil, soya beans and many other commodities, some of which are and others that arent an official part of the trade dispute. In Japan, fewer new export orders have been received in August and September, while October reversed that. The decline in trade has been most evident in Asia, as new export orders have fallen in six of the past seven months April to October (source: JP Morgan/IHS Markit). In September, Chinas exports fell the most since February 2016; they have now fallen for seven straight months (source: Caixin/IHS Markit). For shipping, this could also mean the demand growth rate is peaking right now, with only limited upside left South Korea is struggling to maintain growth. The country is about to face its lowest GDP growth in 2018 (2.8%) since 2012 (2.3%) a downward spiral that is set to reach 2.6% in 2019. The massive state aid given to local shipyards and shipping companies seems like a measure to counter this slide. That measure is not welcomed by fellow shipbuilding nation Japan, which filed an official complaint at the World Trade Organization (WTO) in mid-November 2018. Outlook Global economics are facing plenty of headwinds still growing, but only to the same extent as last year and with plenty of new trade barriers being set up. For shipping, this could also mean the demand growth rate is peaking right now, with only limited upside left. If that is the case, owners and operators must prepare for this risk to materialise. As a result, focus on managing fleet growth will always be at the centre of risk management for the industry. Nevertheless, transported volumes have never been higher than they are today. At the end of October, rumours emerged that the US may put extra tariffs on all the goods that are currently left out of the trade war. This could result in the addition of USD 257 billion of Chinese goods if near-term talks to resolve the trade dispute fail. In September, worldwide manufacturers reported the first drop in export orders in more than two years, according to the PMI by IHS Markit. This is the culmination of a year that has turned sour. The main exporters in Asia Japan and China are hurting the most. Chinas exports (manufacturing PMI new export orders) have now fallen for six months in a row. This could result in a low demand growth rate on the transpacific container shipping trade lanes, to the extent that this is caused by the trade war. Manufacturing PMI new export orders 2014-2018 65 65 60 60 55 55 50 50 45 45 40 2014 40 2015 US UK 2016 Asia ex-Japan & China 2017 Eurozone 2018 Japan China Source: BIMCO, IHS Markit, CIPS, Nikkei, Caixin The negative developments have an impact on global employment of people too, where the employment growth rate faded to reach the lowest level for more than a year. This may result in a stalemate for employment. In September, the unemployment rate in the euro area was 8.1%, in EU28 6.7%, the US 3.7% and Japan 2.3%. WTO is forecasting that trade volumes will continue their downward trend in 2019. Imports into developed, as well as developing economies, are set lower, at 3.0% from 3.2% and 4.5% from 4.8% respectively. Only South and Central America are expected to increase their imports. Brazil, having fared poorly for several years, is hoping for better days following the election of a new president. Time will tell if the change at the helm will also bring prosperity. For the shipping industry, Brazil has been a mixed bag in recent years. Connect with BIMCO Facebook Twitter Linkedin YouTube Photo: monsitj / iStock and Danny Cornelissen at Quick facts Dry bulk shipping BDI weakness in Q4, as the trade war limits demand growth and demolitions stall Demand drivers and freight rates This year 2018 has delivered as promised. The improved fundamental market conditions in the first three quarters of 2018 have seen the Baltic Dry Index (BDI) rise significantly up by 24%, 25% and 41% in Q1, Q2 and Q3 respectively, when compared with the same time last year. Will Q4 go even higher? Unlikely. In October 2018, the BDI only improved by 4% compared with October 2017. The demand for Capesize is facing headwinds, with Chinese iron ore imports down by 0.5% for the first 10 months, while the Panamax long-haul trade of soya beans from the US Gulf to China is expected to fall well short of last year. Peter Sand Chief Shipping Analyst at BIMCO While the spot freight rates for all dry bulk sectors are profitable at current levels in early November, it is only little more than a year ago that this wasnt the case. Going into Q4, the unknown territory of a trade war will bring challenges for the dry bulk market. As the peak season for US soya bean exports will undoubtedly disappoint and Chinese iron ore imports renew the pressure on the dry bulk shipping market, we must not 2016-2018 120 forget that the recovery has only recently gained a foothold. 16% 100 14% 90 12% 80 10% 70 8% 60 6% 50 4% 40 2% 30 0% 20 -2% 10 -4% 0 -6% Among the minor bulks, bauxite exports out of Guinea-Bissau have been strong for the second consecutive year, while the re-entry of Indonesia as a bauxite exporter to China is also worthy of mention. Transhipments outside the Port of Kamsar has turned many of the new cargoes into capesize loadings mostly heading for the Far East and helping to ease the pain of lost iron ore cargoes. Jan Feb 2016 Mar 2017 Apr May 2018 Jun Jul Aug Sep Acc. y-o-y growth 2017 Oct Nov Dec Growth rate 110 Million tonnes Capesize freight rates have improved the most in Q3-2018 (+51% y-o-y), somewhat against the odds. Chinese iron ore imports are down, while six Valemax have started their maiden voyage from Chinese shipyards to Brazil to load the first cargo of iron ore. They bring the total new-built deliveries for the year up to 15 Valemax, with 18 still left on the order book, primarily for 2019 delivery. 18% Acc. y-o-y growth 2018 (RH-axis) Source: BIMCO, GACC Chinese soya bean imports and Brazilian soya bean exports to China Transportation of scrap metal has been strong in 2018 too. This market grew by 11 million tonnes in 2017 (+11%) with another seven million tonnes (6%) expected this year. fleet news The fragile recovery is stalling because the fleet is growing too fast When the freight market condition improves, a certain set of dynamics comes into play: new building interest increases we saw that in 2017; demolition activity cools down we have seen that throughout 2018; and, slippage to the scheduled order book comes down as new-builds are now delivered into a profitable market when compared with the previous five years. In conclusion: the fragile recovery is stalling because the fleet is growing too fast. Over the past 12 months, the total dry bulk fleet has grown by 2.5%: Panamax and Handysize fleets have grown by 2.1%, whereas the Capesize fleet has grown by 2.9%. The Handymax fleet growth has stood at between 2.3% and 2.5% for the past three months. The last time that was the case was back in January 2001. Year-to-date demolition has come up to 3.5m DWT a little more than 10% of what was scrapped in the whole of 2016. Dry bulk contracting activity Panamax Handymax Oct. 2018 Apr. 2018 Aug. 2016 Dec. 2015 Oct. 2015 Capesize Aug. 2018 0 Jun. 2018 0 Feb. 2018 1 Dec. 2017 1 Oct. 2017 2 Aug. 2017 2 Jun. 2017 3 Apr. 2017 3 Feb. 2017 4 Dec. 2016 4 Oct. 2016 5 Jun. 2016 5 Apr. 2016 6 Feb. 2016 6 Aug. 2015 7 Jun. 2015 7 Apr. 2015 8 Feb. 2015 8 Dec. 2014 9 Oct. 2014 The reason for this development may be that owners and investors expect demand outlook for larger ships to be better than that for small ships, given the industrialisation of the industry, which is going on in terminals and among customers and shipowners. 9 Million DWT October 2014 - October 2018 Million DWT Handysize bulkers seem to have fallen completely out of fashion since January 2016, when 10 ships were ordered. Interest has never been this low since records began in 1996. Since February 2016, just 63 units have been ordered, for a combined purchase price of USD 1,146 million. This price can be compared with Very Large Ore Carrier (VLOC) orders in January 2018, where four Chinese shipyards received orders for 14 VLOCs (208,000 DWT) for a total of USD 630 million. Handysize Source: BIMCO, Clarksons The continuing weakness in demolition activity also means we need to revise our fleet growth estimate for 2018 slightly up. This narrows the improvement of the fundamental balance. Where the demolition is down as a result of human nature in the shipping market (that is, not handling the supply side with care), the changes to the demand side relate somewhat to the trade war, the drought in Europe, the limitation of grain exports by Australia, and China growing its iron ore imports slower than forecasted. The fleet will now grow by 3.0%, if our revised demolition estimate of just 4m DWT (down from 5m DWT) is realised. Outlook 2014A-2020E To date, China has almost completely shied away from US soya beans 60 6% 50 5% 40 4% 30 3% 20 2% 10 1% 0 0% -10 -1% -20 -2% -30 -3% -40 -4% 2014A 2015A 2016A To be delivered p.a. 2017A 2018F Demolition 2019E 2020E Growth rate p.a. We began the year forecasting dry bulk demand to grow by 2.8% and the fleet to increase by 1.4%. What we got instead were higher freight rates but no massive improvement in the fundamental balance. However, we still expect the industry to retain the improvements seen in freight rates in 2019, bearing in mind this requires a keen focus on fleet growth. Dry bulk ship eet growth Million DWT If we look back at how the year has developed the picture, we paint is far from rosy. BIMCO had expected that demand growth would exceed fleet growth in 2018, before balancing out in 2019 with similar growth rates for demand and supply. Growth rate (RH-axis) Source: BIMCO estimates on Clarksons raw data A is actual. F is forecast. E is estimate which will change if new orders are placed. The supply growth for 2018-2020 contains existing orders only and is estimated under the assumptions that the scheduled deliveries fall short by 10% due to various reasons and 35% of the remaining vessels on order are delayed/postponed. Looking ahead, it is vital to take note of BIMCOs early estimate of 2.9% for dry bulk fleet growth in 2020. This means that supply-side pressure is likely to be seen, as we neither expect demand-side growth exceeding 3% for 2020, nor in 2019 for that matter. Chinese soya bean imports in November and December are normally solid, but they are not the strongest months. We note that 4.7m tonnes in November 2017 and 6.2m tonnes in December 2017 were American beans. These accounted for 54% and 61% of total imports for those months, respectively. This is equivalent to 218 Handymax loads of 50,000 tonnes or 145 Panamax loads of 75,000 tonnes. To date, China has almost completely shied away from US soya beans. Any easing of the trade tensions is likely to have a positive effect on soya bean exports from the US to China, as alternative sources are scarce. In 2017, Brazil delivered the lions share of Chinese soya bean imports from non-US origins. Having exported 10.2m tonnes more to China this year already, we do not expect Brazil to export much more in 2018 as its export season has come to an end. However, it should be noted that the sailing distance between loading and discharge port is more than one month, thereby leaving room for alreadyshipped Brazilian beans to reach China this year. Connect with BIMCO Facebook Twitter Linkedin YouTube Photo: Lukasz Z / Shutterstock Quick facts tanker shipping winter is coming, random shocks can be powerful but only fundamental improvements last Demand drivers and freight rates Crude oil tanker freight rates made an exceptional comeback in October. Monthly average earnings for a VLCC in April and May were below USD 4,000 per day; in June and July, they had moved up to a still sluggish level at USD 7,000-8,000 per day; and August and September saw levels around USD 11,000 per day all in the loss-making territory. But then, October saw average earnings shoot up to USD 33,500 per day. Peter Sand Chief Shipping Analyst at BIMCO Where did that come from? In all fairness we are not sure whether this is a dead cat bounce, or winter arriving early, just as refinery maintenance has been concluded for the season. Impact has also come from the ongoing and busy typhoon season in the North West Pacific, affecting Asia at large, that has disrupted normal shipping business and may have tilted the balance in favour of owners for the time being. BIMCO had expected freight rates to improve in Q3 and Q4, but what happened with crude oil tankers wasnt foreseen. Oil product tankers are still suffering, despite somewhat higher freight rates in early November. What we do know is that, although crude oil is not an official part of the trade war, the two months of August and September have seen US exporters of crude oil seeking new buyers, as their previous number one purchaser, China, has taken zero crude oil. 60,000 55,000 55,000 50,000 50,000 45,000 45,000 40,000 40,000 35,000 35,000 30,000 30,000 25,000 25,000 20,000 20,000 15,000 15,000 10,000 10,000 5,000 5,000 0 USD per day 60,000 0 Jan. 2015 Feb. 2015 Mar. 2015 Apr. 2015 May 2015 Jun. 2015 Jul. 2015 Aug. 2015 Sep. 2015 Oct. 2015 Nov. 2015 Dec. 2015 Jan. 2016 Feb. 2016 Mar. 2016 Apr. 2016 May 2016 Jun. 2016 Jul. 2016 Aug. 2016 Sep. 2016 Oct. 2016 Nov. 2016 Dec. 2016 Jan. 2017 Feb. 2017 Mar. 2017 Apr. 2017 May 2017 Jun. 2017 Jul. 2017 Aug. 2017 Sep. 2017 Oct. 2017 Nov. 2017 Dec. 2017 Jan. 2018 Feb. 2018 Mar. 2018 Apr. 2018 May 2018 Jun. 2018 Jul. 2018 Aug. 2018 Sep. 2018 Oct. 2018 Nov. 2018 For oil products, its been unexciting all year. But that may change shortly. Earnings for an LR2 moved up to USD 12,838 by 2 November 2018, with LR1s and MRs rising only slowly. We know oil tankers often enjoy an upswing with some lag to the crude oil tankers, and this may bring a little relief to the oil product tankers in the final two months of 2018. 2015-2018 USD per day New purchasers have been found in the Atlantic Basin and, fortunately, in the Far East. The new number one long-distance buyer, South Korea, has helped in keeping tonne-mile demand almost unchanged from Julys record high. In Chinas absence, Canada has emerged as the new top buyer. Oil product tanker earnings LR2 LR1 MR Source: BIMCO, Clarksons A glut of gasoline in the Far East has brought down refinery margins, as supply has exceeded demand. This may also limit the arbitrage opportunities for oil traders, ultimately limiting demand for oil product tankers too. Crude oil tanker earnings fleet news For the oil product tanker fleet, our forecast is steady from early August with tankers being delivered as predicted and just eight MR orders, by unknown owners, having been placed at a South Korean shipyard since then. We also keep our demolition forecast intact, resulting in an estimated fleet growth of 2.4% the lowest level since 2012. More importantly, our 2019 fleet growth forecast remains fixed at 2.4%, with deliveries and demolitions both falling. Demolition expectations are unchanged, but the pace of delivery is slowly going up It is not only orders for oil product tankers that South Korean shipyards have been able to sign with owners/investors. Thanks to government support, they have landed 44.5% of all orders in 2018 to date, measured by Compensated Gross Tonnage (CGT); this is up from just 27.6% for the whole of 2017. The order book has been filled with classic South Korean trademarks of large and complex ship types, including Very Large Gas Carriers and Ultra Large Containerships. For crude oil tankers, the recent upswing in earnings caused fleet growth to rise earlier than expected. Demolition expectations are unchanged, but the pace of delivery is slowly going up. BIMCO expects the crude oil tanker fleet to increase by 0.9% in 2018. Looking into 2019, much depends on the level of demolition. Following three low months of ordering activity from June to August, September saw owners and investors showing a renewed interest in crude oil tanker tonnage. The combined order for 1.7m DWT of Suezmax (5) and Aframax (8) was the highest since June 2017. Oil product tanker eet growth 2014A-2020E 12% 10 10% 8 8% 6 6% 4 4% 2 2% Outlook 0 0% Can we expect a normal winter market for tankers where rates go up as demand for shipping increases? What we saw in October was positive, but there is likely to be volatility this winter as geopolitical issues have been piling up. However, we expect some positive seasonality to return, after last years absence. -2 -2% -4 -4% BIMCO members can find easy-to-use graphics on fleet development for all shipping sectors, including oil tankers, here. Million DWT 12 2014A 2015A 2016A To be delivered p.a. 2017A 2018F Demolition 2019E 2020E Growth rate p.a. For the 12 months ending 1 November 2018, fleet growth was pretty much flat: 0% for the VLCC sector, -0.2% for the Aframaxes, and +0.4% for the total crude oil tanker fleet. Among the oil product sectors, the fleet of LR2s has increased by 4.5%, LR1s by 2.5% and the MR/Handy sector by just 1% a total of 2.2% for the oil products tanker fleet. Growth rate (RH-axis) Source: BIMCO estimates on Clarksons raw data A is actual. F is forecast. E is estimate which will change if new orders are placed. The supply growth for 2018-2020 contains existing orders only and is estimated under the assumptions that the scheduled deliveries fall short by 10% due to various reasons and 30% of the remaining vessels on order are delayed/postponed. Crude oil tanker fleet growth The US has granted waivers to its sanctions against Iran to eight countries including, Japan, India, Italy and South Korea, all of which are among the top 10 buyers of US crude oil. Initially, the impact will be that oil exports out of Iran will continue. In the medium term, it will matter how much oil imports are waived and whether it is a fixed volume, or one that must be gradually reduced. A large proportion of Iranian exports go to Asia two-thirds to India and China alone. The price of crude oil has gradually slipped during October, a development signalling that supply is again running ahead of demand 2016-2019E 0.7 0.7 0.6 0.6 0.5 0.5 0.4 0.4 0.3 0.3 0.2 0.2 0.1 0.1 - - -0.1 -0.1 -0.2 -0.2 -0.3 -0.3 2016 OECD 2017 2018F Non-OECD (ex China, Other Asia) 2019E China Other Asia Source: International Energy Agency (IEA), BIMCO The International Energy Agency (IEA) has revised its estimates for global oil demand down for both 2018 and 2019. This is because of trade concerns, weaker economic outlook, higher prices and a revision of data. Despite that, Q4-2018 is expected to deliver the first quarterly oil demand exceeding 100m barrels per day (bpd) at 100.2m bpd. For 2018, the IEA expects the OECD to increase its oil demand by 0.3m bpd and non-OECD by 1m bpd (out of which China takes 0.5m bpd and other Asia 0.4m bpd). For 2019, the IEA expects the OECD to raise oil demand by 0.1m bpd and non-OECD by 1.3m bpd (China and other Asia to expand by the same rate as in 2018). The price of crude oil has gradually slipped during October, a development signalling that supply is again running ahead of demand. Both the IEA and the US Energy Information Q4-2018 and H1-2019. Connect with BIMCO Facebook Twitter Linkedin YouTube Photo: AvigatorPhotographer / iStock Million barrels per day Elsewhere in the world, Libya is scaling up production and the US has set a record for crude oil exports to all nations other than China for seven months in a row. World oil demand growth by region Million barrels per day On top of the already low visibility into the demand for oil and, subsequently, tankers, we see changing trade lanes caused by the US sanctions on Iran. A shift away from Iran primarily to other Middle Eastern exporters doesnt change trading patterns much, as barrels will be switched with heavy sour crude oil of a similar quality. Quick facts Container shipping Slow growing demand is a constant challenge Demand drivers and freight rates Some 13.7 million TEU were shipped globally in September, bringing the full year total up to 125.2 million TEU. While that is an improvement of 4% for both the month (year on year) and year to date, the growth rate has been slowing for the past six months (source: CTS). We have seen solid growth rate on the Far East to Europe trade lane during the peak season. Volumes reached an all-time high in Q3 6% higher than in Q2-2018, and 2.5% more than in Q3-2017. For the volumes being shipped year-to-date, demand nevertheless remains very low, growing by just 1.7%. Peter Sand Chief Shipping Analyst at BIMCO The other significant long-haul and high-volume trade lane, from the Far East to North America, was much stronger, growing 7% from Q2-2018 and 4.8% from Q3-2017. 16 12.0% 14 10.5% 12 9.0% 10 7.5% 8 6.0% 6 4.5% 4 3.0% 2 1.5% 0 0.0% While spot freight rates out of Shanghai to the US East Coast (USEC) and US West Coast (USWC) have clearly improved in the third quarter, the full year has been quite solid too up 6.4% and 8.4% respectively. There is a similar story for the more-inclusive China Containerized Freight Index measurement which also takes longterm contractual rates and more ports into account with USEC up by 1.3% and USWC by 2.8%. Jan Feb Mar Apr May Jun Jul 2016 Acc. y-o-y growth 2017 (RH-axis) Aug 2017 Sep Oct Nov Dec Growth rate In the largest market of them all in volume terms, Intra-Asian volumes were down by 3.8% in Q3 from Q2 but remain up by 4.6% for the year-to-date. 2016-2018 Million TEU The impact of the trade war is also reflected in the latest container shipping data. Global demand is down from Q2 to Q3-2018 by 1.5%. Notably, both European and North American export volumes decreased from the second quarter to the third. Global demand 2018 Acc. y-o-y growth 2018 (RH-axis) Source: BIMCO, CTS Shanghai Containerized Freight Index Europe At you can always find updated news on how the trade war is affecting the main shipping sectors. US East Coast (RH-axis) Oct. 2018 Sep. 2018 Aug. 2018 Apr. 2018 Mar. 2017 0 Jul. 2018 USD per FEU 400 Jun. 2018 200 May 2018 800 Mar. 2018 400 Feb. 2018 1,200 Jan. 2018 600 Dec. 2017 1,600 Nov. 2017 800 Oct. 2017 2,000 Sep. 2017 1,000 Aug. 2017 2,400 Jul. 2017 1,200 Jun. 2017 2,800 May 2017 1,400 Apr. 2017 3,200 Feb. 2017 1,600 Jan. 2017 3,600 Dec. 2016 On 24 September, a further 22.4 million tonnes of seaborne containerised goods were impacted as the US implemented tariffs on a USD 200 billion list of goods that amounted to a further 2.24 million TEU. In total, 3.6 million TEU (10 tonnes/TEU global average) are now officially affected by the trade war. 1,800 Nov. 2016 For spot rates on the Far East to Europe trade lane, its been a bad year. On average, a TEU was being transported halfway across the globe on an ultra large containership for just USD 825; at the same time last year, it was USD 898 per TEU. A loss-making and worse level year to date in 2018. USD per TEU 2016-2018 0 US West Coast (RH-axis) Source: BIMCO, Shanghai Shipping Exchange fleet news Not since April and September of last year have we seen a similar level of containership demolition. Not that its high in absolute terms, but alone it almost doubles the amount of tonnage leaving the fleet in 2018. Eighteen ships of a combined 33,804 TEU suddenly matter. A 2004-built Panamax stands out, with the rest being 1990s-built feeders with an average capacity of 1,800 TEU. As the shipyards are generally getting less busy, slippage of the containership order book has also reduced. BIMCO now expects just over 1.3m TEU of new-built capacity to be delivered. This will bring the annual fleet growth in 2018 up to 5.8%, with a year-todate expansion of 5.4%. Container demand growth rates 2017-2018 10% 10% 8% 8% 6% 6% 4% 4% 2% 2% 0% 0% -2% -2% -4% -4% -6% -6% Far East to Far East Far East to Europe Far East to North America Europe to Far East Full year 2017 North America to Far East North America to Europe Europe to North America Year to date 2018 Source: BIMCO, CTS The two-pronged trend of deliveries remains strong. The pure split between choosing either a feeder or an ultra-large ship has been exaggerated since 2016. Only two ships out of the 150 delivered in 2018 so far, have had a cargo-carrying capacity of between 4,000 and 10,000 TEU. In 2017, only 10 of 153 ships were in that range. The pure split between choosing either a feeder or an ultra-large ship has been exaggerated since 2016 The introduction of so many ultra-large containerships into the slow-growing Far East to Europe trade lane, has resulted in depressed spot freight rates all year. Spot freight rates have ranged from USD 584 to 959 per TEU, averaging at USD 825 per TEU. Orders have been placed for 1,176,000 TEU of new capacity this year so far 476,000 TEU of it in September when eight 15,300 TEU ships and 12 23,000 TEU ships were ordered in South Korea. Of these, 82% are for ships with a capacity of 11,000 TEU or above, while 18% are for ships carrying 3,100 TEU or below. The new ships are mostly for delivery in 2020, thereby lifting our forecast above the 1 million TEU mark for that year. The outlook for fleet growth in 2019, remains manageable at the current level. If the demolition level reaches higher than 100,000 TEU, fleet growth should stay below 3% half that of this year. Outlook Container ship eet growth The trade war is firing on all cylinders now 1,750 14% 1,500 12% 1,250 10% 1,000 8% 750 6% 500 4% 250 2% 0 0% -250 -2% -500 -4% -750 -6% 2014A 2015A 2016A To be delivered p.a. 2017A 2018F Demolition 2019E 2020E Growth rate p.a. 2014A-2020E 000 TEU The trade war is firing on all cylinders now. US importers are said to be paying 50% more in tariffs in September compared with the same month last year. Two-thirds of the increase come from containerised goods. In China where predominantly dry bulk goods are targeted, imports of many commodities have been dramatically reduced. This also goes for the 7.1 million tonnes of imported containerised goods that have been hit by tariffs on Chinese imports. Growth rate (RH-axis) As the market is clearly in no need of new A is actual. F is forecast. E is estimate which will change if new orders are placed. The supply growth for 2018-2020 contains existing orders only and is estimated under the assumptions that the scheduled deliveries fall short by 10% due to various reasons and 25% tonnage, there has been a slide in the rate of the remaining vessels on order are delayed/postponed. for chartered tonnage. When measured by the Harpex index, charter rates are almost back where they started in 2018 after the solid lifts of the first four months. Smaller sizes have held on to some of what has been gained, while larger sizes such as 6,500 TEU and 8,500 TEU are now being fixed at rates below USD 10,000 per day and USD 12,500 per day, respectively. Source: BIMCO estimates on Clarksons raw data Will this change in the near term? Most likely not. What is needed to stem the drop and lift charter rates again is higher demand from cargo owners. This should, in turn, prompt some operating lines to seek larger ships to charter-in or different ship types than they currently use, to serve their seasonal requirements or a general increase in demand. At the end of October, the idle fleet accounted for 700,000 TEU (source: Alphaliner). By examining our fleet-growth estimate alone, 2019 looks like a year in which the fundamental balance can only improve. But the trade war remains the wild card here. Despite talks between the US and China to resolve the dispute seemingly on again, nothing is settled yet. Connect with BIMCO Facebook Twitter Linkedin YouTube Photo: jimmux / Shutterstock