Shipping industry isn’t quick to come up

Global shipping remained challenging in the past year. Still low freight rates and expensive bunker force ship owners “tighten belts”. However, certain stabilization is seen now, fleet oversupply is decreasing but shipping companies are determined to continue cost minimization and apply innovative solutions.

Bulkers

The market of dry bulk carriers saw a slight increase of spot freight rates in the second half of 2013. However, this growth can be called a seasonal phenomena – similar upsurge was registered in late 2012 as well while general rates of 2013 have not exceeded the level of the previous year. According to MOL, the Baltic Dry Index slightly exceeded 2,000 points in late 2013 (the level of late 2012), charter rates for Capesize vessels reached $30,000-$34,000 per day by the year end. Charter rates for bulk carriers of other types have not reached $20,000 per day (the level of 2010).

Average rates of 2013 were even more modest. Average charter rates for Capesize vessels were $14,717, Panamax - $9,515, Handymax - $10,345, Small Handy - $8,206. The Baltic Dry Index averaged 1,214 points.

Meanwhile, fundamental factors influencing the bulk shipping were somewhat more favorable in 2013. Average steel production in China was about 10% higher in 2013 as compared with the precious year. The increase of iron ore import to China was almost the same. If this trend continues we can hope for higher freight rates for dry bulk carriers.

According to MOL President Koichi Muto, it is necessary to “keep a close eye on risk factors. Possible examples include seaborne trade volume to China peaking out in the future, and a reduction in ton-miles driven by the shift to local production, local consumption, as exemplified by completed vehicles”.

Tankers

As for VLCC tankers (operating at Persian Gulf – Asia route), freight rates started decreasing from the second half of 2012 and remained low up to the last months of 2013. However, October-November 2013 saw an increase to 62 WS, which has not exceeded the highest level of the previous year though. Analysts say it was driven by the seasonal demand growth connected with the preparations to winter period in the Northern hemisphere. Average level in 2013 was 41 WS, which is below that of the previous year.

Major uncertainty factor for routes involving the Middle East is the situation related to possible lifting of sanctions for Iran.

As for another conventional route, West Africa – USA and West Africa – Asia, there is a trend of market shifting form the Atlantic to the Asian region due to oil production growth in the USA, which results in decreasing imports of West Africa’s oil. Therefore, those volumes shift eastwards and the trend is likely to continue in 2014. 

Rates for product carriers failed to improve against 2012, excluding those for USA exports. The most disappointing rates were at Persian Gulf – Asia route as they declined by the end of 2013. Average freight rates for LR carriers at the route Persian Gulf – Japan were 102 WS (against 106 WS in 2012).

However, freight rates for product carriers of LR2 class increased in the third quarter due to East-West transportation of gasoil.

In the future, market situation is to improve with the orders for new tankers. According to the forecast of Teekay Tankers, the global fleet is expected to grow by only 2.5 percent in 2013 and 1.0 percent in 2014, net of removals, which is the smallest fleet growth rate since 2002. In 2013, a majority of the orders were for Medium-Range (MR) and LR2 product tankers. 

Container carriers

The segment of container carriers is still characterized by low freight rates and high competition. The rates for Chinese cargo remains at the level of the previous year while Europe-Asia trading features high volatality. 

According to the report of Maersk Line, QIII of 2013 saw a decline of average freight rate by 12.2% to $3,012 per FEU.

Bunker prices were still high in 2013 as they stabilized at about $600 per tonne of IFO 380.

As before, the companies survive due to cost minimization, improvement of vessel efficiency and construction of container carriers with higher capacity. For example, Maersk cut the cost of container transportation by 13% with the reduction of bunker consumption by 7.8% due to use of more energy efficient engines. The company’s backlog of orders numbers 17 Triple-E vessels with total capacity of 306,000 TEUs.

Other players undertake similar measures. “The container shipping industry is undergoing profound changes, characterized by low growth and intense competition,” said Kenneth Glenn, President of APL (NOL Group). “We are pushing ahead with our strategy to sharpen our competitive edge through cost efficiency and organizational agility while building on our strong reputation for service quality... APL has significantly improved its cost position through operational efficiencies, as well as the continuing introduction of large fuel-efficient ships and the return of expensive chartered tonnage.

“In 2013, while some emerging economies showed signs of a slower pace of growth, the global economy recovered on the whole, centered on developed countries, and we saw steady growth in seaborne trade volume. As the supply of new vessels declined, the supply-demand gap for vessels gradually started to improve. However, given that excess shipbuilding capacity remains, even if freight rates rise in the next few years, the increase could be subdued. Moreover, last year large numbers of vessels were again ordered by speculative investors,” Mr. Koichi Muto commented. He also noted such risk factors as shorter contract periods, the shift of customers to Asia, and the entry of new players.

Vitaly Chernov