Weekly Briefing: Box capacity cheaper to buy than rent | Capes eye $50,000 per day | Tankers down, but not out
Lloyd’s List’s weekly headline view of the stories shaping the key shipping markets
Containership capacity may be in short supply but with charter rates skyrocketing and periods lengthening, it is cheaper to buy than to rent. In dry bulk, capes could head towards $50,000 a day and other bulker segments are also getting a boost. It’s just tankers where we have failed to find a positive angle yet again. Sadly, there’s no end to the dismal news, and certainly no sign that the vaccine-led rebound promised at the start of 2021 is going to arrive shortly
IN the overheated container shipping market capacity is in short supply. Every piece of steel that floats has been deployed, drydockings are being delayed and ships due for a final voyage to the beaches of Chittagong are being pressed back into commercial service.
Mediterranean Shipping Co’s solution to the capacity crisis has been to buy ships. Any ships. In the past 12 months it has spent over $2bn on buying any tonnage it can get its hands on.
It appears to matter not to MSC how old, small, inefficient or expensive those ships are. If they are buyable, it will buy them.
There is a sound logic to its moves, however. With charter rates skyrocketing and periods lengthening, it is cheaper to buy than to rent.
And with rates at stratospheric levels, the ships will have earned their inflated costs back within a few voyages. If the boom continues through 2022, as most expect it will, they will have earned a tidy sum.
And when normal service resumes, they can be sold off at a capital loss or sent to the yards having served their purpose, which was to make lots of money.
The earnings strength of vessel assets can be seen on the transpacific trade, where carriers are piling into the US demand goldrush with all the capacity they can throw at the insatiable market.
The trade, which was formerly dominated by the big three alliances, has become more fragmented as carriers add more non-alliance services and new players enter the market. Non-alliance services had doubled since pre-pandemic, and now accounted for more capacity on the trade than two of the large alliances.
Carriers operating on the trade have reason to cheer the US consumer. HMM managed to turn around a $32m loss in the first half of last year to a $311m profit this year. Taiwanese rival Yang Ming did even better, bringing in $1.2bn in the second quarter alone.
Both carriers warned, however, of continuing disruption in the supply chain.
Nor are the problems set to be resolved any time soon. Hapag-Lloyd warned that it sees no reduction in demand until at least the first quarter of next year, and even that estimate may be pushed out again, with congestion and disruption in the supply chain lasting for at least another six months.
The global supply chain, already hanging on by a slender thread, looks set to continue to struggle for many more months.
The capesize market is experiencing something of a resurgence given higher activity out of Brazil to the extent that some participants are speculating whether $50,000 per day can be reached.
US-based Breakwave Advisors mooted the idea in a note this week, given that the spot market has breached $40,000 per day twice in less than four months without a “significant” drawdown in between. It thus remains optimistic for near-term rate gains.
It is not just capes that look bullish — other bulker segments are also getting a boost — namely from port congestion in China, which, according to Lloyd’s List Intelligence data, has seen 230 bulk carriers at anchor outside northern Chinese ports, while another 239 wait outside Ningbo and Shanghai, which have been closed due to coronavirus cases.
Norden, which issued the best quarterly results in six years, cited an incredibly strong dry bulk market for a fifth revision upwards to its full-year profits guidance. The company spoke of pent-up demand, inefficiencies related to the pandemic, and port congestion as reasons for the rising market. It expects the rates strength to continue through to the end of the year.
The bad news continues for the black sheep of the shipping markets. It’s safe to say that the Delta variant has kicked any rates recovery for the global fleet of crude and product tankers into the long grass — perhaps even into 2022.
Earlier this year, there were expectations of a vaccine-led tanker rates rebound in the final six months of 2021. As the vaccine rollout slowed, forecasts were recalibrated, with the timing deferred to the final three months.
The Delta variant has arrested demand growth, with a raft of oil market fundamentals suggesting that the supply of tankers will continue to surpass seaborne demand well into the fourth quarter.
China is importing less oil, exporting fewer refined products and grappling with another Covid-19 outbreak.
In the US, oil imports at around 5.8m barrels per day are well below the 6.7m bpd average for 2019. Crude exports have yet to recover to pre-pandemic levels.
Neither have exports of transport and heating fuels. In the US Gulf — one of the world’s biggest exporting regions — diesel exports so far this year are 18% lower than the 2019 average, at 756,000 bpd, Energy Information Administration figures show.
Gasoline exports from the region are also down, by 8%, at 754,000 bpd.
Oh, and did we mention that Europe is awash in diesel that’s been shipped from the Middle East and Asia where falling demand has amplified the regional surplus?
There is no end to the dismal news, and certainly no sign that the vaccine-led rebound promised at the start of 2021 is going to arrive shortly.