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December 2010

News Letter - 23rd December 2010

WHAT ARE THE STATISTICS INDICATING FOR THE SHIPPING INDUSTRY?

The general economic outlook remains positive as we move towards the end of 2010 with expected trade growth of 7% in 2011; the leaders of this growth are the developing BRIC countries (Brazil, Russia, India and China). So what effect is this having on the shipping business which dominates the transport of goods and raw materials, moving over 96% of all our needs?

Crude Oil Trade

In the shipping market new building orders for bulkers continue to slow down while container orders seem to have experienced a revival. New tanker orders amounted to around 6mGT in the 3Q alone. Up until then the spot tanker market was holding up reasonably well. VLCC’s then started coming out of storage and onto the spot market which along with large scale deliveries in combination with a slower phase out of single hull tankers than anticipated resulted in a plunge in spot rates. Rates are now frequently not covering operating costs.

Based on the latest figures available seaborne trade of crude and products is expected to rise overall by 3.7% in 2010 but the tanker fleet is expected to grow by 4.3%. New build contracts in 2010 are considerably higher than in 2009 along with significant deliveries due in 2011 and 2012. The gap between the actual available tonnage and the expected needed tonnage is expected to continue to grow through to 2013 and then continue with a significant steady gap between available tonnage and required tonnage. Even with some accelerated scrapping there is no indication of this gap closing in forecasts out to 2015 – unless something radical and unforeseen takes place.

The growth in world crude demand is seen to be greatly driven by China and this could mean some increase in required tonnage due to the increased average distance the crude has to be hauled. This could help improve charter rates but China is expected to build its own fleet in order to be less dependent on foreign vessels and to keep its own blossoming ship building industry busy: so not much help there for the industry in general.

Towards the end of 2010 VLCC time charter rates were in ‘free fall’ reaching around $20,000 per day – little over half the amount these new vessels need to break even. Prices of new VLCC’s have fallen from their peak of around $160M at the end of 2008 / early 2009 to approx $105M if ordered today.

Graph1   Graph2

Dry Bulk

Dry bulk trade is expected to rise approx 5% per annum as far out as 2015 but the figures greatly depend on China (principally its iron ore imports) with India not far behind. Steel demand also means increased energy demands which spurs on coal imports, even though both China and India are major coal producers they do have to import to support their burgeoning manufacturing industries.

There was strong ordering in 2010 of 35mGT by Q3 but with accelerated scrapping and declining deliveries the gap between required tonnage and actual tonnage is expected to start to close by 2013.

Time charter rates have dropped dramatically since the peak of $150,000 per day in mid 2008 to around $35,000 per day in early 2009 a rate that has continued throughout 2010 meaning bulkers are faring much better than the VLCC fleet.

Graph3   Graph4

The Container Segment

The container market shows a somewhat different picture. After a massive peaking of idle tonnage in 2009 the idle fleet has come down to a modest 250,000TEU’s with smaller vessels making up the majority of idle tonnage. Of course these figures do not indicate the true situation as most of the larger container vessels are on the longer runs and are operating on slow steaming which has the effect of artificially increasing vessel utilisation. There has also been a strong recovery in global trade which has resulted in restocking, however as restocking diminishes and we near the end of the peak season idle tonnage is expected to rise again which could affect the charter rates.

Time charter rates have risen significantly for all sizes of container vessel with the mega vessels rising from a low of about $6,000 per day in mid 2009 to approx  $25,000 per day in 2010 however that rise has been tailing off recently.

Graph5   Graph6

So what does all this tell us?

The recovery is non-existent for VLCC’s and most other tankers and for other types of vessel it is a very slender recovery and unlikely to be sustained since even with the recovery there is still a large back log of new vessel deliveries to come out of yards in 2011 and 2012: in fact there will be more new builds entering the market in 2011 than did in 2010. Unless scrapings increase dramatically this surplus of tonnage will continue for several more years. As of the beginning of the 3rd quarter of 2010 - 7% of the VLCC fleet were single hull vessels, a percentage larger than expected a year ago. However we can expect most of these to be gone by mid 2011 or converted to storage tankers since the oil majors now refuse to use single hull tankers for their cargos.

It would seem that much of the euphoria one tends to hear at gatherings of the industry are not supported by the present statistics and maybe, just maybe, the industry at large are indulging in ‘talking the market up’ rather than looking at it realistically. Maybe there is only so much bad news that can be absorbed and the industry has reached its limit!

[Acknowledgement: graphs courtesy of Germanischer Lloyd Trend Report 2010 - Q3]

We wish our readers, contributors, clients and consultants a very merry Christmas and a safe and prosperous New Year. See you in 2011…

Carmania continues to look for more work. Our service offer includes, but is not limited to: market analysis;  project leadership;  business development; business plans and reports; agency provision;  company setup; corporate licensing assistance; CAPS surveys; close-up inspections; project management; dry-dock specifications; steel inspections; problem, accident & incident investigations; pre-purchase vessel inspections; safety and security surveys and acting as an expert witness. If you’d like to learn more drop us a line at Carmania.

Carmania Ltd. is an international business consultancy service incorporated in the UK with strong ties to Dubai, United Arab Emirates. The business was conceived and developed primarily in the maritime sector to take advantage of the expanding range of opportunities both locally within the region and internationally, on behalf of principals located predominantly externally to the region. Through our extensive network of contacts and drawing on a wealth of local knowledge and well-established commercial expertise, our company is committed to taking your business through the twenty-first century and together we can explore opportunities that can help move your business to the pinnacle of its capabilities.