Most likely, 2016 won’t sit well with the majority of shipowners, at least in the major segments, as all of them were faced with multiple challenges for all kinds of reasons. Dry bulk took another step towards rebalancing, but is still some way off, tankers had to bear increased downward pressure as a result of increasing supply, while in the container shipping segment “all hell broke loose”, with Hanjin’s demise claiming the business story of the year. Tankers were also faced with lower freight rates this year, as newbuilding deliveries started to increase.
DRY BULK MARKET
For owners of dry bulk carriers, 2016 was perhaps more of a transitional year, with the dry bulk market closing the year significantly higher, compared to where it was a year ago (961 points Vs 478 points). This reflects the growth of the market over the course of the past 12 months, as massive number of older ships were sold for scrap, especially during the first half of the year. This coupled with minimal newbuilding orders this year, bode well for the future balance of the market, after years of downturn, mainly as a result of tonnage oversupply and slower than expected demand growth, as China has gradually slowed down.
According to Allied Shipbroking’s George Lazaridis, “the freight market may well be showing signs of heading for its downward corrective phase, with increased possibility that rates may well drop significantly over the next 2 months, but this is unlikely to deter buyers, given that their keen interest is not generated from a belief that freight rates are going to be at extraordinarily high levels within the final weeks of the year nor during the first months of 2017. There is surely no delusion as to where we stand and no one expects that we are in the clear and it’s all smooth sailing from here on out. What most seem to feel is that for the time being we have seen the worst and that given that freight levels should improve somewhat compared to the levels noted during the course of the past 12 months, prices should therefore start to better reflect this improvement. Buyers, as such, are more likely to offer more for each vessel and feel more confident to outbid their competition even if it drives up prices compared to the levels we are seeing now. The main thing still holding things back for the moment seems to be the difficulties being faced on the financing front, though given that there are still a number of buyers with “deep pockets”, they are likely to play more aggressively now in order to secure assets before prices increase by too much, while leaving to deal with financing options at a later stage, something which would in any case allow them to find better terms of financing once both freight rates and asset values have improved further”.
CONTAINER MARKET
Hanjin’s fall – and before that to be honest – has triggered a major restructuring of the market, as more and more major liners are coming together, in order to bear the downturn currently in place. More than 150 container ships were scrapped over the year, while no liner was left unscathed. Even the mighty Maersk was forced to restructure its business in order to streamline it better and be more efficient. Meanwhile, Japan’s “Big Three”, MOL, NYK and K Line announced the joining together of their container business, CMA CGM completed the acquisition of NOL, Taiwan announced measures to offer financial support of up to $2 billion to its liners, i.e. Evergreen, Yang Ming and others, in order for them to be able to sustain losses, in the aftermath of Hanjin. In all likelihood, 2017 will mark further acquisitions and mergers.
TANKER MARKET
The tanker market is perhaps faced with more challenges during 2017, as OPEC has agreed to reduce production by approximately 1.2 million b/d to a ceiling of 32.5 million b/d, effective from the 1st of January for a six-month period. This will translate to fewer cargoes from the Middle East, which in turn can be offset in part from West African routes and the Atlantic trades, but at the moment, things are pretty hazy to be able to tell for sure how the market will be impacted. Most analysts seem to agree that it’s the supply part of the equation that will force shipowners’ hand into more scrapping, as rates will likely face additional pressure, as a result of the pace of newbuilding deliveries.
In a recent note, Maritime Strategies International (MSI) said that despite the OPEC cuts having a limited negative short-term impact, there are reasons to be positive on prospects for the longer-term. Compared to other shipping sectors, the last couple of years in the tanker market have seen a distinct lack of trend. Markets have move up rapidly and then retreated at almost the same speed. Volatility and uncertainty over the shifting landscape of the oil market have been reflected and amplified in the tanker freight market. “Oversupply of productive capacity in the oil market has been mirrored by excess tonnage capacity in the tanker market. Both are now rebalancing and although fleet growth is expected to remain high in 2017, low earnings and the ratification of ballast water treatment regulations support MSI’s expectations that tanker scrapping will move sharply higher in 2017,” says MSI Senior Analyst Tim Smith. He concluded by noting that “the tanker market, like the oil market, is in a clearing phase, removing over-supply and rebalancing. That process could take another year or so before returning to a position where sustained gains can be made, but we remain positive on the long-term outlook.”
REGULATORY
In terms of regulations for global shipping, 2016 will probably go down as a “turning point”, in terms of the industry’s “modus operandi”. First, the Ballast Water Management Convention (BWM) was officially ratified, meaning that by September of 2017, all ships will have to be fit with some kind of system, treating ballast. However, the very short time frame is seen by most industry delegates as “unrealistic”, which means that IMO could very well decide to extend the deadline for at least another year or two, providing ship owners with valuable time to evaluate which would be the best system to fit on board their vessels.
However, perhaps the most important aspect of the past year was the landmark decision by IMO to put a cap on the use of high sulphur marine fuel oils by 2020, meaning that by then, the global shipping fleet will have to burn low-sulphur oil around the globe. This will translate to major changes in terms of existing and future marine engines, as well as in the field of refineries and bunkering around the world, as ship owners will have to find new procurement patterns in terms of the fuels they buy. Time will tell if such efforts and fuel availability will suffice for the industry to comply. owever, it seems that the “ball has started to roll” and there’s no turning back on this.
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Source: Maasmond Maritime
