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Daily Briefing October 17 2017

VLCC earnings are up over $30,000 per day and there's more upside to come

Topics

VLCC earnings are up over $30,000 per day and there's more upside to come

 

RISING oil exports from Middle East and the Atlantic basin to meet winter demand in the world's main consuming regions have boosted crude tanker spot rates across the board, with further upside expected in the coming weeks amid unabated charter activity.

The widely publicised headline of Saudi Aramco's allocation reduction by 560,000 barrels per day next month has not dampened sentiment, and some analysts said that the oil kingdom's move might actually aid tanker demand counter intuitively.

The Saudi cuts are from its customers' total requests for any particular month rather than absolute volume, said an analyst who preferred to remain anonymous. The planned Saudi exports for November amount to 7.1m bpd, up from this month's 6.3m bpd, he added.

Moreover, Arctic Securities said in a note that with the oil exporting giant's allocation cuts coming at a time when demand increases, Asian importers would seek barrels from farther afield and that would boost tonne-mile demand.

The bullishness has been pronounced on the very large crude carrier side, where high fixing activity across regions has pushed daily earnings on the TD3 Middle East-Japan route to $30,047 per day on Friday, up 23.6% on week and the highest since end-April.

Figures from Charles R Weber showed a total of 28 Middle Eastern spot fixtures last week, up 12% on week, while eight fixtures were reported in West Africa - bringing the four-week average of fixtures in the region to a three-month high.

The Gulf of Mexico saw four fixtures from the US side and one doing a two-port operation from the US and the east coast of Mexico respectively. The total number was a record high, the brokerage said.

Charles R Weber even suggested strong near-term upside, estimating a nearly "zero surplus" VLCC spot tonnage for loading in November 1-10 with 50 units available spread between 38 Middle Eastern cargoes and 13 West African ones. The TD3 earnings hit $63,989 per day when the VLCC market was last this tight in March 2016, the brokerage added.

On the demand side, refineries in Asia, Europe and the US are expected to keep imports and output high in the coming months for winter fuel demand, supporting tanker demand across the board.

Arctic Securities suggested Chinese importers may ramp up overseas purchases further before oil prices recover on falling production, with the country's imports already up 12% on year at 9m bpd in September.

With strong activity in the Mediterranean, North Sea and Black Sea regions, the average aframax time charter equivalent earnings on the Baltic Exchange jumped to $18,695 per day on Friday from the week-ago level of $8,069.
The average suezmax TCE earnings also increased to $12,489 from $9,120 in the same timespan, with demand emerging in West Africa and the Mediterranean as rises in aframax rates prompt some charterers to use the cheaper, larger suezmaxes.

Maritime Strategies International said: "The fourth-quarter outlook is looking healthy for demand and will see a major increase in refining activity, which drives our expectations of increasing spot rates across the market."

Based on the consultancy's forecast, VLCC spot earnings on the TD3 route will rise to $34,400 per day at end-December. Average suezmax earnings will be around $17,900 per day and aframax $16,200, MSI said.

Full story


 

Top stories:

BW Group says computers hit by cyber attack in July

SINGAPORE-based BW Group suffered a cyber attack on its computer systems in July this year, forcing the company to briefly go offline. 

A spokesperson said the unauthorised access had not been ransomware, which blocks user access from the computer system either via a screen lock or file lock unless a ransom is paid.

The spokesperson added that although computer systems could not be used outside of Singapore during the attack, most of the group's business segments could still communicate with clients and vessel crews via email and other online platforms.

"We take this incident seriously and have since accelerated our in-progress cybersecurity efforts," the spokesperson said.

"It was business as usual with some inconveniences as we worked around planned system downtimes as our IT department, with assistance of external consultants, reinforced our cybersecurity infrastructure."

The spokesperson did not respond to queries on whether the security breach would have an impact on the group's financial results or how long it took the group to fully resume normal operations.

The unauthorised incursion came less than a month after a substantial attack across the globe using ransomware named Petya. That affected computer systems of hospitals and other organisations, with the most visible company in the maritime space being Maersk Group.

Maersk has said its units Maersk Line, APM Terminals and Damco were affected by the virus and the cyberattack had cost the group roughly $200m to $300m on lost volume and revenue.

The increase in cyber attacks on major companies over the last few months means that shipping companies have no excuse for not being prepared and could find themselves liable should an attack result in a data breach, Holman Fenwick Willan's Toby Stephens said at the recent Global Liner Shipping Conference in Singapore.

"Don't just wait until it happens," Mr Stephens said. "If you are not prepared, how you deal with an attack will affect your bottom line."

Full story

Terminal fees and canal tolls are outstripping fuel costs for containerships

FALLING bunker costs and rising terminal handling charges have reversed the relative significance of fuel and port costs to container carriers, according to a report from analyst SeaIntel.

By analysing the published cost structures of three major container lines - Maersk Line, CMA CGM and Hapag-Lloyd - SeaIntel found that port, terminal and canal charges had risen dramatically as a percentage of operational costs, while fuel costs had fallen.

Extrapolating out across the whole industry, SeaIntel found that while bunker costs had fallen from nearly 25% of opcosts to just over 10%, port costs had risen from around 25% to over 40% of opcosts.

"In essence, this means that following a period in 2007-2012 where fuel costs were approximately as important as the combined costs for ports, terminals and canals, this then changed drastically in 2013-2016," SeaIntel said. "In 2016 we reached a point where expenses for ports, canals and terminals are 3.6 times as important as fuel costs."

The increase in the relative cost of terminal fees and canal tolls was already having an impact as carriers had rerouted some US east coast backhaul voyages south of Africa in an effort to avoid canal tolls.

Full story


  

Opinion:

Cows might fly: Jones Act is hurting US shipping

IN BRITISH vernacular English, 'pigs might fly' is a humorous expression designed to denote unlikeliness or even impossibility. It is broadly equivalent to a sarcastically-drawled 'yeah, right' on the other side of the Atlantic, writes David Osler.
Then again, it probably would not have the same rhetorical impact in a country where - thanks to shipping protectionism - cows really do take to the air.

We have it on the authority of the Washington Post that in Hawaii, the Jones Act makes it more economical to airfreight cattle to the mainland instead of sending them by livestock carrier. The combined greenhouse gas footprint from bovine flatulence and contrails does not really bear thinking about.

Now the Merchant Marine Act of 1920, to give it its full title, is back in the headlines, thanks to the plight of Puerto Rico after last month's Hurricane Maria.

The legislation, which restricts the carriage of goods between US ports to US-owned, built, flagged and crewed vessels, was widely perceived to have hampered relief efforts.

Such was the clamour that Donald Trump felt forced to announce its temporary suspension, just as he did to benefit Texas and Florida after hurricanes Harvey and Irma earlier this year, and just as his predecessor George W Bush did after Hurricane Katrina, which devastated New Orleans back in 2005.

And once a law is suspended and the sky does not fall in, the obvious question becomes, what is it doing on the statute books in the first place?

The Jones Act is a child of America's legitimate security concerns in the wake of the First World War. It is a major market anomaly, working to the detriment of shippers and consumers alike. Can it really be necessary a century later, in a world in which free trade rules the day?

Some political heavyweights, most notably John McCain, are among its sworn opponents. Together with Republican colleague Mike Lee, the 2008 presidential contender has introduced legislation that would permanently exempt Puerto Rico from Jones Act provisions.

Trade unions, grouped together in the American Federation of Labor and Congress of Industrial Organizations, are equally outspoken in its defence, as Lloyd's List reported on Monday.

As they see it, the Jones Act underwrites the jobs of the relatively few remaining US seafarers. That is a theme that would seem to chime with the instincts of the Trump administration.

What of shipowners? Well, it has to be said, a minority of them do very well indeed out the whole set-up. While it is costly to comply with Jones Act stipulations - you have to get ships built in the US rather than China, and you have to pay US rather than Filipino wages - it can be a licence to print money once you do.

However, while I have not seen polls that would prove the point, my best guess, based on conversations with US shipping people, is that majority opinion would welcome repeal.

As one told me last week, the Jones Act is screwing US shipping. His language was actually saltier than that, but you get the point.
The US-flag fleet is now down to something like 100 vessels, and however many bucks it rakes in doing what is basically cabotage, it remains absolutely uncompetitive in international trade.

Whatever the good intentions, in truth it is forcing many US owners to switch to registers such as the Marshall Islands and Liberia. In net terms, it may even be costing domestic seafarers employment opportunities they would enjoy in the event of a shipping revival.
The reality is that, if the US was truly governed by the free market principles it claims to uphold, the Jones Act would already be history, not on the cusp of celebrating its 100thbirthday.

As this publication has long contended, outright abolition - or at the very least significant liberalisation - would surely be the sensible course.

However, get ready to blow out all those candles. While it's a mug's game trying to predict what the incumbent in the White House will do from one month to the next, let alone a few years hence, there is no indication that it will be scrapped any time soon.
Apart from the insiders, all of us are worse off as a result. And cows really are flying.


 

Markets:

The vehicle carrier fleet is set to rebound

THE fleet of global vehicle carriers may have declined over the past 18 months, but with a young, efficient fleet and a succession of newbuildings on the horizon this trend will prove to be short-lived, according to Dynamar.

Dynamar's latest report analysing the deepsea ro-ro shipping segment shows that the vehicle carrier fleet fell for the first time since 2010, albeit by only 12 units, between January 2016 and June 2017. Yet the report claims this downward curve is a minor blip in an otherwise prosperous future for vehicle carriers in the ro-ro sector and concludes that there will be an expansion of the vehicle carrier fleet over the next three years.

Full market report

The handysize index has climbed to a three-year high

A BULLISH trend seems to be fully in control of the handysize bulker market, with freight rates in both the basins showing impressive gains. The Baltic Exchange average weighted time charter rate rose to $9,543 per day, up 6.4% from the week-ago level of $8,972.

 

Additionally, the Baltic Handysize Index rose for the second successive week as the market shrugged off the Golden Week holidays in China and settled at 649 points on Friday from 610 points a week ago. That was the highest level reached over the last three years and seven months.

Full market report


 

In brief:

Japan's shipbuilders appear to be in the clear on the Kobe Steel scandal

JAPAN's shipbuilding industry has not been compromised by the scandal at Kobe Steel, the government has said. The country's Ministry of Land, Infrastructure, Transport and Tourism said in a statement last Friday that it had conducted inspections to see whether metals produced by Kobe Steel had been used by the country's shipbuilders between September last year and August 2017.

While the ministry found that some 'problematic' metals had been used to produce turbocharger impellers in engines, it concluded there were no safety issues with them. There had also been some instances of aluminium plates used for small high-speed vessels, but no such incidents had been found in Japan, as far as the ministry understood. Kobe Steel had admitted last week that it falsified inspection data on about 20,000 tonnes of metal.

Full story

Qingdao Port International wants to raise $1.3bn from a Shanghai IPO

HONG Kong-listed Qingdao Port International Co plans to launch an initial public offering on the Shanghai stock exchange, looking to raise approximately Yuan8.5bn ($1.3bn) for terminal investment.

According to an IPO prospectus, the company will issue 671m yuan-dominated new shares in Shanghai, accounting for more than 10% of its total equity stake. The issuance price and date are yet to be decided. QPIC's stocks were being traded at HK$5.44 per share as of 1354 hrs on Monday, the highest level over the past year.

Full story

HMM wants to raise $620m through a new share offering

SOUTH Korea's Hyundai Merchant Marine has announced plans for a share offering to raise up to Won693.6bn ($620m) to invest in vessels and facilities. HMM will offer 120m new shares at Won5,790 apiece.

Specifically, Won400bn will be spent on improving facilities, while the rest will be used for management purposes, said the company. A Seoul-based HMM spokesperson told Lloyd's List that proceeds would be spent on the acquisition of new containers and terminals. The company was reviewing plans to order new ships though nothing concrete has been decided yet.

HMM's decision comes about a week after CK Yoo, the company's president and chief executive, told Lloyd's List that HMM would actively try to renew its fleet by ordering more eco-designed and environmentally sustainable vessels, while gradually replacing its older tonnage with such vessels.

Full story

Ten Emerald Star crew members are still missing

TEN Indian crew members of the sunken bulk carrier Emerald Star are still missing, with 16 rescued, according to India's Ministry of External Affairs. Lloyd's List earlier reported that Intercargo, the dry bulk shipowners' body, has called for a prompt investigation into the latest tragic bulker loss, which is being linked with cargo liquefaction after the vessel, laden with ore, sank in the Philippines Sea.

Full story

CMA CGM has just been given an upgraded rating from Moody's

MOODY'S Investors Service has upgraded its rating outlook for CMA CGM to positive from stable due to the shipping line's move to capitalise quickly on the recovery in the container market during the second quarter of 2017. This is "evidenced by its industry-leading [earnings before interest and taxes] margin of 8.9% compared to the next most profitable player at 6.6% (Wan Hai Lines)", said Moody's vice-president and senior analyst for CMA CGM Maria Maslovsky. 

She added that CMA CGM's ?650m ($766.4m) bond offering in June this year extended its maturity profile, while proceeds from a terminal sale due in the fourth quarter of 2017 would boost liquidity levels.

The ratings agency noted that CMA CGM's financial performance has strengthened as industry conditions improved and as it was able to tap on that growth effectively.

Full story

Ocean Rig has added $20m to its contract backlog with two more deals

NASDAQ-listed Ocean Rig UDW has added its estimated contract backlog by $20m after securing two offshore drilling deals.

The first drilling contract is with Statoil for a single-well drilling project off the coast of Tanzania. It will deploy the 2011-built Ocean Rig Poseidon to the location and start work by the first quarter of 2018. In the second deal, Lundin Norway has exercised its fifth option to extend a current contract for the 2001-built Leiv Eiriksson semisubmersible drilling rig until March 2018.

The current employment contract was scheduled to lapse by November 30 this year, according to VesselsValue.com. In light of the extension, Ocean Rig has provided Lundin with two more options to drill more wells in future and in the event that all seven single-well options are exercised, the rig may remain employed until mid-2019.

Full story

CIMC expects to be back in the black thanks to the container shipping recovery

HONG Kong-listed China International Marine Containers says it is likely to return to profit for the nine-month period ended September 30, 2017 as its box manufacturing business benefits from a recovering in container shipping.

The company is estimating a Yuan1.2bn to Yuan1.4bn ($182.1m-$212.4m) net profit attributable to shareholders for the period, compared with a Yuan189.6m loss in the year ago.

"For the first three quarters of this year, revenue and profits from the group's container manufacturing business rapidly picked up, as a result of the revitalisation of the global container shipping industry, the improvement in operation conditions for shipping enterprises and the recovery in container market demands," it said in a statement.

Full story

Kuehne+Nagel is maintaining growth momentum

SWITZERLAND-based freight forwarding and logistics giant Kuehne+Nagel saw significant market share gains through the first three quarters of 2017 across all business units, including seafreight, which reported an 8% year-on-year rise in volumes.

The group said that growth momentum accelerated sequentially in the quarters and in line with expectations, leading to improvements in operating result and in turnover revenue. K+N posted a gross profit of SFr5.1bn ($5.2bn) for the January-September period, up 4.8% on the corresponding nine months of last year. 

Full story

 

 

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