Shipping industry ups and downs

The worlds’ large-tonnage shipping continues to be experiencing pressure of low freight rates. Companies have to lay up their ships or get rid of them. On the contrary, last year leading Russian shipping companies have managed to expand their fleets with new vessels.

Dry bulk carriers

Baltic Dry Index, reflecting changes in the cost of shipping of dry commodities: metal, iron ore, coal and grain, in 2012, continued to be volatile in a narrow corridor, without any signs of strong recovery. Compared with the first working day of Index as of January 3 2012, for the year it was down more than twofold (as of December 14, 2012).

There was a nearly two times monthly average slump of the daily freight cost year-over-year in the segment of Capesize and Panamax. Handymax cost dropped by 1.5 times for Small Handy – nearly by a third.

Encouraging was some recovery in steel production in China by the end of 2012. However, many analysts say about a slowdown in the economy of China, a major consumer of bulk cargoes.

Russia still has a lot that can be exported by bulk carriers. First of all, it is coal – the demand for the commodity is growing in the world.
Meanwhile, large-tonnage dry bulk fleet of Russian shipowners is yet insufficient to meet the growing demand in shipping of export bulk cargoes. Therefore, despite the global crisis, the domestic companies continue their fleet expansion. So, on November 19, 2012 Sovcomflot commissioned the 74,000DWT Panamax bulk carrier of 1B NS Energy ice class. This was the first of two dry bulk carriers ordered by the group in the summer of 2010, the second serial vessel (NS Yakuti) is expected to join the fleet in January 2013. First of all, these vessels are designed for operations in the Baltic Sea (at the port of Ust-Luga) and Far East (at Port Vanino) for the transportation of coal.

Tankers

The situation in the global tanker market also looks bleak. Thus, the index of average VLCC tanker freight rates declined over the year and fell by 7.5% (as of November 2012). True, the figures for oil product carriers remained stable, and in several areas we saw some growth.
As Sovcomflot’s President Sergey Frank commented the situation in the international tanker market: "based on a forecast of the freight market development, we do not expect any significant improvements for the tanker industry in 2013 year. Freight rates will continue to remain low due to the negative for shipowners a supply and demand ratio in the market of seaborne oil and petroleum product shipping."

Due to the low demand, some international companies have to lay up their tanker fleet. So, Maersk in November 2012 announced that two of its VLCC tankers of deadweight of 307,300 tons, the Maersk Nucleus (built in 2007) and Maersk Nautilus (built in 2006) will be docked for 1-year lay-up.

Russia in this segment has its way – the northern one. It is related to the development of the mining operations in the country’s northern seas, which require work of the Arctic fleet of oil and gas carriers. SCF Group announced its plans for entering the market of new high-tech segments related to the development of the Arctic oil and gas fields on the continental shelf. Thus, the shipbuilding program of Russia's largest shipping company is zeroed in primarily on this segment. But not only on this. For example, in June 2012 at the International Economic Forum in St. Petersburg Sovcomflot and Citi Bank and Bank of America Merrill Lynch signed a 7-year $140m credit facility agreement to finance the construction of two VLCC tankers. The tankers will be handed over under a long-term time charter agreement to one of the world's leading oil and gas companies PetroChina International (a subsidiary of China National Petroleum Corporation CNPC).

Palmali, a shipping company operating in Russia also boosting its tanker fleet. In the summer of 2012 the company purchased the 104,400DWT Aframax tanker M/V Guneshli.

In 2012, as Mikhail Aivazov, General Director of Russian Maritime Register of Shipping (RS) said, 59 vessels have been built to the RS class and 123 newbuilds currently under construction at Russian yards will be classed to RS specifications. Of the newbuildings 70% have ice strengthened hulls, 70% are being built under the Russian flag.

The classification society believes the future is in the construction of the Arctic fleet, designed to service the northern oil fields and transport the hydrocarbons.

Containerships

There has been a positive trend in the segment of containerships. The index of containerized cargo in China for the year grew, on average, by 1.5 times (depending on the direction). Total capacity of container ships in the world fell by about 4% (in January-November). However, the situation also remains gloomy in the segment due to oversupply of tonnage, high prices for bunker fuel and the negative situation in world trade. The competition between carriers is increasing, companies are investing largely in new containerships of enhanced capacity in order to boost profitability of shipping and cut costs.

Russian transportation group Fesco, having a fleet of container ships, reported for the first nine months of 2012, the growth of container traffic on its international services to 257,707 TEUs (+13% over the same period last year).

The international shipping depends on the general situation in the world economy, which, as we know, has been going through the doldrums: its symptoms are the U.S. economy decline, the debt crisis in Europe, the slowdown in China economy.

A leading expert of Finam Management Dmitry Baranov said that the volume of international seaborne trade will show a slight increase if no geopolitical or economic turmoil happens.

"With the expansion of the ESPO pipeline and implementation of large-scale oil and gas projects in eastern Russia we may see in 2013, an increase in the transportation of various hydrocarbons from our country to the Asia-Pacific region. Also, if the global economy will be developing normally, we can expect a slight growth in shipping of various types of raw materials," said the expert.
Noteworthy, the Transport Strategy of the Russian Federation until 2030 provides for less dependence of the national economy on imports of transportation services.

"The task “70+30” for the maritime transport is not canceled, that is 70% of the vessels carrying export cargo should operate under the Russian flag, and 30% - under foreign ones," Deputy Transport Minister of Russia Viktor Olersky said at "Transport Week 2012".

Vitaly Chernov