Weekly Briefing: Bulk is a box sideshow | Dry S&P sizzles | Tankers await 2022 fizz
Lloyd’s List’s weekly headline view of the stories shaping the key shipping markets
Yes, technically you can carry a box on a cape, but throwing a few containers (if you can find them) onto a boxship (if you can find one) will not relieve the situation. The real money this week is to be found in secondhand dry tonnage, currently outstripping newbuildings for prompt delivery. No such luck in the tanker market, despite an additional 400,000 barrels per day from Opec, but those who can survive until 2022 will see the tide turn, finally
The difficulties faced by shippers in finding space for their cargo during peak season have become so acute that some cargo owners are taking extraordinary steps to find capacity.
Two of the US’ largest importers, Walmart and Home Depot, have recently said they are chartering their own vessels to secure space for containers. There have also been reports of dry bulk vessels, even including massive capesize bulkers, being chartered to carry containers.
Details are few and far between, however. Neither Walmart nor Home Depot want to give details of their plans, and some of the rumours regarding dry bulk vessels have been just that. Star Bulk, identified by some sources as having secured a charter for one of its capesizes to carry containers, denied this had happened.
High freight costs, poor reliability and a lack of space make it understandable that some cargo owners might look to DIY shipping. The realities, however, soon become apparent.
While chartering a ship may provide access to capacity, it won’t ease the terminal congestion at either end of the supply chain, nor the shortage of drivers, rail capacity or warehouse space in the inland supply chain.
It is that congestion that is that is leading to high freight rates, equipment shortages and delays. This week saw yet another record being set outside the ports of Long Beach and Los Angeles, with 47 boxships at anchor or drifting awaiting berths.
There are simply not enough ships in the fleet to make up for the number that are taken out of service by delays caused by port closures, such as those in China, or congestion, such as that in the US.
The lack of capacity has driven carriers to become the biggest buyers of secondhand tonnage this year, as they scramble to acquire anything that floats, pushing up the prices of ships.
The delays also affect the supply of equipment. Hapag-Lloyd, which this week ordered another 75,000 teu of dry containers, said an increase in the normal turnaround time of its boxes from 50 days to 60 days meant it need a 20% larger fleet.
Throwing a few containers (if you can find them) onto a boxship (if you can find one) will not relieve the situation. Nor will further clogging ports with bulk carriers not designed to carry containers.
In a crisis, the urge to do something — anything — is powerful. In this crisis, however, the best response may be to do nothing and just wait until it resolves itself.
Secondhand prices have doubled over the course of the year as owners battle to pick up prompt tonnage that would allow them to cash in on the strong market.
The Baltic’s latest S&P assessment shows values for a five-year-old capesize have surged 38.1%, while panamaxes are up 41.4% and handysizes have increased by 52%.
For the past few months, Chinese owners have been leading the charge, hoovering up handys and supras wherever they can be found, and the competition is not expected to calm down any time soon. Secondhand prices are forecast to continue climbing for the remainder of the year, leaving some willing to pay more for available old tonnage than they would for a newbuilding.
Such is the excitement about the returns offered in the spot market in 2021 that S&P activity in the first eight months of the year have already exceeded 2019-20 for all sizes apart from capesize. More than 550 dry bulk vessels changed hands in the first six months of this year, according to Maritime Strategies International, which is a big jump from the 600 vessels involved in sales and purchase transactions in both 2020 and 2019.
The strong dry bulk market is also hindering scrapping, despite high steel prices. According to Lloyd’s List Intelligence data, 72 units representing 7.2m dwt have so far been removed from the bulker fleet. That is way below last year’s demolition level. The biggest number came from the 35,000-60,000 dwt size category, at 18, followed by 14 each in the 10,000-35,000 dwt size and the 60,000-100,000 dwt range, the data showed. Bulkers in excess of 200,000 dwt were next, with 12 removals in the year to August.
Those focused on current tanker market activity trading sideways at bottom levels for yet another week could be forgiven for not wanting to get too excited just yet over forecasts of fortune yet to come.
After all, as Hurricane Ida was disrupting tanker movements in the US, owners of very large crude carriers were idling ships in Asia to avoid cash-burning voyages, such is the effect of the prolonged market depression that is still being keenly felt across all asset classes.
According to Lloyd’s List Intelligence data at least 39 unladen VLs were anchored off Malaysia and the Malacca Strait this week.
The Organisation of the Petroleum Exporting Countries and its allies see sufficient demand ahead to hike their collective crude production by 400,000 barrels per day in October, sticking to plans to easing back on their historic output cuts.
That is welcome, of course, but the requirement for four additional VLCCs a month is hardly a champagne popping moment.
As Gibson pointed out in its latest market report unless scrapping levels bounce back, it is highly unlikely that if current market conditions continue there will be any prospects of tanker earnings lifting from their present doldrums.
But look ahead, quite far ahead, and there are genuine reasons to be cheerful.
Global oil supply and demand is finally rebalancing and 2022-23 is shaping up nicely.
With the inventory destocking cycle almost finished, Cleaves Securities head of research Joakim Hannisdahl expects a significant surge in demand, with supply similar to 2019.
“Looking at 2022, it is potentially going to be one of the best demand-growth years on record for oil tankers,” he said this week.
While Cleaves is offering precious little detail on the timing of any purported inflection point, it is close it argues. Given the fleet is at least 10% bigger than 2019 owners should probably temper expectations of revisiting the $100k+ a day rates seen in 2019, but $50k-60k for a VLCC in the fourth quarter of 2022 is not beyond the realms of possibility.