Six months ago we described the shipping markets as experiencing “improvements filtering through after hitting rock bottom in 2016”. This trend has continued with the ClarkSea Index averaging $10,767/day in 2017, up 14% y-o-y, but still 8% below trend since the financial crisis. The bulkcarrier and container market picked up significantly, with earnings increasing 77% and 25% y-o-y in 2017. Conditions in the LNG carrier market also improved last year, whilst the cruise, Ro-Ro and ferry markets have remained firm. However, tanker earnings fell by another 35% in 2017, to a 20 year low, with market conditions also depressed in 2018 so far. The LPG carrier sector also remains below trend, and whilst the offshore sector appears to have bottomed out, major challenges remain.
The economic upswing we reported six months ago continues, with growth of 3.6% reported in 2017 and expansion of 3.9% projected in 2018 and 2019. There has been improved economic performance across the developed and developing world, including the maritime important Chinese economy. Improved commodity prices have also supported a number of regional economies.
Seaborne trade grew by 3.9% in 2017, encouragingly the fastest rate of expansion in five years. Volumes totalled 11.6bt, equivalent to 1.5t per capita and 85% of world trade. Our forecast for 2018 suggests trade will reach 12bt tonnes, healthy growth of 3.5% and with a tonne-mile trend of 4.1%. Dry bulk trade grew 3.7% in 2017, with 3% growth projected in 2018. Container trade is projected to grow robustly in 2018 at 5%, following expansion of 5.4% in 2017. Oil trade growth slowed in 2017, although crude tonne-mile trade expanded by 5%, with similar trends projected in 2018. Chemicals trade has picked up (5% in 2017), whilst LNG trade is projected to grow by over 10% in 2018. Risks to seaborne trade remain, including from the recent protectionist policies proposed, but there are a range of positive drivers, including underlying Asian growth, with China’s ‘Belt & Road’ programme a potentially important factor.
Newbuild ordering picked up in 2017, albeit from historical lows, with orders placed for 80m dwt. Just 150 yards took an order (ships 1,000+ GT) in 2017, down from over 600 in 2008. The orderbook now stands at 200m dwt (and $226bn), down 37% from start 2016 levels and to a manageable 10% of the fleet. ‘Non-delivery’ fell in 2017 but remained significant at 29%. Yard output is projected to slow by 20% in 2018 to 79m dwt, and by a further 14% in 2019, with further consolidation in shipbuilding capacity likely. In 2018 we expect Chinese yards to output 38% (by CGT) of global production.
Recycling activity slowed in 2017, with 35.4m dwt scrapped, down 20% from 2016. Bulkcarrier and boxship scrapping slowed alongside improved market conditions, but tanker recycling picked up and in Q1 2018 reached the highest quarterly total in almost 20 years. The world fleet, now 1.9bn dwt, is projected to grow by 2.5% in 2018, the slowest pace for 16 years, and by just 2.2% in 2019.
A record 93.1m dwt was sold on the sale and purchase market in 2017. Bulkers accounted for 50% of this volume, with strong investor interest, led by Greeks, whilst bulker and boxship values increased. Changes to the financial landscape continue to impact owners’ access to capital, while capital market activity rose slightly in 2017. Consolidation amongst owners remains an underlying trend.
Focus on the environmental regulatory timetable continues to accelerate ahead of the 2020 global sulphur cap. Uptake of scrubbers and LNG as a fuel is picking up, but most owners are still taking a ‘wait and see’ approach on both ‘timing and technology’. SOx emissions limits came into force at the start of 2018 at ports within proposed Chinese ECAs, whilst uncertainty remains over how the industry will meet carbon emission targets. Digital technology continues to develop and is expected to have an increasing influence.
Overall, whilst some shipping markets continue to face challenges, clear improvements are apparent elsewhere. At a broad level, shipyard capacity, environmental regulation, demand trends and finance availability remain key issues to monitor. While risks remain, sentiment has generally become more positive, and building blocks for further improvement seem to be in place as we move into the next phase of the cycle.