Bottom-level freight

After a sharp fall of the global freight market in almost all shipping segments in 2008-2009, it never really recovered having continued fluctuating at decade-old levels. No signs of stable market recovery are seen yet. Moreover, the situation is aggravated with high fuel prices and introduction of stricter environmental requirements. All that can, however, mark the beginning of a new era in global shipping.

Bulk carriers

Despite certain revival of global economies, the freight market continues fluctuating at pre-crisis levels. According to the reviews of the leading market players, it should be attributed to the commissioning of a record number of newbuilds (many of which had been ordered before the crisis) and escalated competition against the background of unstable world trade.

As for the bulk carriers, the Baltic Dry Index (BDI) is steady at the historical minimum level below 1,000 points (pre-crisis maximum was over 11,000 points). BDI reflects the change of prices for maritime transportation of raw materials: metal, iron ore, coal and grain. The index covers Supramax, Panamax, and Capesize dry bulk carriers. BDI dynamics lets the investors and market players analyze the major trends of the global demand and supply. The BDI is often considered to be a leading indicator of the future economic growth (when it goes up) or recession (when it goes down) as the raw materials have a low potential for speculative operations. 

Therefore, the freight rates for bulk carriers of all types and sizes are also at the historical minimums making some $6,300 per day (MOL data). Before 2012, a considerable volatility (especially for Capesize carriers) was seen while the previous year saw only slight changes of the freight rates staying at the minimal level. It is explained mainly by a sustainably low import of steel and iron ore by China. Taking into consideration the low demand at major sale markets (Europe, USA), the situation is not likely to change considerably. With this situation, leading shipping companies have announced the cost-saving policy, while certain companies like MOL continue putting into operation new VLOCs (of some 300,000 tons), apparently counting on the decrease of unit costs with a larger capacity.

Tankers

The situation at the market of tankers is not the same everywhere. The main lowering factor – excessive tonnage – gradually decreases its influence from the second half of 2012. The majority of tankers was put into operation in 2011-12, the tonnage growth stabilized and for the first time from 2000 a slight decrease was registered owing to decommissioning of old tankers in Handysize segment and some chemical carriers. 

Moreover, after a sharp decline in 2008-2009 the demand for oil transportation is gradually going up.  The year of 2012 saw this growth both in ton-miles and in absolute values. In the first half of 2012, the market was relatively favorable for Aframax and Suezmax tankers with low rates for oil product carriers. The second half of the past year, on the contrary, saw a considerable drop in the sector of oil tankers and the forth quarter – a gain in the sector of oil product carriers. A seasonal surge in the segment of ice-class Aframax tankers was seen from mid December.

Stabilization of the tanker fleet size is the key positive factor for 2013 though the freight rates will depend, primarily, on the relation of supply and demand for oil and oil product, which is difficult to forecast due to a political instability at the Middle East and unceasing crisis developments in the global economy. So, most probably, the year of 2013 will be characterized by quite a high volatility of freight rates in the segment of oil tankers.

Meanwhile, as PortNews IAA learnt from the market players, the situation seems to be more positive in the market of gas carriers and supply vessels servicing off-shore platforms, which is reflected by the demand for long-term projects with industrial tonnage. From all appearances, it is connected with vast plans for the development of gas condensate fields, and production of LNG as one of the most promising and environmentally friendly types of fuel.

Market players confirm that.  For example, Peter Evensen, Teekay's President, noted that the market of conventional tankers (oil and oil product tankers – ed.) was not easy in 2012 and it is expected to remain weak in 2013. 

Container carriers  

In 2012, total capacity of container carriers in the world decreased by about 1 mln TEUs or 18%, making 4.5 mln TEUs in February 2013 (MOL data). This decrease is positive for the freight market but the supply is still much higher than the demand at all major directions of container transportation, which doesn’t show any stable growth of cargo flow after the fall in 2010 (Asia-Europe route, on the contrary, demonstrates a stable decrease). 

Moreover, in 2013 the container fleet will be extended with, for example, the largest Maersk Triple E vessels with the capacity of 18,000 TEUs (all in all there must be 20 such vessels). 

‘Gigantomania’overtakes container shipping companies which are striving to decrease unit costs per one container thus improving their competitiveness. However, according to the comment provided to PortNews IAA by Aleksandr Kuznetsov, Professor of the Department of Ports and Cargo Terminals at the Admiral Makarov State University of Maritime and Inland Shipping, the construction of gigantic container carriers creates additional risks for the industry as one should be absolutely sure in their sufficient load. 

Of course, it is, probably, not so crucial for such diversified holdings as Maersk (as it can be compensated by revenues from other business segments), but is, anyway, able to aggravate the situation in the industry in case of a fall of container transportation having created the excessive tonnage which will be almost impossible to take out from the market (anchorage of a gigantic container carrier is an unattainable luxury even for the market leaders).

Taking into consideration, that the leading global economies are teetering on the brink of recessions, new slump of container flow (similar to that of 2008-2009) is quite possible.

That is why, probably, Maersk CEO Nils Andersen told the media that in his opinion, the development of container shipping market in 2013 is unpredictable.

The Chairman of OOIL, C C Tung, commented in his turn “the container transportation market continued to be challenging as the industry struggled to absorb substantial new-build vessel capacity while facing ongoing weak demand growth. Freight rates were particularly low at the start of the year but did recover over the first half and into the second half of 2012. During that period the industry was able to absorb the new capacity being delivered, but by the fourth quarter, the further deterioration in the Eurozone economies and the muted growth in the United States saw a deterioration in both freight rates and load factors as excess capacity chased inadequate demand, resulting in a disappointing end to the year.”

“Starting from around the second half of 2013, we are projecting firm seaborne trade volume centered on emerging countries, while the supply of new vessels is expected to decline - MOL President and CEO Koichi Muto says. - We believe that freight rates will start to recover in step with an improving supply-demand gap for vessels. However, Chinese shipyards and other players have significantly expanded their scale of operation in recent years. If they continue to build new vessels at a rapid pace going forward to keep running their business, this shipbuilding could weigh heavily on the recovery of freight rates. To ensure that we restore profitability based on a stressed scenario where the business environment remains extremely challenging in 2013, we must shift to a business structure that is not reliant on a recovery in freight rates.”

Bunker factor

The situation in the market of bunker fuel does not add optimism to the global shipping picture. 

First of all, after the price fall of 2008 (with price for 380CST in Singapore taken as a reference point) it quickly recovered the pre-crisis level (unlike freight rates) fluctuating between $600 and $700 per ton over the past year.

Secondly, the coming years will see the toughening of ecological requirements to fuel which is covered in details by our previous article >>>> 

This makes ship owners search for solutions to decrease fuel consumption and for alternative fuels. One of the most promising types of fuel is liquefied natural gas, especially in sulphur emission control areas (SECA). Consequently, there can be expected an outbreak of new vessels equipped with a special fuel system for its use (most probably, with a possibility to switch over between different types of fuel, such vessels are in production already). 

Besides, to reduce fuel consumption more efficient designs of vessels, engines and equipment are being developed, the deceleration tactics are being applied while the shore terminals are being connected to stationary electricity supply systems to avoid fuel consumption when moored in a port.

In our opinion, the ongoing processes bear evidence of a new era coming for the shipping industry characterized by a change of technological generations and conventional approaches to maritime shipment arrangements. The issue is who is to win and who is to lose.

Vitaliy Chernov