DRY bulk vessel owners will have to start scrapping more vessels of higher deadweight tonnage in order to alleviate the overcapacity problem.
Lloyd’s List Intelligence managing director of maritime insight Christopher Palsson told Lloyd’s List in an interview that there were a large number of older ships on the water but they were very small in terms of deadweight tonnage.
“There are almost 2,000 ships built in the previous millennium but if even if i[owners] were to remove all of them, it would still be less than in the shrinking current orderbook in terms of capacity.”
He noted that as well as ships built in the previous millennium, there were also 983 ships in the current orderbook.
However, the 2,000 ships amounted to 75m dwt and the 983 vessels in the orderbook stood at 92m dwt.
“You cannot really scrap yourself to a better future, that’s the point. Shipowners can increase scrapping but it is not going to make a huge difference if you double the number of removals,” Mr Palsson said.
“You have to take them from the large sectors, the large vessels, you can do more there… if you start to increase scrapping of those.”
However, a possible problem arising from doing this was that more younger vessels would end up being demolished.
That might be fine for vessels such as iron ore carriers because their wear and tear meant they had a very limited lifespan. “But some of the mid-sized others, they could trade for quite some time, it is a shame to destroy something that is fully functioning just because it is 15 years old,” he said.
From the ordering end, Mr Palsson said that an actual recovery in the dry bulk sector could take place quite swiftly, around a year or so from now, if owners did not order more newbuildings.
“If you start thinking that if you order a ship today, it will be almost two years before you take a delivery, that takes us into 2019.”
“So if they do not start ordering now, 2019 could be a brilliant year, but I do not believe for a second that they will [do that],” he said, adding that significant ordering activity had not begun so far.
With the sector on track to hit the lowest orderbook to fleet ratio in 15-20 years, that “could be a nice breathing space for some”.
Chemical/product tankers in the same boat
Mr Palsson said that the chemical/product tankers market was facing a similar situation as dry bulk.
The segment has about 4,200 vessels built in the previous millennium, which is quite a lot of older tonnage.
But because of their lower deadweight tonnage, “even if you remove all of them, the only thing you have done is to balance out the orderbook.”
In one sense even if nearly 40% of the current fleet was scrapped, that would not really affect the market balance.
“These are involved in anything from bunkering activities to coastal or regional trade and of course they are important for that trade, but if you want to affect the global markets, in any major sense, the solution is not there, the solution is somewhere else,” said Mr Palsson. He added that in capacity terms, the vessels that would have a substantial impact on the market are larger than many of these ships mentioned above.
From the orderbook standpoint, he said it looked “pretty reasonable”, while trade in refined products could only grow further due to global imbalances.
Mr Palsson anticipated that Europe’s net deficit for diesel and gasoil would be amplified by the International Maritime Organization’s 2020 deadline for vessels to comply with low-sulphur fuel oil requirements.
“Shortage of diesel is going to increase and that is going to benefit the seaborne transport of refined oil,” he said, adding that cargoes would come from Asia, which had a net surplus, as well as the Middle East.
“The refinery capacity in Europe is falling and has been doing so for almost 10 years, so they need to take it from somewhere.”
In Mr Palsson’s view, there was no issue on the demand side for product and chemical tankers, and it was up to shipowners to decide if they wanted to upset the balance by ordering more vessels.
As for crude oil tankers, he said there was a large part of the orderbook due to be delivered next year which would take time to be digested.
But as demand continued to rise and current newbuilding ordering remained low, the crude tanker market could see signs of a recovery by the end of next year, possibly in the second half or the start of the year after.
But in the immediate term, he expected this year and most of next year to be tough for crude tankers.
“There are too many tanker owners out there that think that they are going to beat the markets but if you add all of them on top of each other, then you have a bulging orderbook and that is where we are and that’s why we do not have a great market today.”
He thinks oil prices could remain in the vicinity of $50-$60 per barrel this year, though any disruptions across the globe stemming from geopolitical tensions could lead to a price rise.
No relief for containership segment
In the boxship sector, Mr Palsson said that despite the International Monetary Fund forecasting that 3.8% global gross domestic product growth would result in 2.5bn tonnes of trade by 2021, that was not likely to extricate the battered segment from its current slump.
“As again we have a bulging orderbook which will last up to 2019, so there is no relief in the next two years.”
To its credit, the industry has done nearly everything in its power to alleviate the situation, such as lowering vessel speeds, optimising networks and absorbing tonnage.
The only thing remaining, in Mr Palsson’s view, was the continued containerisation of general cargoes, which has been taking place for quite some time.
“The more pressured they become [due to competition], the lower the price they will offer, the more cargo will find its way into a container and it rarely leaves after that,” Mr Palsson said.
“So that is why containerised cargo grows more than overall cargo growth, because it is ‘stealing’ from the other shipping alternatives, mostly general cargoes and ro-ro, and that will continue.”
Mr Palsson added that there was still plenty of cargo with the potential to be containerised, especially intra-Asia.
As for boxship lines’ consolidation trend, he thinks that is only a temporary solution to the industry’s woes.
“You can squeeze out the less efficient tonnage to the least profitable operators, put them out of business, which means at least some of the tonnage will be temporarily taken out of service.”
Mr Palsson will be speaking at the Lloyd’s List Singapore Business Briefing 2017 during Singapore Maritime Week.
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Source: Lloyds List
