Weekly briefing: Box demand soars | Bulk bulls are smiling | Tankers continue to wait
Lloyd’s List’s weekly headline view of the stories shaping the key shipping markets
Every containership able to sail is in demand right now as demand soars and market participants set about preparing for a long-haul to the unwinding of the current congestion. The dry bulk market is also settling into an extended period of good earnings with owners seeing a strong market for the next two to three years given low fleet growth amid a solid recovery in demand. Only the tanker owner are left waiting and waiting, and waiting for some good news to come their way
Demand for tonnage to service the high volumes of cargo being shipped globally has meant virtually every available containership has been pressed into service.
This includes some that probably should not have been, including 23 belonging to Iranian carrier IRISL, which are subject to US sanctions.
Automatic Identification System tracking data from Lloyd’s List Intelligence shows that sanctioned vessels have been openly working and even calling at European ports, despite the risk of US punishment for anyone who trades with them.
None of this will go any way, however, to solving the immediate crisis in the containerised supply chain, which continues to reel from port and hinterland congestion that is leading to a shortage of available equipment.
Speaking at the International Association of Ports and Harbours World Ports Conference, Mediterranean Shipping Co chief executive Søren Toft called for a greater co-operation between ports and carriers in an effort to resolve the situation.
But he warned that more investment would be needed too, and called for a “long-term, strategic view” to be taken on infrastructure investment.
Following the congestion at Los Angeles and Long Beach, and again in Yantian, ports have come under increasing scrutiny as the main bottleneck that was preventing the shipment of containerised cargos and sucking up large volumes of empty equipment out of the system.
Los Angeles executive director Gene Seroka, who has been on the front line of the battle to keep boxes moving, was largely in agreement. Ports needed to focus on digitalising their processes, he said.
But it is not just the US that is suffering. CMA CGM this week said it planned to stop one of its South American services calling at Le Havre for three months because of congestion and poor productivity.
The move followed a similar announcement by The Alliance that conditions at Rotterdam had forced it to skip seven scheduled calls to the port.
THE dry bulk market has some positivity about it with owners seeing a strong market for the next two to three years given low fleet growth amid a solid recovery in demand.
Executives from five companies pegged supply growth at 2%-3% compared with demand in tonne-miles at 5%-7% this year. Asset prices also had room to move up with estimates ranging from 10% up to 75% in the most bullish scenarios.
Klaveness head of research Peter Lindström described the higher earnings as a “pre-dawn”. He expects demand growth to exceed a fleet expansion during the next few years, although the current strong freight rates may incentivise ordering new ships. However, the uncertainty surrounding future fuels will likely limit contracting, while yard capacity is filling up with containership orders. The average lead time between orders and delivery in recent years has been more than 24 months, which means that time is running out for orders with delivery in 2023.
The strong dry bulk market has led Norden to raise its full-year profits guidance for the fourth time this year. The Danish owner and operator now expects adjusted earnings between $140m-$200m, up from its previous estimate of $110m-$160m.
Supramax earnings have hit an 11-year high based on robust demand for cargoes such as grains and bauxite. In addition, the tightness and lack of vessel availability in the containership market, which was pushing certain products such as bagged grains, scrap and general cargo to the smaller dry bulk asset classes, was adding support.
But, how long can the dry bulk market benefit from the containerised flows to bulk? According to one container line, the peak has passed, although volumes will continue to move into bulk, breakbulk and ro-ro tonnage albeit at a slower pace. An owner of smaller, geared bulkers said that 5%-6% of the cargoes it moves from the Far East, mainly China, to Europe, the US and the west coast of South America were container goods in what is seen as an interesting new trend.
Another week, another deathly dull series non-events sailed by in the depressingly familiar tanker markets that continue to remain week. But after three consecutive quarters on the bottom, who’s counting. Or was it just that most of the deals are not reaching the market?
Many of the broker reports this week contain veiled referenced to the limited “above board” activity and that charterers are pushing stems “under the radar”. It seems there could be room for a little private bargaining which is not helping market transparency.
Regardless, the results are much the same for owners. As Fearnleys pointed out this week, at current rate levels even ships fitted with scrubbers are finding it difficult to eke out positive returns, and for those dependent on compliant fuels returns are well into negative figures.
As this week’s briefing is being written, the Organisation of the Petroleum Exporting Countries and its allies appear in striking distance of a deal on production quotas, discussing proposals that call for an output increase of about 2m barrels per day from August to December to meet recovering global oil demand.
The level of the deal ultimately agreed will be important in that it could serve to kick-start a change in fortunes for tankers, but according to the Lloyd’s List half-year outlook 2021 a substantive recovery in demand for crude and refined products is not forecast to return to pre-pandemic levels until the end of 2022 at the earliest.
Global fuel consumption is outstripping supply by 3m bpd, according to Goldman Sachs’ latest report and whatever Opec does, the market will remain tight for some time.
Opec’s own analysis shows the world’s need for its crude rising to 28.7m bpd on average in the third quarter of the year. That is about 1.5m bpd above the group’s July target, assuming Iran, Libya and Venezuela continue pumping at recent levels, according to analyst reports.
The other big uncertainty is whether Iranian crude will return to the market if the 2015 nuclear deal is revived. We will wait to see if recent rhetoric amounts to any movement there and cover that in forthcoming briefings.