Shipping Markets Outlook
2017 Edition
Contents
Introduction 6TheEconomicBackdrop 10TheDryBulkMarket 13TheTankerMarket 19TheContainershipMarket 27Conclusions 33ChartSeries 34 Global Macro Environment 38 The Dry Bulk Market 44 The Tanker Market 49 The Containership Market 53Appendices 55
Shipping Markets Outlook 2017Shipping Markets Outlook 20174 5
Foreword
OurrecentpastShippingMarketsOutlooktitlesillustratehowlongwehavebeenkeptwaitingforapostGlobalFinancialCrisisrecoveryinshipping.In2014,thetitlewas“SurvivaltoRevival”which,withthebenefitofhindsight,nowlooksprematurewhenappliedtothethreemainsectorsofbulkcarriers,tankersandcontainers.In2015,thetitlewas“StuckonAmber”whichworkedwellforbulkcarriersandcontainers,butlesswellfortankers.Theyhadaboomyearbasedaroundanextraordinaryconvergenceofslowerfleetgrowthandturbo-chargeddemandgrowth.In2016,thetitlewas“ChangingPlaces”whichprovedtoanaccuratethematicforecast.BulkcarriersembarkedonagrindingrecoveryaftertheBalticDryIndexsanktoarecordlowearlyintheyear.Tankerssawearningsandvaluescorrectfromtheir2015highswhilecontainerswerecharacterisedbymusicalchairsasconsolidationandchangingalliancesweretheindustry’sresponsetoachallengingsupply-demandbalance.
In2017,thetitleis“OpportunityKnocks”.Atthetimeofwriting,afterthefirstfewmonthsofthisyear,bulkcarriersarewitnessinganaccelerationofthehaltingrecoveryof2016,despitetheabsenceofsupportfromthefreightmarket.Manybargainshavealreadydisappearedandnowthereisanunseemlyrushtopickoverwhatisleft,pushingupvalues.Currentvaluesstillrepresentagreatopportunityastheyremainathistoricallylowlevelsaftertheworstofthefreightmarketwasleftbehindayearago.Continuedweaknessintankervalues,andlowandtemptingshipyardprices,arebeginningtocreatefairvaluebuyingopportunities.Thesamecouldbesaidofcontainerswheresub10,000-teuassetvaluescouldhardlybecheaper,takingtheirsteerfromscrapupratherthannewbuildingdown.Theopportunitiesarevisible,butsoarethepotentialknocks.Thedoorisplaintoseebutdoesitopenontoavistaorawall?Tofindoutwhichitiswemustknockonthedoor,openitandseewhatliesahead.
ThefilmproducerSamGoldwynwasquotedassaying“Nevermakeforecasts,especiallyaboutthefuture”.Shipping,withitsnumerousmovingparts,makesforecastingthemarketsadangerousgame,butaswithpreviousyearsourShippingMarketsOutlookwillhopefullyhelpsteeryouintherightdirection.MayItakethisopportunitytothankourcustomersaroundtheworldfortheircontinuedsupportandtoourstaffinLondon,ShanghaiandSingaporefortheirhardwork.Wearestilltoilingawayinadifficultoverallenvironmentandindifferentiatedsectors.Buttheopportunitiesareoutthere,thedealsarebeingdoneandtheprospectsaregettingbrighter.Welookforwardtoyourcontinuedsupportinjointlytakingadvantageoftheopportunities,aswellasminimisingtheknocks,thatarecoveringmarketwillofferupoverthecomingyears.
ChrisOhlson ManagingDirector HartlandShippingServicesLimited
Introduction to the
Consultancy Division of
Hartland Shipping Services TheConsultancydivisionofHartlandShippingServicesisaspecialisedshippingandshipbuildingindustryteam.ItprovidesdetailedsectorresearchandconsultancytoexternalclientsinadditiontoconsultancyservicestotheHSBCGrouponaglobalbasis.TheConsultancydivisionhasatrackrecordofsuccessfullycompletingshippingindustrystudiesandconsultations.Theseincludeprovidingcommercialduediligenceforinvestmentsinshippingandshipbuilding,conductingfeasibilitystudiesfornewshippingoperations,counsellingbanksonportfoliorisk,engagingincommercialrestructuring,andworkingonleadingshippingmergersandacquisitionsandequitycapitalmarketsprojects.
Researchpublicationsinclude:
• ShippingMarketsOutlook(annualpublication)• WeeklyCommentary• MarketMonitor(weeklypublication)• On-demandbespokeshippingandshipbuilding• Bi-weeklynewbuildingmarketreport
Consultingandadvisoryworkscopeincludes:
• Commercialandstrategicadvice• Feasibilitystudyandbusinessriskassessment• Commercialduediligenceforinvestments• Vesselvaluationandfleetanalysis
TheConsultancydivisionofHartlandShippingServicesaimstoofferin-depthcoverageoftheinterfacebetweenshippingmarketsandtheglobaleconomy.
Team members
Welcome to Hartland
Shipping Services
Shipping Markets
Outlook 2017
NigelBPrentis Director/HeadofShippingConsultancy E-mail:[email protected]
MaartenVandenBroeck ResearchAnalyst E-mail:[email protected]
MorganeRosec ResearchAnalyst E-mail:[email protected]
Shipping Markets Outlook 2017Shipping Markets Outlook 20176 7
“In 2016, we might wish to ignore the rise of populism, the wars, the
migrant crisis, the debt crisis, terrorism and the general sense of
political and economic uncertainty”
Introduction
2017: “Opportunity Knocks”
Insomanyways2016wasayeartododge.Themostnotablepoliticaldevelopmentsweretheadvanceoftheso-calledpopulistmovementsthatledtoanEUBrexitvoteintheUKandtoaTrumpvictoryintheUSpresidentialrace.Populismisseenasareactiontotheestablishedorder,arejectionofexpertsandelitismandabacklashagainstglobalisationthathasarguablyfavouredtheprivilegedfewattheexpenseoftheunprivilegedmasses.Thesurprising52:48voteinfavouroftheUKleavingtheEUexposedtheleaversashavingnoplan,havinghadnoexpectationofwinning.InthemonthsaftertheJunevotetherewasstillnopublicplanandthepoliticalwingriskedfallingoutwiththecivilserviceanddiplomaticcorpsthatwillbekeynegotiatorsofthedetailsoftheUK’spostBrexitrelationshipwithEurope.Intheearlymonthsof2017thegovernmenthassuggestedthat,inordertoachievethewishesofthemajorityvoters,itwillbenecessarytomakeacleanbreakfromthesinglemarketandthecustomsunionbeforenegotiatinganewdeal.IthasbecomeapparentthattheEU27hasnointentionofgrantinganyconcessionsthatmightencourageothermemberstofollowtheUK’sexample.SimilarpopularrightmovementsexistinothermajorEUmembercountriesincludingGermany,France,Italy,Holland
andSpainsotherearegoodgroundsforholdingtheline.BrexitwithallitsattendantuncertaintywillnowbeafactorineconomicgrowthacrosstheUKandEuropeforaslongasthedivorceproceedingstake.TriggeringArticle50,whichwillsettheclockrunningontwoyearsofnegotiations,isexpectedinMarch.Ifnodealhasbeensuccessfullynegotiatedwithintwoyears,andfailingtheunanimousEU27grantingofanextension,thentheUKwillleavetheEUwithoutadeal.
TheTrumpvictoryhasbeenseenasareactiontotheelitismofUSpoliticaldynastiesasembodiedbytheKennedys,BushesandClintons.DonaldTrumpmadepopularpromisesinhiselectioncampaignthatseemedtobebeyondrealisticimplementation.Sincehisinauguration,heisshapinguptodeliveronsomeofhiscampaignpromises,butthechecksandbalancesofgovernmentarelikelytoleadtowatereddownversionsofhismoreextremeplans.InhiscabinetchoicesTrumphasreplacedmembersofthepoliticalelitewithmembersofthefinancialandbusinesselite.Onemightquestionwhetherthisreallyqualifiesasdrainingtheswamp.Thestockandcommoditymarketshaveralliedontheexpectationofanewinvigoratedfiscalpolicythatwillabandonausterityinfavourofspending
onvitalinfrastructure,cuttingredtapeandrollingbackregulation.Taxesonbothdomesticandforeigncorporateearningsarelikelytobecuttoencouragetherepatriationofoverseascashpilesandstimulateinvestmentathome.OffshoredUSfactoriescouldfaceimporttariffsandthismayinfluencemanufacturerswhentheydecidewhethertolocateplantsintheUSor,forexample,inMexicoorEasternEurope.ObamacareisintheprocessofbeingunwoundandreplacedasitisregardedasanexcessiveburdenonUSbusinessesandhouseholds.WeanticipatethattraderelationswithChinamaycoolwhilepoliticalrelationswithRussiamaythaw.AtthetimeofwritingMichaelFlynn,thenewnationalsecurityadvisor,hasbeenforcedtoresignoverhisdealingswiththeRussianambassadorwhilethenewadministrationisbeinginvestigatedoveritspre-electionRussianties.Trumphadalsopromisedtore-imposesanctionsonIranwhichisconsideredtobeinvolvedinonewayoranotherinmostofthedestabilisingconflictsintheMiddleEastregion.
In2016theEUwasclearlyrattledbytheUK’sdecisiontoleaveinJune,butthereareplentyofotherthreatstotheintegrityoftheunion.WarsacrossNorthAfricaandtheMiddleEast,includinginSyria,YemenandLibya,haveprecipitatedamigrantcrisisfromsouthtonorthandeasttowest.Manyofthemigrantsarerefugeesescapingwarzones,othersareeconomicmigrantstakingadvantageofthechaosandstillothersareterroristsexploitingtheSchengenAgreementinseekingtoharmwesterncitizensandproperty.Openbordershaveeasedtheirpassageandastringofatrocitieshaveunderminedpeople’sfaithingovernmentsandthreatenedtheirsecurity.ThishasfedintoarightofcentrepopulistbacklashthatmayyetthrowupmorepoliticalsurprisesacrossEurope.Thentherearetheunfinishedconsequencesoftheglobalfinancialcrisisthatstartedbackin2007,sincewhichtimedebtburdenshaveriseninalowtonointerestrateenvironment.Asnon-performingloansareaddressed,andasinterestratesrise,morepressurewillbeloadedontotheperipheralEurozonecountriesthatwereinfocusbefore.ProblemsmayflareupinPortugalandGreecebutofgreaterconcernmaybeabankingcrisisinItalyorSpainthatcouldleadtoaeurocrisisandanalternativepathwaytoEUbreakup.NowonderBrexitisfeared,butthethreatstoEUintegrityaremuchgreaterthanBrexitalone,andthatiswhytheEU27considersthatitcannotaffordtograntanyconcessionstotheUK.
TheUS,UK,Europe,MiddleEastandcentralAsiacollectivelyaskmorequestionsthantheyanswerin2017,rampinguptheuncertainty.OutintheFarEast,ChinaisassertingitselfmilitarilywhichisprovokingJapantoreformitspostwarpacifistconstitutionsothatitcandefenditself.Lastly,NorthKoreacontinuestotestmissilesinpursuitofintercontinentalcapabilityinflagrantviolationofUnitedNationsresolutions.IranhasalsobeenrunningmissiletestsgivingrisetospeculationthatIranandNorthKoreaarecolludingonmissiletechnology.TheTrumpadministrationmaywellchoosetoratchetupsanctionsonbothcountriesinresponse.
Commoditypricessufferedfromaslumpinthefirsthalfof2016,onlytobefollowedbyastrongrallyinthesecondhalf,withcrudeoildoingbestinrisingfromalowof$27abarrelinlateJanuaryto$57byyearend.Naturalgaspricesalsodidwellinrallying60%fromstarttoend2016.Fromthebeginningtotheendof2016aluminium,nickelandcoppereachgained15-20%whilesoyabeansandsugaraveraged20%betweenthem.Thedominantdrybulkshippingcommoditiesofironandthermalcoaldoubledinpriceduring2016withironoregoingfrom$40to$80atonneandthermalcoalrisingfrom$55to$110atonne.ThisrewardedlowcostminersinAustralia,Brazil,Colombia,SouthAfricaandIndonesiathathadweatheredthestormoflowpricesbycuttingbackproductionandreducingoperatingcostsinamannerthatshouldbemuchadmired,andemulated,inshippingcircles.Currenciesmovedaccordingtoeconomicsandeventswiththepoundsterlingfalling16%from£1.47to£1.23againstthedollarin2016,largelyaccountedforbytheBrexitvoteattheendofJune,whiletheyen/dollarstrengthenedfrom¥120to¥100inthefirsthalfof2016beforeweakeningrapidlyintheQ4whenitfellfrom¥100to¥117byyearend.BoththeUKandJapansawtheirexportsbenefitfroma16-17%weakeninginthevalueoftheircurrenciestothedollarinthesecondhalfoftheyear.TheothercurrencythatsufferedanoutsizedslumpwastheMexicanpesowhichlostabout20%ofitsvalueagainstthedollarin2016asitfellfromaround17.5to21.0pesoswithmostofthedamagecausedbyDonaldTrump’shostilecampaignrhetoric.Ithasweakenedevenfurtherin2017.Finally,theChineseyuanhasdevaluedagainstthedollartothetuneofatotalof16.5%sincethestartof2014,goingfromCN¥6toCN¥7,witha6%dropachievedin2016alone.ImagecourtesyofMarineCapital
Shipping Markets Outlook 2017Shipping Markets Outlook 20178 9
In2016,wemightwishtoignoretheriseofpopulism,thewars,themigrantcrisis,thedebtcrisis,terrorismandthegeneralsenseofpoliticalandeconomicuncertainty.Wemayalsowishtoeraseshippingmemoriesinalmostallsectorsin2016asitwassuchauniversallybadyear.Ayearago,inSMO2016,weadoptedthethemeof“ChangingPlaces”,anticipatingthatbulkcarrierswouldswapplaceswithtankers.Bulkcarriersdulyembarkeduponarecoverywhiletankersundertookacorrectionandcontainersindulgedinconsolidation,mergersandacquisitionsandareshufflingoftheoldalliances.Bulkcarrierearningsandvaluesstartedfromaverylowbaseandthenwentevenlower,astheBDIhitanall-timelowof290pointson10February.Fromthestarttotheendof2016theBDIwasstillup103%from473to961pointsbut,inabsoluteterms,neitherearningsnorvaluesgainedquiteasmuchasthepercentagegainsimplied.Infact,accordingtotheBalticSale&PurchaseAssessments,a5-yearold180,000-dwtcapesizebulkcarrierwasworth11%lessbyyearendhavinggonefrom$25.3matthestartto$22.5matthecloseof2016.A5-yearold74,000-dwtpanamaxbulkcarrierstartedandendedtheyearon$13.8mleavingonlythe5-yearold56,000-dwtsupramaxbulkcarriertoregisteragain,rising12%from$12.2mto$13.6m.Itwaslessofarecoverythantheturningofacorner,andwecanfeelconfidentthatthereislotmoretocome,butwemightbeadvisedtoprepareforgruellingprogress.Themaintakeawayinthedrybulksectoristhatvaluesbottomedoutinearly2016andarenowrecovering,puttingtheworstbehindus.Valueshaverisensignificantlyinpercentagetermsbutratherlessinabsoluteterms,withcurrentvaluesstillathistoricallylowlevels,suggestingthatinvestmentopportunitiesstillexistandthatitisfarfrombeingtoolate.
2016wasevenlesskindtotankerswhichhadenjoyedunexpectedgiftsin2015courtesyofincreasedshippingdemandfromlowoilpricesthatboostedbothfinalconsumptionandcommercialandstrategicstorage.Elevatedtradingandshippingopportunitiesgeneratedportcongestionatloadanddischargeportsandvoluntary(speculative)andinvoluntary(ondemurrage)storageplays.Allgoodthingscometoanend,andsotheydidin2016.TheBalticDirtyTankerIndex(BDTI)actuallyrosemarginallyin2016,firmingalmost5%from878to919points,whiletheBalticCleanTanker
index(BCTI)slippedmarginallyfrom688to678points.Bothfreightindicesbeliedasharpfallinassetvaluesasovercapacitybecamereality,aftersuchstrongutilisationin2015,withheftynewtankersupplyonthewayfrommid2016into2017andbeyond.AccordingtotheBalticSale&PurchaseAssessments,a5-yearold305,000-dwtVLCCfell25%frombeginningtoend2016decliningfrom$79.6mto$59.6m,whilea5-yearold105,000-dwtaframaxwentdown37%from$44.9mto$28.5manda5-yearoldMRproducttankerlost26%invalueslidingfrom$28.2mto$21.0m.Thelossesonthethreetankerclasseswerelargeatinexcessof25%suggestingabighittoownerequitybutstoppingjustshortofprovidinganothersectoralheadachefortheshippingbanks.Incontrast,thenetchangeinthethreebulkcarrierclasseswaseffectivelyzero.Thetankerfallfromgracein2016wasthussomewhatgreaterthanthebulkerrecovery,soitwasnotanexactchangingofplaces.However,thesteepcorrectionintankervaluesoverthecourseof2016hascreatedopportunitiesforadventurouscashbuyersaspricesmaynotbefarfromstabilising.
Thecontainersectorhadabadyearwithfallingfreightrates,GRIsthatdidnotstickandtimecharterearningsthatsanktolevelsofaroundoperatingcostsfortrampshipsalmostregardlessofshipsizebelow8,000-teu.Thesector’sproblemswereillustratedbythecollapseofHanjinShippingandtherestructuringofHyundaiMerchantMarine,SouthKorea’slargestcontainershippinglines.ConsolidationintheformofmergersandacquisitionssawCMACGMtakeoverNOL/APLfromtheSingaporeangovernment,HapagLloydandUASCmerge,CoscoandChinaShippingconsolidatetheircontainerlines,NYK-MOL-KKKannouncealong-awaitedmergerandMaerskLineagreetotakeoverHamburgSud.ThecombinationofcollapsesandM&Aactivitycausedashake-upandreconfigurationofthealliancesthatfacilitatedtheJ3move.Allofthesechangeshavebeenexecutedfromadefensivestandpointinafightforsurvival.Orderingconstrainthasrightlybecometheorderofthedaywhilescrappingremainsvigorous.TheclassicpanamaxsizehasbeenlargelywrittenoffleadingtoRickmersdemolishingthe7-yearoldIndiaRickmers(4,250-teuNewYZJ2009)inIndiaforjust$5.35minNovember2016onlyforDoehletoscraptheoneyearyoungersisterHammoniaGrenada(4,256-teuNewYZJ2010),alsoinIndia,for$5.55min
January2017.Noteveryonehasconsignedthesetypestotherubbishbin.InearlyDecember,Seaspanbought4x4,275-teuSamsungunits(threebuiltin2009andonein2008)fromHanjinforjust$5.2meach,theequivalentofscrapvalue,presumablyinthehopethattheywillatsomepointbereprievedandthattheirinvestmentatsuchlowlevelscouldatsomepointturntoprofit.ThiswasfollowedbyKMTCbuying4x4,275-teu2008-builtSamsungunits,alsofromHanjin,for$5.25meach.Thesebuysmayyetprovetobevisionarywithanydownsideriskslimitedtoidletimeandafallinscrapprices.
Wehavemovedonfrom“ChangingPlaces”in2016to“OpportunityKnocks”in2017,withmostoftheopportunitiesbeingintheshippingspaceandmostoftheknockssetintheworldofpoliticsandgeopolitics.Theshippingopportunitiesflowfromthebombed-outbulkcarrierandcontainersectorswhichhavedestroyedassetvalues.Whenthesemarketsturn,asbulkersarealreadyandascontainersbumpalongthebottom,thenrecoveringearningswillquicklyfeedintohigherassetvalues.Thisprocesshasalreadystartedandonelessonthatwehavelearntfromthepastisthatthemostelusiveelementismarkettiming,whenexactlytomakethemove.Timingthebottomofthemarketisnighonimpossiblesoinvestmentsneedtobewellfundedwithstrongworkingcapitaltocopewithaslowrecoveryandunpredictabletake-off.Theknockswepotentiallyfacefromevents,politicalandgeopolitical,arealmosttoomanytoimagine.Maybethatiswhytheworldhasadoptedacomplacent‘itmayneverhappen’approachasthedoom-mongershavebeenwrongformanyyears.Forthatreason,thereistheriskthattheymayactuallybegettingclosertobeingright.Inthemeantime,investorshavemadestaggeringreturnsfromstockandbondmarketsandfromthecommoditypricecyclerecovery.Interestrateshavebeenforecasttogoupforyears,andyettheyhavenot,butnowtheyareclosertorisingasdebtbuildsupandinflationscreepsup.Thefixedincomespecialistshavebeenplayingchickenwiththemarketforaverylongtimeandsomehavetakenafewknocksrecentlyasbondpriceshavefallenandyieldshaverisen.Trump,BrexitandEuropeanelectionsthisyeargeneratealotofbusinessuncertaintywithmuchofitrelatingtotaxes,spendingandtrade.Shipping,asalways,isatthejunctionwheretheopportunitiesmeettheknocks.OpportunityKnocks!
“Bulk carriers duly embarked
upon a recovery while tankers
undertook a correction
and containers indulged in
consolidation, mergers and
acquisitions and a reshuffling
of the old alliances”
ImagecourtesyofMarineCapital
Shipping Markets Outlook 2017Shipping Markets Outlook 201710 11
inthe2011-2015periodbutitsnappedbacksharplyin2016.Newlystartedprojectsspikedmuchhigherinearly2016asgovernmentstimulusmeasurestoboostinfrastructureinvestmenttookeffect.ThelatestreadinginNovember2016ofinexcessof26%year-on-yeargrowthinprojectstartsisencouraging.Thesefactorsfedintoariseintheimportofleadingrawmaterialsin2016withthermalcoalupover25%year-on-year,crudeoilimportsup13.6%andironoreimportsup7.5%.Theincreasewaslargelydowntothreemainfactors:risingdomesticdemand,enhancedexportsofassociatedvalue-addedproductsandadeclineindomesticproductionoftheserawmaterials.Lastyear,Chinesedomesticproductionofcoalwasdown9.4%,crudeoilproductionwasdownalmost7%andironoreproductionwas5.4%lower.China’senormousinfluenceoverglobaldemandforrawmaterialshelpedraisethepriceofcommoditiesduringthecourseof2016,havingsufferedfromtheearlierslump,thuseasingtheknock-onnegativeimpactonoilcompaniesandminers.In2016,ironorepricesrose90%,Australiancoalpricesgained65%,Shanghaireinforcingbarsrecovered59%,nickelorerose50%andShanghaicopperpriceswereup26%.Thebroad-basedBloombergCommodityIndexwasup12%in2016withChinaplayingthestarroleinhelpingtorescuecommoditypricesacrosstheboard.Oilcompanyandminingshareshavesoared.
Therateofglobaleconomicgrowthisexpectedtoaccelerateinthecomingyearsbasedupongreaterfiscalspendingafteraprolongedperiodofausteritythathasnotgeneratedmuchinthewayofgrowthmomentum.Developedmarketsexpandedby1.6%in2016andareforecastbyHSBCtotickupto1.7%in2017followedby1.8%in2018.Emergingmarketscollectivelyrose3.6%in2016andareforecastbyHSBCtoexpandby4.1%in2017and4.5%in2018.Thissetsapositiveeconomiclandscapeforshippingintheyearsaheadwithgentlyrisingdemandgrowth.Thiscanonlybeundoneonshipping’ssupplysidesoshipownershaveonlythemselvestofear.TheIMFpredictsthataveragegrowthingovernmentfiscalspendingintheUS,UK,Germany,ItalyandFrancewillrisefrom1.5%in2017,to2.0%in2018,2.2%in2019and2.6%in2020.ThemainconstraintonglobalfiscalexpansionisthattheleadingeconomicgrowthdriversarealreadyheavilyindebtedwiththeG7groupofleadingeconomies(theabovefiveplusCanadaandJapan)havingageneraldebttoGDPratioofover120%in2016.ItisestimatedbytheIMFthattheG7countriesaregrowingat1.5%currentlyagainstthe1.8%neededtopayinterestonoutstandingdebt.So,asusualintheearlymonthsofanewyear,wearefacedwithuncertainprospectsfortheyearahead.AswitchfrommonetarytofiscalstimulusisimminentbutwedonotknowtheextenttowhichPresidentTrumpwillbeallowedtopushaheadwithhis
The Economic Backdrop
In our economic chart book at the back of this publication we follow the
timeline of economic events that have unfolded since the beginning of 2016.
Globalgrowthdisappointedin2016cominginat1.6%indevelopedmarkets,comparedwiththeyear-agoforecastof1.9%,andat3.6%inemergingmarkets,comparedwiththeyear-agoforecastof3.9%,accordingtoHSBCeconomists.Inthissense,theperformanceofthestockmarketprovedsomewhatsurprisingastheFTSE100roseover14%in2016toendtheyearon7,143points.ThereasonsforstrongUKcorporateperformancewerenumerous,andnotnecessarilyrelatedtoincreasedsales.Lowinterestratesspurredmergersandacquisitionsandsharebuybackswhichservetoboostsharepricesanddividends.ThepostJuneBrexitresultdevaluedsterlingagainstthedollarby15%boostingexportsandflatteringtheearningsoftheFTSE100constituentsthatgenerate70%oftheirsalesabroad.Addtothatthecollapseinoilandcommoditypricesinthefirsthalfoftheyearandtheirprolificrecoveryinthesecondhalf,thusboostinglargeoilcompaniesandminerssuchasShell,BP,RioTintoandBHP.Morerecently,asteepeninginthedollaryieldcurvehashelpedbankprofitabilityespeciallythosethathavesubstantialoverseasearningsthatbenefitfromFXtranslationeffects.TheFTSE’sriseonhelpfulbutunexpectedmetricssummedupayearofeconomicchangeandpoliticalsurprisethatwasdominatedbytheBrexitvoteandtheTrumpvictory.Nowthatthefactofrisingcommoditypricesandtheprospectofhigherinterestratesarerotatingdeflationintoinflation,istheenvironmentforUKcorporatesturninglessbenign?TheBankofEnglandthinksso,itseesUKgrowthfallingfrom2.2%in2016to1.4%in2017ashigherimportpricesandweakersterlingsqueezehouseholdfinancesandrisinginflationthrottlesbackspendingandinvestment.ButitwillnotbethesameeverywhereaswhiletheUKandUSfaceinflationarypressuresbothEuropeandJapanarestillinthethroesofdeflation.Sofar,theUSFederalReserveandtheBankofEnglandhavenotrespondedtoinflationrisingtowardstargetlevels.Thisbegsthequestionofwhethertheyarepreparedtoovershoottheirinflationtargetsasameansoffritteringawaytheexternaldebtobligationsofhouseholds,companiesandstate.OrmaybetheyconsiderthattheUSandUKarenotcapableofcopingwithmonetarypolicynormalisation.
Theleadingcentralbanks(theUSFederalReserve,EuropeanCentralBankandtheBankofJapan)continuedtoexpandtheirbalancesheetsin2016via
quantitativeeasing.But,in2016,monetarypolicyappearedthereachthelimitsofusefulnessandfrom2017weareexpectingfiscalpolicy(taxcutsandinfrastructurespending)totakeupthereinsofprovidingeconomicstimulusandgrowthsupport.However,presentelevateddebtlevelsinallleadingdevelopedeconomieswouldsuggestthatthescopeforsuchfiscalmeasuresislimited.InthecontextoffallingunemploymentratesintheUS,UKandEurozonethecentralbanksrealisethattheyshouldstartraisinginterestrates,aftertheFederalReservekickedoffproceedingslastDecemberwithitsfirstquarterpercentagepointriseinayear.Despitefallingunemployment,wagegrowthintheUS,UKandEurozonehasbeenmarginalatbestbut,aswemovetowardsfullemployment,whichishardtoassessinaworldofwidespreadpart-timeandhome-working,thiscouldquicklychange.AswiththeFTSE100,theS&P500benefitedfrombenignborrowingconditionsin2016thatpermitteddividendstoriseevenasearningsflat-lined.Thereisasensethatwehavealreadyreachedthepointatwhichweneedtonormalisemonetarypolicyandlettheeconomydoitsownwork,asthingshavebeentoosoftfortoolong.Bondmarketselloffs,evidencedbyfallingbondpricesandrisingbondyields,haveindicatedthatchangeisafootandthecostofborrowingisabouttorise.Conversely,intermittentbondmarketrecoveries,inswitchestorisk-offmode,indicatethatinterestratesmaystayputafterall.Overall,thereisanabsenceofconvictionbutthereistherealriskthatshouldratesrisefasterthanexpectedthenhighhouseholdandcorporatedebtburdensmaycurtailspendingandinvestmentandsnuffouttherecovery.Arecoverythathasafeelingofartificiality,pumpedupasithasbeenbyexternalsupport,mustatsomepointtransformitselfintoarecoverybaseduponfundamentalgrowthifwearetobreakawayfromcentralbankstewardship.
China,astheworld’ssecondlargesteconomy,isasimportanttotheglobaleconomyasitistoshippingandtrade.TheChineseeconomyexpanded6.9%in2015,itsweakestgrowthratein25years,whileofficialfiguresfor2016cameinat6.7%astheChina’seconomicslowdowncontinues.However,afterseveralyearsoffallingindustrialproductionfromtheendof2013,thismetricshowedsignsofstabilisinginthesecondhalfof2016basedonthelatestavailabledata.Electricityproductionhadalsobeentrendinglower
Shipping Markets Outlook 2017Shipping Markets Outlook 201712 13
ambitiouseconomicplans.Equally,itisunclearwhenandtowhatextenttheUKmightsufferaneconomicslowdownfromtheprocessleadinguptodeparturefromtheEuropeanUnion.Theconsensusisthatthiswillleadtomanyyearsoflowergrowth,notthatleaverswerevotingforthis,butitmayyetturnoutotherwiseoncurrentform.Japanlookssetforgrowthofatleast1%thisyearastheBankofJapananchors10-yearyieldsatzero,windsbackdamagingconsumptiontaxesanddeliversexporterstheadvantageofaweakeryen.
Tosummarise,2017ispromisingtobeabumpyyearbuildingonthepoliticalsurprisesofBrexitandTrump,andhowdeliverableeachoftheseprovestobe.Itiscommonlyheldthatpoliticalturmoil,risinginflationandtighterfinancingconditionswillprovetobeadragonimprovingeconomicprospectsandrisingcorporateearnings.Higherbondyields,creepinginflation,elevateddebtlevels,astrongerdollar,Brexit,Trump,Europeanelectionsandashifttowardsprotectionismallposethreatstobothdevelopedandemergingmarkets.Astrongerdollarwillmakeemergingmarketdollardebtservicingmoreexpensive.Weawaitthepromisedpivotfrommonetarytofiscalstimulusand
hopethatjobcreationandeconomicgrowthcanbenurturedviataxcutsandinfrastructurespending.WeremainanxiousattheparadoxofalreadyelevateddebtlevelsbeingmetwithincreasedpublicsectorspendingjustasinterestratesandinflationintheUKandUSaresettoturnup.Certainly,thedesiretoescapedeflationandgenerateinflationmaybemet,andsurpassed,causinginterestratestorisefasterthanpresentlyanticipatedwithnegativeconsequences.Stockmarketsareracingaheadinearly2017andsomeobserversseearesemblancetotherun-upinlate1999thatprecededthecollapseintelecoms,mediaandtechnology.Equityvaluationshaveonlyjustsurpassedtheirlevelsofbackthenbutalltheupsideseemsalreadytobebackedintocurrentprices.Noteveryoneisconvincedthatthingsaregoingupwithsomeschoolsofthoughtseeingacontinuationoflowgrowth,lowinflationandlowrates.Butdespitealltheforegoing,China’sfallingGDPgrowthratenowappearstobebottomingoutandsomeprojectionsofdevelopedandemergingmarketgrowthoverthenextfewyearsarepositiveandrising.Foronce,orisitactuallyasusual,thereisnoconsensusapartfromgeneralagreementthat,if2016isanyguide,anythingcouldhappen.
Shipping Markets Outlook2017 Edition
The Dry Bulk Market
“2017 is promising to be a bumpy year building on the political
surprises of Brexit and Trump, and how deliverable each of these
proves to be”
Shipping Markets Outlook 2017Shipping Markets Outlook 201714 15
The Dry Bulk Market
This section accompanies the narrative to the dry bulk sector chart book at
the back of this publication.
Mostpeoplewouldagreethat2016wasayeartoforgetindrybulkshipping.InthefirsthalfoftheyeartheBalticDryIndexfelltoitslowestlevelever:290pointson10February.Fortunately,fromtherethingscouldonlygetbetter,andtheydulydid.InthefirsthalfoftheyeartheBDIaveraged486pointsandinthesecondhalfitaveraged860points,a77%improvement.However,aftersuchapoorfirsthalf,theBDIendedupaveraging673pointsoverallin2016whichwasnotthatmuchworsethan2015whenitaveraged718points.Successivepooryearssince2008,premisedmainlyonchronicoversupplyratherthanonanylackofdemandgrowth,havewornshipownersdownandveryfew,ifany,havesurvivedwithoutgoingthroughsomeformofrestructuring.Drawingtotheendofthefirstquarterof2017,wecanbesurethattheworstispastbutourconfidenceisbeingsappedbythecurrentQ1slump,despitethefactthatitwaswidelypredicted.Nonetheless,theaverageoftheBDIintheyeartodate(to20February)is834pointswhichisstillwelluponthe2015and2016fullyearaverages.Overthecourseof2016averagebulkcarrierearningswentfrombelowdailyoperatingcoststoarisingpremiumoverthesedailyoperatingexpenses.Thisstimulatedthesaleandpurchasemarketinsecondhandshipsasbuyerscoulddeploycashatthebottomofthemarketcycleandatleastcovertheon-watercostswithouthavingtodipintotheirpocketstosubsidiseoperations.AssetvaluesinallbulkcarriersegmentsimprovedintheyearfromMarch(aftergettingovertheshockoftheFebruaryall-timerecordtroughintheBDI)withtheolder,moreaffordable,shipsdoingratherbetterinpercentagetermgainsthanthemostmodern.Accordingtonominalbenchmarks,a15-yearoldcapesizegained80%invalueintheyearfromMarchwhile15-yearoldpanamaxandsupramaxbulkcarriersbothrose83%,albeitthatallwerefromaverylowbase.Atthemodernendofthespectrum,Japanese-builtresalecapesizeandpanamaxwereup6%and7%whileJapanese-builtsupramaxandhandysizewereup19%and18%respectively.
Thelackofmovementinpricesforthemostmoderncapesin2016isillustratedbythereportedsalesfor180,000-dwt2016-deliveryresalesfromvariousAsianshipyards,notallconsideredequalinquality.InJanuary,twoHanjinunitswentforastrong$35.3meachbeforetheBDI’sslumpinFebruarywhenanImabariwas
reportedatamuchlower$33.0m.ByJune,sentimentwasimprovingandtheRedIvy181,162-dwtImabari2016wasreportedconcludedatabetter$35.6m.InJuly,aresalefromChina’sNewTimesShipbuildingwasreportedsoldfor$33.0mandinSeptemberaresalefromShanghaiWaigaoqiaoShipyardwaslinkedwitha$33.5mpricetag.Finally,inDecember,HNAgroup’sJinhaiShipyardwaslinkedwitharesaleatjust$28.0mtoGreece’sMarmaras.Whilethisshiphada2016deliverydateitisassumedthat,atthisprice,ithadbeenwaitingaroundforawhilebeforebeingactivated.Themovementinresalepricesover2016,whilenotdirectlycomparablegivendifferentshipyardandqualityperceptions,wasminimal.Butnowthatwearein2017atleastnominalpricesarefirmer,despitealackofhelpfromtheflounderingBDIandBCIindicesinQ1.A180,000-dwtJapaneseresaleisnowmarkeduptoaround$38.0malthoughnothingisknowntohavebeendoneatthiselevatedlevel,sotheimprovementismainlybasedonperceivedsentimentratherthanonhardevidence.
Coincidentally,arecoveryinwetanddrycommoditypricesbroadlyfollowedthepathoftheBDIin2016.Onthewetside,Brentcrudehitalowof$27abarrelon20Januarybutendedtheyearon$57,a111%improvement.Onthedryside,overthecourseof2016China-landed62%-Feironorepricesrose90%,NewcastleFOBcoalpricesgained65%,Shanghaireinforcingbarsputon59%,nickelorerose50%andShanghaicoppergained26%.Finally,thebroad-basedBloombergCommodityIndexwasup12%year-on-yearin2016.Surgingcrudeoilprices,metalinputpricesandfreightratesin2016hadalottodowithabouncebackfromcyclicallylowpricepointsthatsawproductivecapacityatthewell,mine,millandshipyardalltrimmedbackinresponse.Asisthenorm,lowpricesaretheirownbestcureandtheyeventuallygivewaytohigherpricesonceremedialmeasureshavebeentaken.Thismade2016ayearofsignificantchangeofdirectionaspricesdulyrespondedtofundamentalfactors.ThepricerecoveryinsteelmakingrawmaterialsfollowedminingcapacityreductionsbyVale,Rio,BHP,FortescueandGlencore.ThesteelpricerecoverywashelpedbyChinashuttingdownoutlier,pollutingandinefficientcapacityathomeandbystrongend-usersteeldemandbothathomeandabroad.Thenickelorepricereboundwashelped
byself-imposedexportrestrictionsbyIndonesiaandthePhilippines,insufficientreplacementcapacityinNewCaledoniaandstrongworld-widedemandfornickel-dependentstainlesssteel.IndonesiaeaseditsearlierdraconianexportbanwheninJanuarythisyearitintroducednewrulesthatwillallowexportsofnickeloreandbauxiteandconcentratesofothermineralsundercertainconditionsinasweepingpolicyshiftbythekeyglobalsupplier.Meanwhile,thePhilippinesisshuttingdownoverhalfofitsminestotacklepollutionandprotecttheenvironment.Theforegoingfactorswereallpositivefordrybulkshippinglastyear.RestrictionsonbauxiteshipmentsfromIndonesiaandthePhilippinesareplayingintothehandsofWestAfrica’sGuinea.Itplanstomorethantrebleitsbauxiteexportsto60mtperyearby2020asitinvestsheavilytomeetChinesealuminiumdemand.ItisexpectedthatmostofthisbauxitewillgotoChinaonsuperlong-haultradesfromtheportofKamsarfromwhencethekamsarmaxbulkcarriergetsitsname.Itshouldrejoiceatthisreconnectionwithitsroots.Thisturnaroundcanbebuiltonin2017aslongasself-imposedrestraintsonshippingtonnagecapacitycontinueintheformofminimalnewcontractingandmaximumoldershipscrappingthusallowingforecastdemand-sidegrowthtodoitsowngoodwork.
2016provedtobeararegoodyearfordrybulkshippingcapacitymanagement.Thereweresome47.2m-dwtofbulkcarrierdeliveriescombinedwith28.9m-dwtofdemolition,thusmanagingdownnetfleetgrowthto18.3m-dwtfromwhatmightotherwisehavebeenanalarminglyhighfigure.In2016,thedrybulkfleetsaw564deliveriesagainst400demolitions
nettingofftoagainof164units.Thiswasthelowestlevelin13yearssincepre-boom2003whenthenetdeliveryofbulkcarrierscameinatjust58units(166deliveriesversus108demolitions).Toputthisincontext,thepeakdeliveryyearthismillenniumwasin2010with1,045deliveriescoincidingwith144demolitionstogivenetfleetgrowthof901units.Thiswasfollowedbynetfleetgrowthof852unitsin2011and658in2012whichhelpstoexplainourpresentpredicamentofchronicoversupply,onlyslowlybeingworkedoffaswemoveinto2017.However,byJanuary2017,scrappinghadslowedanddeliverieswereboostedbythenormalspill-overfromtheendofthepreviousyearasownerswantedthisyear’sregistrationplates.Thissawthenetdeliveryof86bulkcarriersof8.8m-dwtinJanuary2017alone,alittleoverhalfbynumberofthenetfleetgrowthofthewholeof2016.
ThisJanuarysurgemaybepartlyexplainedbythefactthat2016wasalsotheyearwiththehighestslippageratesincethe2008globalfinancialcrisis.At42%itwaswellaheadofthenexthighestyearof2013when36%ofthedrybulkfleetfailedtodeliverasplanned.Wecanstillexpectahighpercentageoflastyear’s42%slippageratenottomaterialise,thuseventuallyassistingthegradualshifttobettersupply-demandbalance.Afterlowscrappinglevelsinthe2000to2008period,2016registeredelevateddemolitionwith385unitsexitingthemarket,maintainingthehighlevelsofscrappingthathaveprevailedsince2008.Inpre-crisis2000to2008wesawanaverageof88bulkcarriersbeingscrappedeachyear.Thisballoonedtoanaverageof371peryearinpost-crisis2009to2016whenmarketconditionsdeteriorated.Whiletherateofscrapping
“AotearoaChief”ImagecourtesyofCNCo
Shipping Markets Outlook 2017Shipping Markets Outlook 201716 17
hasincreasedsotherateofnewshipcontractinghasdecreased,amuchneededpincermovementifoversupplyistobeaddressed.Onaverage,689bulkcarriersperyearwereorderedin2000to2008against655peryearin2009to2016.Thesurprisinglyhighlevelofcontractinginthelatterpost-crisisperiodcanbeputdowntoanumberoffactorsincludingtheperceptionofattractivepricesandanimminentmarketrecovery.Neitherperceptionwascorrectaspricesfellfurtherandthemarketonlygotworse.Afteranastonishing1,239bulkcarrierorderswereplacedin2013thiswastrimmedto763ordersin2014andto357ordersin2015.By2016thepennyhaddroppedandneworderswerecutbackhardtojust48units.
Inthismillennium,drybulkseabornetradegrowthhasbeensteadilyexpanding.Inonlyoneyearsincetheendof1999wasthereanannualcontractionindemandgrowth,thatbeingin2009intheimmediateaftermathoftheglobalfinancialcrisis,whenvolumesdipped3.7%or130mtto3,428mt.Worldseabornedrybulktradehasgrownbyanaverageof158mtperyearsincetheendof1999toreachatotalof4,873mtbytheendof2016,representingaveryrobustcompoundannualgrowthrateof4.8%perannum.Thiswasachievedinspiteofthegrowthinterruptionin2009whenatemporaryseizureintheinternationaltradingsystemnegativelyimpactedapparentdemand.2015wasanotherremarkableyearinthatitbrokethetrendandpostedzerogrowth,followedbyamodestreboundin2016whendrybulkseabornetradeexpandedbyjust60mtorby1.2%onthe2015totalof4,813mt.Ashasbecomecustomary,Chinaledthewayinunderwritingthe2016importrebound.China’stotalimportsofiron
oreroseby71.4mt(+7%)to1,024.7mt,itsthermalcoalimportswereup51.5mt(+25%)to255.7mt,itscokingcoalimportsgained11.3mt(+24%)to59.3mtanditslogimportswereup9.7mt(+14%)to80.9mt.Someothercommoditieswitnessedsmalldeclinessuchasgrainimportswhichweredown5.2mt(-6%)to85.0mt,bauxitedown3.7mt(-7%)to52.4mt,nickelorelowerby3.3mt(-9%)to31.9mtandfertilisersdown2.9mt(-26%)to8.3mt.Alltold,China’stotalimports*ofleadingdrybulkcommoditiesrosebyanet130mt,or8.7%,in2016to1,632mtfrom1,502mtinthepreviousyear.ThismeaningfulChinesecontributiontoglobaldemandwashelpedbystimulusmeasuresthatwereimplementedintheearlypartoflastyearleadingtoasurgeinfixedassetinvestmentprojects.ByendFebruary2016,thenumberofnewlystartedfixedassetinvestmentprojectspeakedat55%year-on-yeargrowthfollowingasurgeincapitalinvestmentatthebeginningofthecalendaryear.Thisarrestedthedownwardtrendindomesticsteeldemandthatstartedbackin2013.Steelproductiongrowth,whichhadturnedintonegativeterritoryinthe12monthsfromMarch2015,returnedtoapositivegrowthtrendinMarch2016.Thiswasmaintainedoverthebalanceof2016,endingwithastrongfinishinQ4.ThisinturnhelpedtomoderatesteelexportsbyQ4asmoresteelwasneededathome.Overall,thistranslatedintosteelexportsrunningatabout9.4mtpermonthin2015beforeeasingbacktoabout9.1mtpermonthin2016.
Chineseimportsofironorecontinuedtorisesupportedbyareviveddemandforsteelandareductionindomesticallyminedproduct.China’sdomesticironoreproductionhasbeenindeclinesincetheendof
2014aspricesslumpedbelowthecostofproductionandastheferrouscontentcontinuestofall.Ironoreisthemostimportantconstituentinthedrybulkcommodityspectrumanditiscentraltothefortunesofthecapesizesegmentwhichtendstohaveatrickledowneffectontheentirebulkcarriersector.In2015,China’sironoreimportsrosebyonly20.3mtor2.2%year-on-yearfrom933.1mtto953.4mt,holdingoutthegloomyprospectofslowingironoredemandinChina.Fortunately,thiswasnottobethecase.In2016,China’sironoreimports,almostallofwhichwereseaborne,reboundedandclimbed7.5%year-on-yearfrom953.4mtto1,024.7mtasdemandfordomesticsteelandsteelpricesrecoveredasinfrastructurespendingclimbed.China’stotalcoalimportsalsorosesharplyin2016havingbeenindeclineoverthepreviousyear.Partofthiscouldbeputdowntodecliningdomesticcoalproductionasthecentralgovernmentsoughttocrackdownonovercapacityandreininpollutingandinefficientmines.Ithadintroduceda276-dayworkingcapondomesticcoalmineslastyearthatmassivelyreduceditsoutputofthermalcoal;itwaseventuallyliftedinOctoberaspricessurged.Chinesedomesticcoalproductionpeakedat4billiontonnesin2013inwhichyearoutputrosebyonly29mt,comparedwithan181mtincreasetheyearbeforein2012.Itthenwentintodecline,fallingby100mtin2014andby124mtin2015withtheannualiseddropin2016cominginat98mtonlatestdata.TocompensateforfallingdomesticcoaloutputandincreaseddemandChinaraiseditsseabornecoalimportsto164mtin2015andto201mtin2016,analmost23%year-on-yearincrease.Thiswasbrokendownintofairlystaticseabornecokingcoalimportswhichremainedatthe36mtlevelin2016andasurgeinseabornethermalcoalimportswhichincreasedfrom128mtin2015to165mtin2016,providingsolidplanksofsupportforthelargerbulkcarriersectorwhichcontinuestosufferfromoversupply.
Theeffectsoftheearly2016Chinesestimuluspackagewerealsovisibleinsurgingelectricityconsumptiongrowthinthesecondhalfoftheyearwith6-monthmovingaveragehittinganannualpeakof8.4%year-on-yearinNovember.Overthepreviousfiveyearsto2016,China’selectricityconsumptiongrowthhadbeeninadecliningtrend.The2016combination
ofreducingdomesticthermalcoalsupplyandincreasingelectricitydemand,bothaproductofcentralgovernmentpolicy,iswhatlaybehindthepanickysurgeinthermalcoalimportslaterintheyear.Itwasgoodforshippingifnotgoodforthenation’sbalanceofpayments.Insharpcontrast,India’scoalimportshadbeenrisinginthefiveyearsto2016beforeturningdownlastyearasdomesticcoalproductionrose.Thiscoincidedwithmorelandbeingmadeavailableforminingthusgraduallyreducingimportrequirementswhichhadclimbedfromamonthlyaverageof7.7mtin2011toanaverageof16.8mtoverthefirstninemonthsof2016.India’scoalimportvolumesturneddowninthesecondhalfof2016justasdomesticproductionedgedupfrom630mtin2015toanestimatedannualisedtotalof653mtin2016.India’sriseindomesticcoalproductionattheexpenseofimportsputsmoreshippingmarketrelianceonChinatocontinuetheprogressiveimportsubstitutionofitsdomesticrawmaterialsoutput.Thishasbeenalongtermprocessandithasbeenvitaltothelargebulkcarriersectorwhichwouldhavesufferedevenmorefromtonnageoversupplywithoutit.Fortunately,importsubstitutionhasfurthertogoasmuchofChina’sironoreoutputisofpoorquality,withdecreasingferrouscontent,whileitisincreasinglyexpensivetomine.Thisisshipping’sownGoldilock’sscenario.
Theforegoingillustrateshowreliablegrowthinlong-termrawmaterialdemandhassupporteddrybulkshipping;sowhatofthefuture?LatestestimatessuggestthatChinawillraiseitsironoreimportsbyaround55mtor5.5%in2017andthattheglobalseabornetradeinironorewillrisebyaboutthesameamount,oralmost4%in2017,toreach1,465mt.ProvisionalfiguresforJanuary2017fromChinesecustomssuggestarecordJanuaryimportmonthof92mt,up12%year-on-year,whichbodeswellforthewholeyear.DomesticironoreproductioncontinuestobecutonacombinationofcostandenvironmentalgroundswhileinventoriesatmainChineseportsareupto116mt,24%higheryear-on-year.Globalironoresupplyhasbeencurtailedinrecentyearsandthishashelpedtorescueprices.However,thereisstillanabundanceofkeenlypricedsupplyfromAustraliaandBrazilthatcanbeatChineseproductiononbothquality
*Total imports which encompasses seaborne, rail and overland.
“China’s total imports of leading dry bulk commodities rose by a
net 130mt, or 8.7%, in 2016 to 1,632mt. This meaningful Chinese
contribution to global demand was helped by stimulus measures that
were implemented in the early part of last year leading to a surge in
fixed asset investment projects”
ImagecourtesyofMarineCapital
Shipping Markets Outlook 2017Shipping Markets Outlook 201718 19
Shipping Markets Outlook2017 Edition
The Tanker Market
andpricepoints,thelatestbeingVale’sgiantS11DminewhichopenedforbusinessinJanuary2017,togetherwithaprogressiverampupinAustralia’sRoyHilloverthecourseof2017.Thisnewsupply,frombothnearandfarawaysuppliers,becomesavailabletoChinesesteelmillsshouldtherebethedemandforit.Ifitisthere,thentheshippingmarketwillbenefitifBrazilcangainagreatershareofincrementalChinesedemandattheexpenseofAustraliaandraisetonne-milegrowth.Thenthereisthequestionofwhethernewlong-haulshipmentsfromBrazilwillgooncaptivesurplusvalemaxtonnageorspilloverintothespotmarketandbenefittheindependentlyownedcapesizesector.ChinawillremaintheonlyrawmaterialimportercapableofmovingtheneedleasironoreimportsintotheEUareexpectedtoremainconstantyear-on-yearin2017ataround105mtwhileimportsintoJapanareexpectedtostayataround130mt,thesameasin2016.ThesteelindustrygloballyhasbeenundersiegefromrisingChinesesteelproductexportsandtheslowintroductionofremedialmeasures,asinprotectiveimporttariffs,meansthatmostofthedamagehasalreadybeendonetothesteelindustryex-China.
Onthecoalfront,Chinahasacontinuingneedtoimporthigherqualitygradeswithgreatercalorificvalueandlowersulphurcontenttoincreaseefficiencyandreducepollution.Whiletheseimportlevelswillonlyeverbeatafractionofdomesticcoalproduction,theyarestillmaterialtotheshippingmarket.Asidefromimportantefficiencyandenvironmentalconsiderations,event-drivenfactorscanalsoleadahelpinghand,althoughtheyarebeyondtherealmsofforecasting.AfterKimJongNam’sassassinationon13FebruaryinMalaysiaandNorthKorea’slong-rangeballisticmissiletestthedaybefore,incontraventionofU.N.SecurityCouncilResolution2321,whichChinahelpedpasslastNovember,theChinesegovernmentbannedallNorthKoreancoalimportsfrom20February2017fortherestoftheyear.Thiscoaltradeisalifelineforcash-strappedNorthKoreaas,lastyear,itamountedto22.5mtofhighqualityanthracite,a15%increaseon2015,whichistypicallyblendedwithcokingcoalinsteelblastfurnaces.In2014,NorthKoreageneratedjustoveronebillionUSdollarsfromthiscoaltradeinayearinwhich86%ofNorthKorea’stotalexportsweretoChinaand88%ofNorthKorea’stotalimportswerefromChina.ThusChina’sinterventioninavitalregionaltrade-relatedissuecanpotentiallyinfluenceNorthKorea’sbelligerentpursuitofnuclearweapons.
AsasubstituteforlostNorthKoreananthraciteimports,andgiventherelativelyhighcostandrelativelylowqualityofChinesedomesticcoal,Chinaisexpected
toneedtoimportsome20mtofequivalenthighqualitycoalbyseafromAustralia,SouthAfricaandothermuchmoredistantsources.Thiscouldpartiallyreversetheincreaseinoverlandsuppliesin2016whenMongoliasupplied23.6mt,up85%on2015,againstAustralia’s26.8mtofseabornesuppliestoChinain2016,upjust5%on2015.MongoliaprovedtobecheaperthanequivalentAustraliancokingcoalbenchmarks,whichhadsurgedfromabout$100toover$300atonneinthesecondhalfof2016inresponsetoChina’searly2016276-dayannualoutputcaponitsdomesticcoalmines.Priceshavesincehalvedbacktoaround$150afterChinarevokedtheseoutputrestrictionsinOctoberthathadcausedAustralianpricestosurgeinthefirstplace.However,uncertaintyreinsasinmidFebruaryitwasrumouredthattheChinesegovernmentmightreintroducethe276-daycapasearlyasMarch2017inpursuitofitsoriginalgoals.Ifthisdoesindeedhappenthentheprospectsforhigherseaborneimportsdoimprove.But,asthingsstand,China’scombinedthermalandcokingcoalimportsareexpectedtorisebyonlyalittleover2%year-on-year,orlessthan5mt,in2017to205mt.Evenifonecouldaccuratelyestimateannualchangesinabsolutevolumesofsupplyitbecomesnexttoimpossibletoforecastthemorecriticalchangesintonne-miledemandbaseduponcommoditypricearbitrageandevent-drivenalterationsintradingpatterns.
Afterzeronetgrowthinglobalseabornetradein2015weexpectgrowthtocomeinataround1.2%in2016,2.0%in2017and2.3%in2018.Bycomparison,drybulkfleetgrowthisexpectedtoexpandbyanet2.3%in2016andthenslowto0.9%growthin2017,0.6%growthin2018andfinallytoshrinkby0.7%in2019baseduponthecurrentorderbookandslippageprojections.Ofcourse,muchcanchangetotheorderbookasfaraheadas2019ifownerschoosetoinvestinnewships,otherthanstrictlyforfleetreplacementandrenewalreasons,atthefirstperceptionofasustainablerecovery.Theshipyardswillcertainlyfindittheirdutytotemptownerswithattractivenewregulatorycompliantecodesignsandalluringprices.Giventhatwehavebeenaddingfarmoreshipsthandemandgrowthhasneededsince2008,wewouldbenefitfromaperiodoforderingdisciplineintheyearsaheadtoclosethesupplyanddemandimbalanceandgivefreightratesandassetvaluesachancetomaintaintheirgrindinglyslowrecovery.Onlycollectivedisciplineinfleetcapacitymanagement,regardedasapipedreaminsuchafragmentedownershipmarket,combinewithascarcityofequityanddebtfinancetohastentherecoveryprocess.
Shipping Markets Outlook 2017Shipping Markets Outlook 201720 21
The Tanker Market
This section accompanies the narrative to the tanker sector chart book at
the back of this publication.
Forthreeandahalfyearsinarowtomid2014Brentoilpricesaveragedaround$110abarrel.Prolongedhighpricesfindtheirowncureinincreasedproduction,reducedconsumptionandefficiencygains.ThepriceofBrentpeakedat$115inJune2014andthenembarkedonadownwardslidethatdidnothitrockbottomuntillateJanuary2016,at$27abarrel.ThislongperiodofhighpricesnotonlyenrichedMiddleEasternOPECproducers,whoembarkedonhugeinfrastructureandsubsidyprogrammes,butitalsobroughtmuchnonOPECcompetitionintotheworldofoilproduction.IncreasesinnonOPECproductionin2013and2014weremirroredbyanalmostequaldeclineinOPECproductionasitgavewaysoasnottofloodthemarketandcollapseoilprices.Afterabouttwoyearsfromtheendof2012,aperiodinwhichthecallonOPEChadstartedshrinking,theSaudisdecidedthattheyhadtakenenoughpunishment.GainsinunconventionaloiloutputinNorthAmerica,suchastightoilinTexasandDakotaandoilsandsinAlberta,werethreateningSaudiArabia’slivelihood.InNovember2014itdecidedtoturnonthetapsandfloodthemarket,aimingtocollapseoilpricesanddriveoutthesemarginalnewproducers.Thatwasthetheoryanyway.ItwasnotonlyaimedatNorthAmericanproducersbutalsoothernonOPECproducersinRussia,Brazil,theNorthSeaandthePacificthathadbeengettingafreerideonthecoat-tailsofsustainedhighprices.Thenormalorderhadtobere-establishedwherebyOPECcalledtheshotsandSaudiArabiaresumedtheroleofglobalswingproducer,managingpricesbyopeninguporreigninginitscontroloverthemajorityoftheworld’sspareoilcapacity.Itneededtoregaintheinitiative.
Inthefiveyearsfrom2012to2016annualaverageglobaloilsupplyhadrisenfrom90.5m-bpdto96.2m-bpd,accordingtoEIAandHSBCestimates.Balancedsupplyanddemandfrom2012to2014gavewaytooverproductionfromlate2014asOPECopenedthespigots.Inthe12monthsfromJanuary2015toJanuary2016,globaloilsupplyconsiderablyexceededglobaloildemand,andOPECsucceededinbringingoilpricesallthewaydowntobelow$30abarrel.ThispricedeclinesawadramaticreductioninNorthAmericandrillingandapullbackinoilinvestmentprojectsaroundtheglobe.Thereductioninproductionin2016causedoilpricestomorethandoublefrom
theirJanuarylowtoexceed$55bytheendoftheyear.Overproductionin2014and2015hadallowedconsumercountriestobuilduptheircommercialandstrategicstocks,readytobedrawndownoncepricesroseagain.Thisisaprocessthatstartedin2016withtheoilpricerecoveryleadingtostockdrawdownattheexpenseofseaborneshipments.Forexample,theIEAestimatesthatOECDstocksofcrudeandproductsweredrawndownbyanaverageofalmost0.8mbpdin4Q16but,attheendof2016,OECDstockswerestillalmost0.3m-bpdabovethe5-yearaverage.Globalsparecapacity,asapercentageofglobaldemand,surgedtoapeakof3.1%in2015from2.7%in2014and1.5%in2013.Itisnowforecasttofalltojust1%laterin2017ason10December2016bothOPECandelevennonOPECproducers(Azerbaijan,Bahrain,Brunei,EquatorialGuinea,Kazakhstan,Malaysia,Mexico,Oman,Russia,SudanandSouthSudan)agreedtocutoutputtorescueprices,thefirstsuchjointproductionabatementagreementsince2001.AttheendoflastyearOPEC,ledbySaudiArabiawithplannedcutsof0.5m-bpd,agreedtoreduceproductionby1.2m-bpdifthiswasmatchedbyacutofaround0.6m-bpdbynonOPECsuppliers,ledbyRussiawith0.3m-bpd,towithdrawatotalof1.8m-bpdfromthemarket.Brentpricesgainedalmost$10abarrelsoonaftertheannouncementrisinguptothemid$50srange.MuchscepticismsurroundedtheannouncedcutsasOPEChasneverhadagoodrecordofquotaobservanceand,withoutasolidvettingregime,somememberswillalwayscheatthesystem.TheOPECcutsthatwereannouncedon10DecemberwerereferencedagainstoutputlevelsofOctoberatwhichtimeOPECwasproducing33.7m-bpd.Its1.2m-bpdcontributiontooverallcutswouldputitoncoursetoachieveanew32.5m-bpdtargetinthefirsthalfof2017.However,bylastDecemberOPEChadalreadyraiseditsproductiontoarecord34.2m-bpdasitattemptedtopre-emptanydealtorestrainsupply.
Muchtothesurpriseofmanyobservers,globaloilsupplyplungedby1.5m-bpdinJanuary2017toanaverageof96.4m-bpd,accordingtotheIEA,some730,000-bpdlowerthanayearagoinJanuary2016.OPEC,ledbySaudiArabia,allegedlyachieved90%compliancewhileRussiahadcut0.1m-bpdwiththeintentionofphasinginanother0.2m-bpdofcutsbymidyear.OPEC’soutputwasdown1.0m-bpdin
Januaryto32.1m-bpd,accordingtoIEAestimates,itsfirstyear-on-yeardeclineinproductionsinceearly2015.ThislevelofsuccessincuttingOPECandnonOPECoutputhassofarnotbeenmatchedbyhigherpriceswithBrentstilltradingateithersideof$56abarrelinlateFebruary.ThiscanpartlybeattributedtorisingUSfuelinventoriesandpartlytoincreasedflowsfromLibyaandNigeria,whichareexemptfromthecuts.Anyfurtherprogresstowardsthe1.8m-bpdtargetinthefirsthalfshould,intheory,pushupglobaloilpricesandacceleratethedrawdownofcheapercommercialstocks.Thiswouldnotbeagoodresultfortankersasthiswillbeattheexpenseofseabornecrudeoilandoilproductstrade.Inanycase,outputrestraintcouldstillbeupsetbycontinuingrecoveryinLibyanandNigerianoutputthathadpreviouslybeensufferingfromlocalproductiondifficultiesgivenwar,sabotageandtheft.Forexample,Libya’sNationalOilCorporationexpectsLibyanproductiontorisefrom700,000-bpdinmidFebruaryto1.2m-bpdbyAugust.
However,atthetimeofwritinginFebruary,BrentfuturessuggestthatthemarketwillenterintoanaccelerateddrawdownmodefromendJunewhenthe6-monthproductioncuttermcomestoanend.ThestructureoftheforwardpricecurvesuggeststhatthepricecontangodisappearsafterJuneatwhichpointtheeconomicsofstoragenolongerremainviable.Infact,BrentfuturespricesarerisingstronglycausingthecalendarspreadsfornearbymonthstotightensincemidFebruarysuggestingthattheeconomicsofstorageoutsidetheUSmayfadeassoonasthesecondquarter.Evenifthecrudeoilmarketdoesindeedgo
intodeficitinthefirsthalf,andsqueezeBrentpricesupabovecurrentlevelsinthemid$55sabarrel,itwillonlybeastemporaryasthe6-monthoutputcutitself.ItwouldbenecessarytoinvoketheoptiontoextendtheproductioncutagreementforanothersixmonthsfromendJuneifOPECandnonOPECproducerswishtosucceedinrebalancingthemarket.Italsoremainstobeseenatwhatleveloilpriceswillbecappedbythelikelihoodthatalotofshaleoilproductioncomesbackat$60andlargeonandoffshoreprojectsstartcomingbackabove$70.TheIEAestimatesthatnonOPECproductionfellby0.8m-bpdlastyearbutwillrecoverbyanet0.4m-bpdin2017drivenmainlybyNorthAmericabutalsobylonglead-timeprojectscomingonstreaminBrazilandCanada.Onecanthusseeapricetug-of-waremergingasOPECproductioncuts,aimedatleveringpricesup,aremetwithnonOPECproductionincreases,whichwillleverpricesdown,inthosenonOPECcountriesthatarenotpartofthedealandareinsteadcommittedtobringingnewoutputonline.TheUS,CanadaandBrazilareforecastbytheIEAtoraisetheircombinedoutputby0.75m-bpdin2017whichconsiderablyoffsetstheapproximately0.6m-bpdagreedproductioncutsoftheelevennonOPECoutputdealmemberswhichincludeRussia,OmanandKazakhstan.
ReutersandHSBCpeggedBrentasaveragingjustunder$47abarrelin2016andareforecastingittoaverage$60in2017and$75in2018.Duringtheperiodoffallingoilpricesfrommid2014toearly2016HSBCestimatesthatglobalcrudeoilinventoriesroseby0.4m-bpdin2014,1.7m-bpdin2015and0.5m-bpdin2016.Aspricesrecoveredduring2016,andnowlook
Shipping Markets Outlook 2017Shipping Markets Outlook 201722 23
settohold,weareexpectedtotransitionincreasinglyintodrawdownmodewithcrudeinventoriesfalling0.1m-bpdin2017,0.3m-bpdin2018,0.7m-bpdin2019and1.1m-bpdin2020.AnecdotalevidencefromReutersandDatastreamsuggeststhatdevelopedworldstocksarealreadyfalling.USandEU16crudeoilstockspeakedat1,032mbarrelsinMay2016beforefallingto965mbarrelsbyend2016.Meanwhile,USandEU16productstockspeakedat1,558mbarrelsinSeptemberbeforeretreatingto1,503mbarrelsbyyearend.Asleadingwesternconsumercountrystocksprogressivelydwindle,sowillpricingpowerreturntotheoilproducers.Inanidealworld,theymightsettleina$60to$80perbarrelrangethatwouldbegoodformostproducerandmostconsumercountries.Wheretheyactuallysettlewilldependuponprice-costdynamics.ManyOPECproducershavelowproductioncostsbuthighbreakevencostsastheyhavesplurgedoninfrastructureprojects,welfarespendingandgeneroussubsidies.Incontrast,USshale(ortight)oildrillershavedramaticallyreducedtheircostsatthewellheadbyharnessingtechnologyandsqueezingthirdpartyserviceproviders.Theycandipinandoutaspricesfluctuateunlikedeep-seaandfrontierprojectsthatrequiremuchlargerlong-termcommitmentsofcapital.
TheflexibilityofshaleoiliswhatultimatelyfrustratedSaudiArabiaandOPECintoopeningthetapsattheendof2014todrivepricesdowninanattempttocurtailproductionbyhighercostUSdrillers.ItwaseventuallysuccessfulbutwithBrentnowbackuptothemid$50sabarrelsomedrillersareputtingrigs
backintoplay.USshaleoiloutputrosesteadilyfrom1.3m-bpdin2011,to2.3m-bpdin2012,to3.5m-bpdin2013,to4.3m-bpdin2014andto4.9m-bpdin2015beforedippingbackto4.3m-bpdin2016assomeproducerscutback.TheresilienceoftheUSshaleoiluniversehasbeenasurprisetomostobserversandatributetotheirabilitytotrimcostsandstayinthegame,muchtotheamazementofOPECandtheinternationaloilmajorswhotraditionallyfundmulti-yearandhigh-costfrontierprojects.Averagewell-headproductioncostintheBakkenshaleinNorthDakotacamedownfrom$68abarrelin2013,to$59in2014,to$41in2014andtosub$30in2016.AtthislatterpointtheyareamongthecheapestproducersanywhereoutsidetheArabianGulfwhereproductioncostsmaybeaslowas$5abarrelbutbudgetbreakevencouldeasilybenorthof$80abarrel.Shaleoilersdonothavelegacycostsnordotheyhavetofinanceinfrastructure,providesubsidiesorpayforpeopletobeindolent.Theycanquicklyadjustproductioninresponsetooilpricemovements.Nonetheless,thecollapseinoilpricesfrommid2014didcauseahugedeclineintheUSactiverigcount.Itfell79%fromacyclicalpeakof1,931rigsinSeptember2014toacyclicallowof404rigsinMay2016.Sincethen,therigcountrebounded63%to658unitsbytheendof2016astheoilpricemorethandoubledfromitsJanuary2016$27trough.ByearlyFebruary2017itwasupto741units.
LatestIEAestimatesarethatglobaloildemandroseby1.6m-bpdin2016,toanaverageof96.3m-bpd,andwillrisebyanother1.4m-bpdin2017,toanaverageof
97.7m-bpd,bothgrowthfiguresbeing0.1m-bpdhigherthanitspreviousJanuaryestimates.ThiscompareswithOPEC’slatestnumbers,whicharequitedifferent,asitputsworldoildemandgrowthat1.3m-bpdin2016,toanaverageof94.6m-bpd,andisforecastinggrowthof1.2m-bpdin2017,reachinganannualaverageof95.8m-bpd.Meanwhile,acombinationofReutersandHSBCnumbers,datingbacktoJanuary2017,putoildemandgrowthat1.3m-bpdin2016andforecastgrowthof1.0m-bpdin2017.Theysuggestthatglobaloildemandrosebyanaverageof1.5m-bpdinthe2010to2015periodandwillriseataslowerpaceof1.0m-bpdinthe2016to2020period.ThisisthecurrentdemandcontextandoutlookinwhichOPECandleadingnonOPECproducersagreedtoreducetheirproductionbyacombined1.8m-bpdinthefirsthalfof2017.Theironyisthatacutofthismagnitudecouldindeedraiseoilpricesoncethesupplycutsbiteinthesecondhalfof2017,subjecttotheexemptoutputstatusofLibyaandNigeria,andhigherpriceswillbringmoreNorthAmericanproductionbackintoplay.ThelowcostUSshaleoilproducersintheBakkenstandtobethegreatestbeneficiariesofthecuttoworldoilsupplies.
TheforegoingReuters/HSBCestimatethatoildemandgrowthissettoaverageamodest1.0m-bpdto2021isstillapositiveoutlook.Thekeytothatgrowthfromatankershippingperspectiveisthedistanceoverwhichtheoilwilltravel,themarketpreferringlongerjourneys,higherutilisationandtheensuingfirmerrates.However,tonne-milegrowthishardtopredictasvariablepricingofcrudeandproductsaroundtheworld,andfluctuatingoilsupplyanddemand,willpresentarbitrageopportunitiestotankersandtheirowners,butintheirowntime.Theother,andmorecontrollable,sideofthecoinistonnagesupply.2014and2015weregoodtoexcellentyearsandtheycoincidedwithrelativelylownewdeliveries.Incontrast,2016wasatoughyearoffallingrates,lowerearningsanddecliningassetvalues.Italsowitnessedmuchstrongerdeliveries.In2014,quarterlycrudeoiltankerdeliveriesaveraged2.5m-dwt,risingto2.6m-dwtin2015andto5.3m-dwtin2016.Ontheproductside,in2014quarterlyproducttankerdeliveriesaveraged1.6m-dwt,risingto2.2m-dwtinboth2015and2016.TakingIEAnumbersandprojections,globaloildemandgrowthcameoffa
cyclicalhighof1.9m-bpdin2015,thenfellto1.6m-bpdin2016andisscheduledtodropfurtherto1.4m-bpdin2017.Thisshort-termmoderationcomesatatimewhentankerdeliveriesareontherise,potentiallycreatingaclashbetweenfallingabsoluteoildemandgrowthandrisingabsolutetonnagesupplygrowth.Theactualoutcomeforearningswillrevolvearoundtherelationshipsbetweenactualtonne-milegrowth,asopposedtoabsoluteoildemandgrowth,andnetnewtonnagesupply,beingdeliverieslessscrapping,asopposedtonewdeliveriesinisolation.Botharequitehardtopredictinthecurrentenvironmentasfinancialstrainscausealterationstoorderbooksanddeliveryscheduleswhileoilpricedynamics,asdeterminedbyOPECandnonOPECintervention,willshapefuturetradingpatternsanddistancestravelled.
Tankerearningsalsoreflectthesechangingdynamics.Inthefiveyearstoend2016tankerratesroseto2015andthensufferedasharpcorrectionin2016.Crudetankersasaclass(VLCC,suezmaxandaframax)averaged$16,964dailyin2012,$16,127in2013,$27,393in2014,$49,663in2015and$29,729in2016.The40%fallinaverageearningsbetween2015and2016stilldidnottakeusallthewaybackto2014levels,illustratingjustwhatagoodyear2015was.Asisusualinsuchbumperyears,itwasanexceptionalconvergenceofpositivesupplyanddemandfundamentalsthatdeliveredsuchgoodresults.Tonnagecapacityhadbeennaturallymanageddownbyweakresultsinearlieryearsleadingtogreaterscrappingandlesscontracting.Fallingoilpricesin2015boostedfinalconsumptionaswellasencouragingstockbuildingasbothcommercialandstrategicstoragewasfilledwithtankersbeingtheseabornedeliverymechanism.Acombinationofspeculationandoilfuturespricecontangosawsometankersusedvoluntarilyforfloatingstoragewhileatloadanddischargemoretankerswereusedforinvoluntarystorageastheysatwaitingongenerallylowdemurragerates.Thesedevelopmentsweregoodfortonnageutilisationandratesandassetvaluesclimbed.Weallknewthatthesebenignconditionswouldnotlastandthispointdulyarrivedin2016.By2016landbasedstoragewasfullandrisingoilpricesturnedthemarketfromstockbuildingtostockdrawdown,notagoodresultfortankerdemand.Thestrongearningsofearlier
“2016 average earnings of just under $30,000 per day across the
crude tanker spectrum was still a good outcome; it was very far from
the sub-opex hardship that bulk carriers had to endure”
Shipping Markets Outlook 2017Shipping Markets Outlook 201724 25
yearshadreducedscrappingandincreasedcontractingandthosenewtankersstartedtoarriveinsecondhalf2016andwillcontinuetodeliveroverthecourseof2017.
However,2016averageearningsofjustunder$30,000perdayacrossthecrudetankerspectrumwasstillagoodoutcome;itwasveryfarfromthesub-opexhardshipthatbulkcarriershadtoendure.Itwasasimilarstoryfortheproducttankerclass(LR2,LR1andMR)astheirbestyearinthelastfivewasalso2015.Theyaveraged$11,272dailyin2012,$12,850in2013,$15,614in2014,$26,118in2015andthefellbackto$14,722in2016.The2016correctionsawannualaverageearningsfall44%from2015levels,asimilardroptocrudeoiltankers.Aswithcrudetankersin2015,producttankersbenefitedfromrisingglobaldemandforfuelatatimeofslowerfleetgrowth.Thecrudeoiltankerswereactiveincarryingcrudeoilfromthewellheadtorefinerieswhiletheproducttankerswerekeptbusytransportingrefinedproductsfromrefineriestoendusersaroundtheworld.Theywereassistedbywidecrackspreadsandhighrefinerythroughputandbythesamevoluntaryandinvoluntarystoragesituationsthathelpedtouseuptankershippingcapacityandsqueezeupdailyrates.Thespikeinearningsin2015shouldbeviewedasexceptionalandasanunexpectedbonanzawhilethecorrectionin2016wasmerelyrevertingtothekindoflevelsthatweremorethenormin2014.2016wasnotabadyearfortankers;itjusthappenedtofollowaverygoodyear.Banksgenerallyhadlittletoworryaboutwiththeirtankerclientswhocouldstillgeneratepositivereturnsandservicetheinterest,andeventheprincipal,ontheirloans.Thatallowedthebankstofocustheirattentionontheirbulkcarrierandcontainerclientswhowereofteninsuchabadpositionthattheycoulddoneither.
Havingendureda40%-pluscorrectionintankerearningsin2016,thatbasicallytookusbacktoaroundthelevelofearningsof2014,therunupinassetvaluesover2015alsohadtounraveltosomeextent.Generallyspeaking,thebiggestlossinvalueoverthecourseof2016wasforolder15-yearoldcrudeoiltankers.Nominally,VLCCsofthisagelost38%,suezmaxweredown40%andaframaxdropped33%,although5-yearoldand10-yearoldaframaxfellahigher37%each.ThesmallestlosseswereforresaleswithVLCCslosing16%,suezmaxdown20%andaframaxoff25%.Thesemightbedeemedratherlargecorrectionsinvalueinreactiontoa40%declineinaverageearnings.Indeed,intheearlymonthsof2017manyownersseemtobeoftheopinionthatgoodvaluebuyingopportunitiesexistaftersuchasharpdeclineinprices.WenoteattheendofJanuarythatOlympicwerebeinglinkedtotwoMetrostar308,000-dwtHHI2017resaleVLCCsat$80.0meach.Backinmid2015,EuronavboughtfourMetrostar300,000-dwtHHI2016resaleVLCCs
foramuchhigher$98.0meach.Apartfromanythingthisshowshowdifficultitistotimethebottomofthemarket,butitdoeslookasifOlympicbenefitedfrombidingitstime.Turningtotheproducttankers,theselostlessinvalueoverthecourseof2016.A15-yearoldLR1wasdown32%whilethesameageMRwasoff23%.AtthenewerendofthescalethereductionsweremoremodestwithresaleLR1sfallingjust9%andresaleMRslosingonly12%oftheir2016startingvalue.
Onegoodthingtocomeofthe2016marketcorrectionwasasharpslowdownintankercontracting.Forcrudeoiltankerswehavereturnedtothemorenervouslevelsof2011and2012whenonly46and42tankerswereorderedrespectively.Theperceptionofbettertimesahead,andattractiveshipyardpricing,causedcrudetankerorderstosurgeto125in2013,104in2014and232in2015.Typically,agoodearningsyearsuchas2015elicitsastrongorderingresponseandtheytendtodeliversomeyearslateroftenintoaquitedifferentmarket.Mostofthe2015orderswilldeliverin2017and2018.Theshockofthe2016marketcorrection,despiteitbeingwidelypredicted,ledtorenewedorderingrestraintandonly37crudetankerorderswereplaced.Ifthiscanbemaintainedin2017thenitbodeswellforthemarketin2019andmaybebeyond.Itwasasimilarpatternforproducttankersalthough2011and2012attractedahighernumberofordersthancrudeat80and108respectively.Thissurgedto299in2013beforeretreatingto126in2014andreboundingto190in2015.Alltold,itamountstoalotofnewproducttankersand,quiterightly,theresponsewasvirtualabstentionin2016asearningscameoff.Only14producttankerswereorderedin2016.
Intermsoftheorderbookasapercentageofthefleet,bydeadweightcapacity,itstandsat14%forVLCCandaframax,17%forsuezmaxand5%forpanamax.Inaggregate,thecrudeoiltankerorderbooktofleetrationowstandsat14%bynumberand15%bycapacity.Innumericalterms,41VLCCsarescheduledtodeliveroverthebalanceof2017followedby46in2018.Forsuezmax,itis65in2017followedby16in2018and,foraframax,itis45in2017and38in2018.Thereislittleornothingyetbookedfor2019butplentyoftimetoput
thatright.Fromamarketperspectivewewouldhopethatnewordersareonlyplacedonareplacementbasisthusavoidinganetexpansionofthefleet.Acrossthecrudeoilsectorthereare155tankersof30.5m-dwtwithscheduleddeliveriesoverthebalanceof2017followedby100tankersof19.4m-dwtcurrentlyscheduledtodeliverin2018.Ontheproducttankerside,theorderbooktofleetratiobydeadweightcapacitystandsat15%forLR2,13%forLR1,9%forMRand3%forthesmallerhandytankersof30,000to39,999-dwt.Intotal,itworksoutat9%bynumberand11%bycapacity.Innumericalterms,32LR2saresettodeliverovertherestof2017followedbyjust9in2018.ThecorrespondingnumbersforLR1sare25and16andforMRsitis67and28andforthesmallerhandytankersthereare14onorderfor2017deliveryandnonefor2018.Inall,138producttankersof10.8m-dwtarescheduledtodeliverovertherestof2017followedby53of3.1m-dwtin2018.
Thehighrecentlevelofcontractinginthecrudeoiltankersectornowputsfleetsupplyintheascendancy,outpacingforecastcrudeoiltankerdemandgrowth.Ournumbersshowthatin2015demandgrowthwasat2.4%whilesupplygrowthwasatjust1%.ThismadeforagoodyearandanimalspiritstookownersofftotheshipyardsofAsiatoordernewtankers.In2016demandgrowthwasrobustat3.6%butsupplygrowthcameinatahigher6.0%.In2017demandgrowthisforecasttofalltojust0.7%whilesupplygrowthisexpectedtocomeinat5.3%and,in2018,demandgrowthfallsto0.5%whilesupplygrowthmoderatesto4.4%.Intheproducttankersectoritisasimilarstory.In2015growthinproducttankerdemandandsupplywerealmostneckandneckat5.8%and5.9%respectively.Themarketcorrectionin2016sawdemandgrowthfallto3.9%andsupplygrowthriseto6.1%.In2017bothdemandandsupplygrowthareforecasttofallto2.0%and4.8%respectivelyand,in2018,thesenumbersdropfurtherto1.5%and2.5%respectively.Boththesupplyanddemandgrowthnumberswillchangeaswemoveforwardwithplentyofadjustmentslikelytobemadetobothsetsoffigures.Supplygrowthmaymoderateiftankerratesremainatlowerlevelsin2017,asownerswillseektodelay,convertandcancelorders.Meanwhile,demandgrowthissubjecttounpredictable
“The shock of the 2016 market correction, despite it being widely
predicted, led to renewed ordering restraint and only 37 crude tanker
orders were placed. If this can be maintained in 2017, then it bodes
well for the market in 2019 and maybe beyond”
Shipping Markets Outlook 2017Shipping Markets Outlook 201726 27
Shipping Markets Outlook2017 Edition
The Containership Market
shiftsinoiltradingpatternsthatapplytheall-importanttonne-milemultipliertoforecastsofabsoluteglobaloildemandgrowth.ThesemacronumbersfromthelikesoftheIEA,EIAandOPECareoftenwelladriftoftheactualresults.Thismeansthatthereistheriskofcompoundingerrorsinforecastingseabornedemand.Anyway,asthingsstandweareinfortwoyearsinwhichdemandgrowthisoutstrippedbysupplygrowthsothestrongmarketof2015risksfadingfromview.
However,thereiseverygoodreasontoquestionthedemandsideassumptions.OPECproductioncutsarereducingcrudeoilshipmentsfromtheMiddleEastGulfandpermittingsubstitutionfromsuppliersoutsidetheOPEC11thatareparticipatinginthecuts.Oneby-productofMEGcutsisthatithastendedtoraisethePlattsDubaicrudeoilbenchmarkpricerelativetoNorthSeaBrentandWestTexasIntermediate,openingupanarbitragewindowforAtlantic-basedsupplierstoseizemarketshareinAsia.LowerVLCCfreightrateshavegreatlyassistedinthisprocessaftersuchasignificantcorrectioninlargecrudeoiltankerearningslastyearandthis.AsianbuyersinChina,JapanandSouthKoreawillgravitatetothelowestcostsuppliersandtheyarefundamentallywaryofacartellikeOPECthataimstomakethempaymore.InlateFebruary,Reutersreportsthatoiltradersfromaroundtheworld,includingtheUS,UKandBrazil,havetripledtheirsalestoAsiaastheyexploitthesupplygapleftbytheOPEC-ledproductioncuts,especiallyofmediumandsourcrudegrades.InFebruary,withstillaweektogo,some30supertankershavebeenbookedtoshipcrudeoilfromtheAmericas(e.g.theUSandBrazil),theNorthSea(e.g.theUK)andtheMediterranean(e.g.Libya)torefineriesacrossAsia.ThecrudeexportsofAtlantic-basednonOPECsuppliershaveincreasedfrom10.4millionbarrels(336,000-bpd)inOctoberto35millionbarrels(1.26m-bpd)inFebruarywhileOPEC’sdeliverieshavefallenasithascededa5%marketshareinAsia.OPECwouldnormallysupply70%ofAsia’scrudeoilimportneeds.ReutersclaimsthatFebruaryloadingschedulesshowthatUScrudeexportstoAsiaincreasedtomorethan3.5mb,includingafirstaframaxcrudeshipmentandafirstsuezmaxfueloilshipmenttoIndia,fromjust1mbinOctober.Brazilianloadingsroseto16.7mbinFebruaryfrom6.9mbinOctober,whileUKshipmentsjumpedto10.5mbfrom1.6mbandLibyanliftingsdoubledto2mb.
Thistrendwouldbewelcometocontinueandexpandasthesearesuperlong-haultradesthathavetheabilitytoincreasetankerutilisationandconstrainavailabletankersupplyatthemargin.ThesetradeswillgainfurthersupportshouldOPECandthenonOPEC11extendtheir1.8m-bpdcutsintothesecondhalfof2017.Otherarbitrageopportunitieshaveopenedupin
Chinaasthesmallteapotrefineriescompetewiththegiantstate-ownedrefinerstoimportcrudeandsupplyrefinedproductstoboththedomesticandregionalmarkets.UnipechasbeenliftingVLCCcargoesfromtheGulfofMexicotoChina,takingadvantageofrisinginventoriesofUScrudeandfallingWTIprices.Meanwhile,theindependentrefiners(theteapots)havebeendiversifyingtheirpurchasesawayfromEastSiberiaPacificOcean(ESPOBlend)crudefromnearbyKozminotousinglargertankersfromAtlanticsources,includingNorthAmericanheavycrudeoil,generallyablendofCanadianandUSheavygradesshippedfromtheGulf.ESPOpricesarelinkedtoDubaipricessotheyhavelatelybeenlesscompetitive;also,theESPOpipelineentersplannedmaintenanceinFebruaryandMarchthusreducingoutput.Bythesametoken,Brent-linkedUralscrudehasgainedapriceadvantageinconjunctionwithlowerVLCCfreight.ChinesetradershavebeensourcingUralscrudefromtheBalticportsofPrimorskandUst-LugaandusingtheDanishdeep-waterportatSkawtotranshipontoVLCCsforthelongtriptoChina.UralscrudeisalsoshippedoutoftheBlackSeaportofNovorossiyskonsuezmaxtankers,furtheraddingtolong-haulsuppliestoAsiadespiteRussia’sinvolvementinthesupplycuts.
Underthecircumstances,forecastingtankerdemandishazardous.Onthefaceofit,agreedproductioncutscouldreducetheamountofcrudeoilonthewaterbyupto1.8m-bpd,buttheattendanthigherpricesaregettingUSdrillersbackintoplay,thuscounteractingthesesupplycuts.Furthermore,areductioninMiddleEastGulfcrudeexportsisgivingwaytosuperlong-haulshipmentsfromnonOPECAtlanticsuppliers,thusdeliveringatonne-milelifttolargecrudetankerowners.Itishardtofathom,butitseemstolookgood.Thebatonisthenpassedtothetankerownersandwhetherornottheycanresistthetemptationtoordernewshipsatveryattractivelylowandfallingprices.WeunderstandtodaythataprominentGreekownerhasjustorderedapairof320,000-dwtVLCCsfordeliveryin3Q18,togetherwithapairofoptions,atHyundaiHeavyIndustriesfor$79meach.AnotherprominentGreekisrumouredtobeinclosediscussionswithHanjinSubicBaytobuild2+2VLCCsfordeliveryin2H18at$75meach.SotheanswertothatquestionisprobablyNO.Forthemarket’ssake,onecanonlyhopethatthebanklendingmarketremainsshuttomostownersandthatprivateequityandtheChineseleasingcompaniesdonotpadoutshipyardorderbooksandprejudicefuturesupplyanddemandbalance.Ironically,thesheerscaleandspeedofregulatorychangemaypromoteawaveofnewcontractingthatwilloutpacetherateofobsolescenceandscrapping.Thetankershippingworldmaybecomesaferandcleaner,butnotnecessarilymoreprofitable.
Shipping Markets Outlook 2017Shipping Markets Outlook 201728 29
The Containership Market
This section accompanies the narrative to the container sector chart book
at the back of this publication.
Thecontainermarkethasbeeninastateofcrisisformostofitsexistence,withmanymorepooryearsthangood.2016wasnoexceptionasitalsofelldecisivelyintothepoorcategory.TheaverageofthecomprehensiveShanghaiContainerisedFreightIndex,ahybridcontainerfreightindex,was1,072pointsin2014,fallingto728pointsin2015andthendivingevenlowerto653pointsin2016.ThedevastationthatthisvisiteduponthemarketwasbestillustratedbythecollapseofHanjinShippingand,unusually,theabsenceofthecustomarybailoutfollowedbyaphoenix-likeresurrection.Insteaditisbeingdismantledbitbybitastestimonytoitsfailure;evidently,thiswillbenoSankoorPanOcean,eachtwicebankruptedandtwicereprieved.Hanjin’sfailureshockedthemarketandleftmanyshipsandtheircrewsandcargoesstrandedatsea,keptoutofportsforfearthattheycouldnotpaytheirbills.Thehiatuscausedfreightratestoriseasothercarrierssteppedintoreplaceitsoperations.Thisyear,thingsgotofftoabetterstartas,inJanuary2017,theSCFIaveraged971points,49%uponthe2016annualaverage.ThewholesorryHanjinShippingsagamade2016aseminalyearforcontainershippingastheworld’sleadingcarriersrealisedthat‘therebutforthegraceofGodgoI’.HanjinShippingwasonlyformallydeclaredbankrupton17February2017,makingitthelargestcontainershippingbankruptcyinthe60-yearhistoryofcontainerisation,withliabilitiesinexcessof$6billionatendSeptember2016,accordingtoitslastpublishedfinancialreport.
Itisestimatedthattheoceancarrierscouldhavelostupto$10billionbetweenthemin2016andthereisstillanimbalancebetweenforecastfuturesupplyandforecastfuturedemand.Thisrealisationinjectedsomeurgencyintomuchneededdefensiveconsolidationasameanstosurvivalratherthanshiningalightonapathtofutureprosperity;firstthingsfirst.Consolidationin2016ledtotheprospectivecreationofthreeleadingalliancesfromAprilthisyear,replacingthefourthatcurrentlyexist(being2M,Ocean3,CKYHEandG6).Thenewgroupswillbe2M+HMMwhichisMaersk(soontoincludeHamburgSüd)andMSC,togetherwiththeadditionofarehabilitatedHMM.EvenwithoutHMM,itwillhavea29.3%shareoftheeast-westtradeaccordingtoAlphaliner.TheOcean
AlliancecomprisesthefollowingconsolidatednamesCMACGM/APL,Cosco/CSCL,EvergreenandOOCL;itshouldendupwitha35.6%shareoftheeast-westtrade.Finally,theAlliancewillbemadeupofHapagLloyd/UASC,MOL,NYK,KLineandYangMing;itshouldsnare27.6%oftheeast-westtrade.Theaforementionedcompaniesmakeup16oftheformertop20inthe1Q16rankings,theothersbeingthenowbankruptHanjinandtheapparentlyorphanedZIM,PILandWanHai.Maybetheselattertwoneighbourswillgetthemarriagebugasonewouldimaginethat,asfellowAsiancarriers,theymightidentifysomeculturalsimilarities.Greaterconsolidationthroughmergersandacquisitionsandlargeralliancesputspressureonthesmallerindependentsthatarelefttotheirowndevices.Theydonothavethescaletoundercutthebigalliancesandstillremaininbusiness.Thethreeenlargedallianceswillintheoryleadtoreducedcompetitionandbetterenablethemtoholdthelineonfreightrates,somethingthatisbadlyneededaftersuchadisastrous2016.Fromtheshipperandcargomoverperspective,whichareconstantlyrunningtotheregulatorsandanti-trustauthorities,itwouldbebettertoassertthatcompetitionwillactuallyincreaseandthatservicestandardswillimproveevenfurther.Muchofthelimitedfreightraterecoveryinsecondhalf2016wasputdowntothedemiseofHanjinShippingandtheeffectivestrandingofits96ships,halfofwhichwereovermax-panamax5,100-teucapacity.TheHanjinfleetusedtoaccountfor3%oftheglobalfleetbycapacityand7%ofthetranspacifictradebycapacity.
Thatwasthesituationfortheshippinglinesbutwhatofthenonoperatingowners,theinvestorsthatrelyuponcharteringtheirshipstothemainlinecarriersforemployment?Lastyearthecontainershiptimecharterindexsanktoitslowestlevelsince2010.In2010themonthlyTCindexaveraged51points;in2016itaveraged41points.TCratesforalmostalltrampshipsunder10,000-teuconvergedatarounddailyoperatingcostsputtingextremestressontheirownersandtheirbanks,especiallyinGermanywheretraditionallyabouthalfofthetrampshipfleethasresided.Theplungeinfreightratesandtimecharterratestookplaceatatimeofrecordscrappingandslowingnewshipdeliveries.In2014,1.49m-teudeliveredand0.37m-teu
werescrapped,givinganetgainof1.12m-teu.In2015,1.68m-teudeliveredagainstonly0.19m-teuthatwerescrapped,leadingtonetcapacitygrowthof1.49m-teu.In2016,only0.90m-teudeliveredagainstamuchhigher0.65m-teuthatwentfordemolition,anetgainofjust0.25m-teu,theslowestrateofnetfleetgrowthsince1999whenthefleetexpandedbyjust0.21m-teu.Itisastepintherightdirectionbutorderingrestraintandhighscrappinglevelsbothneedtobemaintainedtocurethemarketofalargecapacityoverhangonthewaytorebalancingsupplyanddemand.Oneindicatorofjustwhatachallengingyear2016hadbeenforcontainershippingwastheannualresultofthemarketleader:MaerskLine.Lastyearitpostedalossof$376millionaftera$1.3billionprofitin2015.Thelosswasattributedto“poormarketconditionsleadingtosustainedlowerfreightratespartlyoffsetbyhighervolumesandlowerunitcostsrelatedtolowerbunkerprices,higherutilisationandcostefficiencies.”Itdoesnotbodewellforthecompetition.
Theworsthitassetclassin2016wasthebeleagueredclassicpanamax,withits32.2mbeam,asthenewset
oflocksfinallyopenedinPanamalastJune,twoyearsbehindschedule.On26June2016,theCoscoShippingPanama(9,472-teu,HyundaiSamho,2016,Loa300m,Beam48m)enteredoneofthenewlocksonitstransitofthe48-milecanalfromthenorthernAtlanticOceanend.ThiswasatransformationalmomentforPanamaandforthecontainershippingindustry.Italso,intheopinionofmanyobservers,spelledtheendoftheroadforthepopularclassicpanamaxthatwouldnolongerbeabletocompeteagainstgiant14,000-teuvesselscarryingthreetimesasmanycontainers.Theearningsandvaluesoftheseshipshavebeenonadownwardslopesince2011.Theoneyeartimecharterratewasashighas$28,500dailyinearly2011foramodern4,400-teuvesselbut,bytheendoflastyear,itwascloserto$4,000perday,wellbelowtypicaldailyoperatingcosts.A5-yearoldshipofthissizewasworthasmuchas$55millioninearly2011but,bytheendof2016,ithadfallentojust$7million.Inearly2017,classicpanamaxvesselsasyoungas7yearsofagewerebeingsoldforscrapinIndiaforaslittleas$5.5million,onesuchexamplebeingthereportedscrappingoftheHammoniaGrenada(4,249-teuNew
Shipping Markets Outlook 2017Shipping Markets Outlook 201730 31
YZJ201024L17,607LDT)for$315perLDT.Someimaginativeandadventurousplayers,suchasSeaspanandKMTC,havebeenbuyingblocksof7to8yearold4,275-teuSamsungbuiltunitsfromHanjinShippinganditscreditorsforscrappricesofaround$5.25m.Theywillbehopingthatonedaytheywilltradeagainandthattheirvalueswillrecoverfromrockbottomlevels.
Whiletheclassicpanamaxclassborethebruntofthedeclineinvalues,allothertrampclasses–generallybelow10,000-teu–wereaffectedtovaryingdegrees.Thelargershipsabove10,000-teuarenormallyprotectedbyhavingbeenfixedonto10-15yearcharterstothemainlinecarriergroupsatratesthatarelinkedtothedeliveredcostoftheshipswhennew.Theyarenotentirelysafe,asthecollapseofHanjinwillattestto,andwhentimesaretoughithasbecomeconventionaltorenegotiatetermsand,insomeinstances,paycompensationforearlyterminationor,intheworstcase,justhandthekeysbackandheadforarbitrationorcourt.Atleast,afterayearsuchas2016,themarketlooksalittleclosertobottomingoutandturningaround,especiallyasdemolitionisrisingandcontractingisdeclining.Since2009,containership
contractinghasbeenvolatilewithnotmuchin2010,2012and2016buttoomuchin2011,2013and2015.In2015,some2.29m-teuwasorderednotsomuchonthebasisofananticipatedrequirementformorecapacitybutbasedontheneedtoreduceunitcostsandgetcompetitive,i.e.forallthewrongreasons.Theseverityofthecrisisin2016,thatsawHanjingounderandaswitchtodefensiveconsolidation,causedcontractingtofalltojust0.20m-teu.Asinanysector,orderingmorenewshipsfornogoodreasonisnothelpfultoanyoneintheshorttermotherthantheshippers,themoversofcargo,whobenefitfromcheaperfreightonnewer,fasterandmoreefficientships.
Therearestilltoomanyshipsdeliveringwithabout1.7m-teuscheduledfor2017.In2017,77shipsof10,000-teuandabovearesettodeliver,25ofwhichare18,000-teuandabove.In2018andbeyond,84shipsof10,000-teuandabovearescheduled,37ofwhichareof18,000-teuandlarger.Theover-provisionofultralargeshipsoneast-westroutes,particularlyAsia-Europe,hascascadedlargeshipsintoallothertradelanesincludingintra-Asiaandnorth-south.Thishasservedtocreateovercapacityacrosstheglobal
networkanddeployshipsthataresub-optimalfortheirintendedtrades.Beneficially,ithassqueezedolderandinefficientshipsintoidleness,lay-upanddemolition.Thefocusonultralargeshipswasforalongtimeattheexpenseofsmallersizesandfeedersbelow5,000-teu.Suchadevelopmentisrarelylostontheinvestorcommunityanditdidnottakelongfororderstobeplacedinrecentyearsandthegapdulyplugged.107shipsinthe1,000to2,999-teusizebracketaresettodeliverin2017followedbyanother89in2018andbeyond.Suchegregiousorderingmightwellsnuffoutwhatlookedtobeagoodprospectforawhileforthesesmallerandpreviouslyignoredsizes.
Onamorepositivenote,MaerskLineexpectsa$1billionboosttoprofitsthisyearafternegotiatinghigherfreightratesforlong-termcontractsontheeast-westtradesinDecemberandJanuary.Furthermore,itexpectshigherratestobeachievedforlong-termcontractsonthetranspacificthatwillbeconcludedinMay.Animprovementover2016intheeast-westtradesmaynotbematchedinthenorth-southtradestoAfricaandLatinAmericathathavebeennegativelyimpactedbythecascadingprocessthathaspushedlargershipsontothesetradelanesandcreatedovercapacityandincreasedcompetition.Lowerfreightratesin2017sawrevenuesfall13%to$20.7billionbaseduponanalmost19%dropinaveragefreightratesto$1,795perfeu.Thiswaspartiallyoffsetbyanover9%increaseinvolumesto10.4m-teu.MaerskLineseesthelinerbusinessataninflectionpointthisyearas,fromthe4thquarterof2016,thenetadditionofnominalcapacitywentdownconsiderablyasfewernewdeliveriesmetelevatedscrapping.Thisprocessofdemandgrowthbeginningtooutstripsupplygrowthiswhatisneededtoburnoffaccumulatedovercapacity.ItquotesContainerTradesStatisticsthatshowAsia-Europevolumesincreased1.2%in2016toover15m-teu,reversinga3.1%dropin2015,whileAsia-UStraderose4.3%in2016to14.2m-teu.
Alphalinersupplyanddemandgrowthfiguressuggestthattheimbalancecontinuestohaveadetrimentalimpactonfreightrates,butthesituationisimproving.In2016,tradegrewby1.1%year-on-yearwhilethefleetgrewbyonly1.5%year-on-year,to20.3m-teu,thelowestannualfleetgrowthrateintheindustry’shistory.Thequarterlybreakdowninvesseldemandgrowthversusvesselsupplygrowthin2016wasQ1:1.6%v.7.9%,Q2:1.7%v.6.3%,Q3:1.5%v.4.3%andQ4:0.6%v.2.2%.Thisshowsthatbothdemandgrowthandsupplygrowtharefallingintandem.Thiscausedtheidlefleettorisetoanaverageof1.48m-teuin4Q16.Thingshaveimprovedthisyearasdemandgrowthhasreboundedto1.0%andsupplygrowthhasdroppedto1.2%,narrowingthesupply-demandgapandreducingtheidlefleetto1.34m-teuinthefirstfiveweeksof2017.Lookingforward,Alphalinerforecaststradetoriseby1.6%in2017whilethefleetisexpectedtoexpandby4.8%and,in2018,tradeisforecasttoexpandby2.0%againstfleetgrowthof4.7%.Theimbalanceisnarrowingbutthesenumberssuggestthatwearestillchasingourtailswithmoreshipsbeingorderedandaddedtothefleetthandemandcanpossiblysupport.Aswiththeothermainsectorsofdrybulkandtankers,weneedaprolongedperiodofminimalcontractingandheavyscrappingtorebalancethemarket.Despitetheclashingsupplyanddemandforecastsmuchoftheworstisprobablybehindusbutwemaybebumpingalongthebottomforanother18-24monthsbeforeachievingbetterbalance.Togettothatpoint,weallknowwhatisneeded,butaretheleadingmarketplayersdisciplinedenoughtodeliverit?
“Supply and demand growth figures suggest that the imbalance
continues to have a detrimental impact on freight rates, but the
situation is improving. In 2016, trade grew by a 1.1% year-on-year
while the fleet grew by only 1.5% year-on-year, to 20.3m-teu, the
lowest annual fleet growth rate in the industry’s history”
Image courtesy of Marine Capital
Shipping Markets Outlook 2017Shipping Markets Outlook 201732 33
Conclusion
Opportunity Knocks. The title encourages us to believe that there are
present good opportunities in shipping, and they are knocking on our door,
but there is still a need to exercise a degree of caution.
Wemightwanttoseparateandevaluatethe‘opportunity’fromthe‘knocks’ascurrentopportunitiesarenotwithoutrisk.Anyopportunityhastobetakenintheexpectationofafewknocksalongtheway.Bulkcarrierandcontainershipvaluesareathistoricallylowlevelswiththeformeralreadyembarkedonanappreciatingpathandthelattertakingtheirleadfromscrapvalues.Itcanhardlygetmuchworse,sothedownsiderisksareverymuchoutweighedbytheupsidepotential.However,wehavelearntfromtheoccasionalfalsedawnssincetheglobalfinancialcrisispoppeduptenyearsagothatmarkettimingremainsoneofourgreatestchallenges.Thatneverchanges.Astutepurchasescanbemadetodaybutearningsmaytakeawhiletorecoverso,inanidealworld,littleornofinancialgearingshouldbedeployed.Thebankswillalmostcertainlyencouragealowtonogearingapproach…Currentearningsaresufficienttocoverdailyoperatingcostsbutareunlikelytothrowoffsignificantfreecashflowtoservicedebtand
principalrepayments.Whentheearningsrecoverydulyarrives,itwillfeedintohigherassetvalues,deliveringamuchsoughtaftercombinationofyieldandcapitalappreciation.Tankersaredancingtoadifferentbeat.Earningsandassetvaluesenjoyedastrong2015withbenignsupplyanddemandconditions.Thisallchangedin2016astankersupplyincreasedwhiletankerdemandmoderated.Thesupplyoutlookoverthenextfewyearsappearsalittletopheavy,butthedemandoutlookisfundamentallysoundandtheall-importanttonne-milemultiplierisanyone’sguess,anditisquitecapableofdeliveringapleasantsurprise,ratherasitisrightnow.Whatissignificantthoughisthatthepoormarketof2016tookasledgehammertoassetvaluesandalltankerclasseswereleft25%lowerorworse.Atsuchadjustedlevelsmanypotentialbuyersperceivecurrentsecondhandvaluestorepresentgoodvalue.Acrossallthreemainsectors,opportunityknocks,butaswetakeadvantageoftheseopportunitieswehadbeststeelourselvesforafewknocksalongtheway.
Shipping Markets Outlook2017 Edition
Chart Series
“Amorgos“ image courtesy of OMT
Shipping Markets Outlook 2017: Global Macro EnvironmentShipping Markets Outlook 2017: Global Macro Environment34 35
1.9%
3.9%
1.6%
3.6%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
Developed Markets Emerging Markets
Jan-16 Jan-17
-4%
-2%
0%
2%
4%
2009 2010 2011 2012 2013 2014 2015 2016
US Core CPI yoy Eurozone Core Japan CPI all items
0 100 200 300 400 500 600 700
2003
20
04
2005
20
06
2007
20
08
2009
20
10
2011
20
12
2013
20
14
2015
20
16
Fed ECB Boj 10 12 14 16 18 20 22 24 26 28 30
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
PE M
ULTIP
LE
70 75 80 85 90 95 100 105 110
20
25
30
35
40
45
50
2011 2012 2013 2014 2015 2016 Dividends (LHS) Earnings (RHS)
0
2
4
6
8
10
12
14
2008 2009 2010 2011 2012 2013 2014 2015 2016
US UK Eurozone
inde
xin
dex
inde
x
% of l
abou
r fo
rce
1.9%
3.9%
1.6%
3.6%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
Developed Markets Emerging Markets
Jan-16 Jan-17
-4%
-2%
0%
2%
4%
2009 2010 2011 2012 2013 2014 2015 2016
US Core CPI yoy Eurozone Core Japan CPI all items
0 100 200 300 400 500 600 700
2003
20
04
2005
20
06
2007
20
08
2009
20
10
2011
20
12
2013
20
14
2015
20
16
Fed ECB Boj 10 12 14 16 18 20 22 24 26 28 30
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
PE M
ULTIP
LE
70 75 80 85 90 95 100 105 110
20
25
30
35
40
45
50
2011 2012 2013 2014 2015 2016 Dividends (LHS) Earnings (RHS)
0
2
4
6
8
10
12
14
2008 2009 2010 2011 2012 2013 2014 2015 2016
US UK Eurozone
inde
xin
dex
inde
x
% of l
abou
r fo
rce
1.9%
3.9%
1.6%
3.6%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
Developed Markets Emerging Markets
Jan-16 Jan-17
-4%
-2%
0%
2%
4%
2009 2010 2011 2012 2013 2014 2015 2016
US Core CPI yoy Eurozone Core Japan CPI all items
0 100 200 300 400 500 600 700
2003
20
04
2005
20
06
2007
20
08
2009
20
10
2011
20
12
2013
20
14
2015
20
16
Fed ECB Boj 10 12 14 16 18 20 22 24 26 28 30
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
PE M
ULTIP
LE
70 75 80 85 90 95 100 105 110
20
25
30
35
40
45
50
2011 2012 2013 2014 2015 2016 Dividends (LHS) Earnings (RHS)
0
2
4
6
8
10
12
14
2008 2009 2010 2011 2012 2013 2014 2015 2016
US UK Eurozone
inde
xin
dex
inde
x
% of l
abou
r fo
rce
1.9%
3.9%
1.6%
3.6%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
Developed Markets Emerging Markets
Jan-16 Jan-17
-4%
-2%
0%
2%
4%
2009 2010 2011 2012 2013 2014 2015 2016
US Core CPI yoy Eurozone Core Japan CPI all items
0 100 200 300 400 500 600 700
2003
20
04
2005
20
06
2007
20
08
2009
20
10
2011
20
12
2013
20
14
2015
20
16
Fed ECB Boj 10 12 14 16 18 20 22 24 26 28 30
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
PE M
ULTIP
LE
70 75 80 85 90 95 100 105 110
20
25
30
35
40
45
50
2011 2012 2013 2014 2015 2016 Dividends (LHS) Earnings (RHS)
0
2
4
6
8
10
12
14
2008 2009 2010 2011 2012 2013 2014 2015 2016
US UK Eurozone
inde
xin
dex
inde
x
% of l
abou
r fo
rce
1. Growth disappointed again in 2016…
3. The rapid expansion of central bank balance sheets…
2. …and inflation remained low
4. …inflated financial assets further
Global GDP growth YoY% Source: HSBC, Hartland Shipping
FED ECB BOJ Balance Sheet Source: Federal Reserve, European Central Bank, Thomson Reuters,
Hartland Shipping
Consumer price index YoY%Source: Thompson Reuters, Hartland Shipping
S&P 500 composite index Source: Yale School of Management Robert Shiller data series, Hartland Shipping
Global Macro Environment
Growth in developing and emerging markets disappointed in 2016 while inflation remained low
Global GDP growth forecasts are more promising with greater focus on fiscal spending and less focus on austerity
This should support global seaborne trade in all sectors, however, this will be constrained as economies are already heavily indebted
1.9%
3.9%
1.6%
3.6%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
Developed Markets Emerging Markets
Jan-16 Jan-17
-4%
-2%
0%
2%
4%
2009 2010 2011 2012 2013 2014 2015 2016
US Core CPI yoy Eurozone Core Japan CPI all items
0 100 200 300 400 500 600 700
2003
20
04
2005
20
06
2007
20
08
2009
20
10
2011
20
12
2013
20
14
2015
20
16
Fed ECB Boj 10 12 14 16 18 20 22 24 26 28 30
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
PE M
ULTIP
LE
70 75 80 85 90 95 100 105 110
20
25
30
35
40
45
50
2011 2012 2013 2014 2015 2016 Dividends (LHS) Earnings (RHS)
0
2
4
6
8
10
12
14
2008 2009 2010 2011 2012 2013 2014 2015 2016
US UK Eurozone
inde
xin
dex
inde
x
% of l
abou
r fo
rce
1.9%
3.9%
1.6%
3.6%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
Developed Markets Emerging Markets
Jan-16 Jan-17
-4%
-2%
0%
2%
4%
2009 2010 2011 2012 2013 2014 2015 2016
US Core CPI yoy Eurozone Core Japan CPI all items
0 100 200 300 400 500 600 700
2003
20
04
2005
20
06
2007
20
08
2009
20
10
2011
20
12
2013
20
14
2015
20
16
Fed ECB Boj 10 12 14 16 18 20 22 24 26 28 30
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
PE M
ULTIP
LE
70 75 80 85 90 95 100 105 110
20
25
30
35
40
45
50
2011 2012 2013 2014 2015 2016 Dividends (LHS) Earnings (RHS)
0
2
4
6
8
10
12
14
2008 2009 2010 2011 2012 2013 2014 2015 2016
US UK Eurozone
inde
xin
dex
inde
x
% of l
abou
r fo
rce
5. Corporates continued to pay higher dividends despite lower earnings…
6. ...although unemployment dropped…
S&P 500 Dividends vs Earnings indices Source: Yale School of Management Robert Shiller data series, Hartland Shipping
Unemployment Rates Source: Thompson Reuters, Hartland Shipping
-2%
-1%
0%
1%
2%
3%
4%
5%
2006 2008 2010 2012 2014 2016
US Eurozone UK
5% 6% 6% 7% 7% 8% 8% 9% 9%
10%
Jan-
14
Apr-
14
Jul-1
4
Oct-1
4
Jan-
15
Apr-
15
Jul-1
5
Oct-1
5
Jan-
16
Apr-
16
Jul-1
6
Oct-1
6
-4% -2% 0% 2% 4% 6% 8%
10% 12% 14% 16%
2011 2012 2013 2014 2015 2016 -20%
-10%
0%
10%
20%
30%
40%
50%
60%
2011 2012 2013 2014 2015 2016
25.2%
13.6%
7.5%
0%
5%
10%
15%
20%
25%
Thermal coal Crude oil Iron ore
-6.9% -5.4%
Coal Crude oil Iron ore
-9.4%
0%
-2%
-4%
-6%
-8%
-10%
-2%
-1%
0%
1%
2%
3%
4%
5%
2006 2008 2010 2012 2014 2016
US Eurozone UK
5% 6% 6% 7% 7% 8% 8% 9% 9%
10%
Jan-
14
Apr-
14
Jul-1
4
Oct-1
4
Jan-
15
Apr-
15
Jul-1
5
Oct-1
5
Jan-
16
Apr-
16
Jul-1
6
Oct-1
6
-4% -2% 0% 2% 4% 6% 8%
10% 12% 14% 16%
2011 2012 2013 2014 2015 2016 -20%
-10%
0%
10%
20%
30%
40%
50%
60%
2011 2012 2013 2014 2015 2016
25.2%
13.6%
7.5%
0%
5%
10%
15%
20%
25%
Thermal coal Crude oil Iron ore
-6.9% -5.4%
Coal Crude oil Iron ore
-9.4%
0%
-2%
-4%
-6%
-8%
-10%
-2%
-1%
0%
1%
2%
3%
4%
5%
2006 2008 2010 2012 2014 2016
US Eurozone UK
5% 6% 6% 7% 7% 8% 8% 9% 9%
10%
Jan-
14
Apr-
14
Jul-1
4
Oct-1
4
Jan-
15
Apr-
15
Jul-1
5
Oct-1
5
Jan-
16
Apr-
16
Jul-1
6
Oct-1
6
-4% -2% 0% 2% 4% 6% 8%
10% 12% 14% 16%
2011 2012 2013 2014 2015 2016 -20%
-10%
0%
10%
20%
30%
40%
50%
60%
2011 2012 2013 2014 2015 2016
25.2%
13.6%
7.5%
0%
5%
10%
15%
20%
25%
Thermal coal Crude oil Iron ore
-6.9% -5.4%
Coal Crude oil Iron ore
-9.4%
0%
-2%
-4%
-6%
-8%
-10%
-2%
-1%
0%
1%
2%
3%
4%
5%
2006 2008 2010 2012 2014 2016
US Eurozone UK
5% 6% 6% 7% 7% 8% 8% 9% 9%
10%
Jan-
14
Apr-
14
Jul-1
4
Oct-1
4
Jan-
15
Apr-
15
Jul-1
5
Oct-1
5
Jan-
16
Apr-
16
Jul-1
6
Oct-1
6
-4% -2% 0% 2% 4% 6% 8%
10% 12% 14% 16%
2011 2012 2013 2014 2015 2016 -20%
-10%
0%
10%
20%
30%
40%
50%
60%
2011 2012 2013 2014 2015 2016
25.2%
13.6%
7.5%
0%
5%
10%
15%
20%
25%
Thermal coal Crude oil Iron ore
-6.9% -5.4%
Coal Crude oil Iron ore
-9.4%
0%
-2%
-4%
-6%
-8%
-10%
7. …wages grew marginally if at all
9. …and energy consumption rising
8. Activity improved in China as IP stabilised …
10. The stimulus introduced earlier in the year…
Wages growth YoY% Source: HSBC, Hartland Shipping
Chinese electricity consumption, YoY % (6mma) Source: Thomson Reuters, Hartland Shipping
Chinese industrial production, YoY % (3mma)Source: Thompson Reuters, Hartland Shipping
No. of newly started fixed asset projects in China cumulative, YoY % Source: Thompson Reuters, Hartland Shipping
Shipping Markets Outlook 2017: Global Macro EnvironmentShipping Markets Outlook 2017: Global Macro Environment36 37
65% 59%
50%
26%
12%
0%
20%
40%
60%
80%
100%
Iron ore 62%Fe Newcstle FOB Shanghai rebar Nickel ore Shanghai copper Bloomberg Commodity Index
1.6%
3.6%
1.7%
4.1%
1.8%
4.5%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
Developed Markets Emerging Markets
2016 2017f 2018f
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
34
36
38
40
42
44
46
-6 -4 -2 0 2 4 6 8
10 12
2002 2004 2006 2008 2010 2012 2014 2016
% OF G
DP
YoY %
GRO
WTH
YoY seaborne trade growth (LHS) Government Total expenditure as % of GDP (RHS)
90%
-2%
-1%
0%
1%
2%
3%
4%
5%
2006 2008 2010 2012 2014 2016
US Eurozone UK
5% 6% 6% 7% 7% 8% 8% 9% 9%
10%
Jan-
14
Apr-
14
Jul-1
4
Oct-1
4
Jan-
15
Apr-
15
Jul-1
5
Oct-1
5
Jan-
16
Apr-
16
Jul-1
6
Oct-1
6
-4% -2% 0% 2% 4% 6% 8%
10% 12% 14% 16%
2011 2012 2013 2014 2015 2016 -20%
-10%
0%
10%
20%
30%
40%
50%
60%
2011 2012 2013 2014 2015 2016
25.2%
13.6%
7.5%
0%
5%
10%
15%
20%
25%
Thermal coal Crude oil Iron ore
-6.9% -5.4%
Coal Crude oil Iron ore
-9.4%
0%
-2%
-4%
-6%
-8%
-10%
-2%
-1%
0%
1%
2%
3%
4%
5%
2006 2008 2010 2012 2014 2016
US Eurozone UK
5% 6% 6% 7% 7% 8% 8% 9% 9%
10%
Jan-
14
Apr-
14
Jul-1
4
Oct-1
4
Jan-
15
Apr-
15
Jul-1
5
Oct-1
5
Jan-
16
Apr-
16
Jul-1
6
Oct-1
6
-4% -2% 0% 2% 4% 6% 8%
10% 12% 14% 16%
2011 2012 2013 2014 2015 2016 -20%
-10%
0%
10%
20%
30%
40%
50%
60%
2011 2012 2013 2014 2015 2016
25.2%
13.6%
7.5%
0%
5%
10%
15%
20%
25%
Thermal coal Crude oil Iron ore
-6.9% -5.4%
Coal Crude oil Iron ore
-9.4%
0%
-2%
-4%
-6%
-8%
-10%
16. Despite weak correlation, fiscal spending should support seaborne trade11. ...led to a surge in commodity imports 12. Falling domestic production also helped
Seaborne trade vs Government spending Source: IMF, CRS, Hartland Shipping
Change in Chinese imports (Jan-Dec 15 vs Jan-Dec 16) Source: Thompson Reuters, Hartland Shipping
Change in Chinese domestic production (Jan-16 to Dec-16) Source: China National Bureau of Statistics, Hartland Shipping
65% 59%
50%
26%
12%
0%
20%
40%
60%
80%
100%
Iron ore 62%Fe Newcstle FOB Shanghai rebar Nickel ore Shanghai copper Bloomberg Commodity Index
1.6%
3.6%
1.7%
4.1%
1.8%
4.5%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
Developed Markets Emerging Markets
2016 2017f 2018f
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
34
36
38
40
42
44
46
-6 -4 -2 0 2 4 6 8
10 12
2002 2004 2006 2008 2010 2012 2014 2016
% OF G
DP
YoY %
GRO
WTH
YoY seaborne trade growth (LHS) Government Total expenditure as % of GDP (RHS)
90%
60%
70%
80%
90%
100%
110%
120%
130%
2002 2004 2006 2008 2010 2012 2014 2016
1.8%
1.5%
1.4%
1.5%
1.6%
1.7%
1.8%
1.9%
Growth required to pay off interest Expected growth
60%
70%
80%
90%
100%
110%
120%
130%
2002 2004 2006 2008 2010 2012 2014 2016
1.8%
1.5%
1.4%
1.5%
1.6%
1.7%
1.8%
1.9%
Growth required to pay off interest Expected growth
65% 59%
50%
26%
12%
0%
20%
40%
60%
80%
100%
Iron ore 62%Fe Newcstle FOB Shanghai rebar Nickel ore Shanghai copper Bloomberg Commodity Index
1.6%
3.6%
1.7%
4.1%
1.8%
4.5%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
Developed Markets Emerging Markets
2016 2017f 2018f
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
34
36
38
40
42
44
46
-6 -4 -2 0 2 4 6 8
10 12
2002 2004 2006 2008 2010 2012 2014 2016
% OF G
DP
YoY %
GRO
WTH
YoY seaborne trade growth (LHS) Government Total expenditure as % of GDP (RHS)
90%
65% 59%
50%
26%
12%
0%
20%
40%
60%
80%
100%
Iron ore 62%Fe Newcstle FOB Shanghai rebar Nickel ore Shanghai copper Bloomberg Commodity Index
1.6%
3.6%
1.7%
4.1%
1.8%
4.5%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
Developed Markets Emerging Markets
2016 2017f 2018f
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
34
36
38
40
42
44
46
-6 -4 -2 0 2 4 6 8
10 12
2002 2004 2006 2008 2010 2012 2014 2016
% OF G
DP
YoY %
GRO
WTH
YoY seaborne trade growth (LHS) Government Total expenditure as % of GDP (RHS)
90%
17. However, fiscal expansion will be limited as economies are heavily indebted…
18. …and they are not going fast enough even to cover the interest on their debt
13. Rising Chinese demand pushed commodityprices higher across the board
14. Economic activity is expected to pickup going forward…
15. ...with more focus on fiscal spending
G7 general government gross debt as % of GDP Source: IMF, Hartland Shipping estimates
G7 required growth rate to pay interest on debt Source: IMF, Thomson Reuters, Hartland Shipping estimates
Change in commodity prices (Jan-16 to Dec-16) Source: Thompson Reuters, Hartland Shipping
Global GDP growth forecast Source: HSBC, Hartland Shipping
Average growth in government spending Source: IMF, Hartland Shipping
Shipping Markets Outlook 2017: Dry Bulk MarketShipping Markets Outlook 2017: Dry Bulk Market38 39
Dry Bulk Market
2016 was a year of two distinct halves with the BDI rising from an all-time record low of 290 in February to a 24-month record high of 1,257 in November
2017 is already shaping up as the year of the long awaited recovery with a continuous decrease in net fleet additions playing a rising demand growth outlook
The chronic oversupply of so many previous years can be defeated through minimal new bulk carrier contracting and maximum old bulk carrier demolition
0 100 200 300 400 500 600 700 800 900
1000
1H16 2H16 0
200
400
600
800
1000
1200
1400
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2015 2016
90%
65% 59%
50%
26%
12%
0%
20%
40%
60%
80%
100%
Iron ore 62%Fe Newcastle FOB Shanghai rebar Nickel ore Shanghai copper Bloomberg Commodity
Index
12% 6% -1%
22%
80%
15% 7% 25% 31%
83%
19% 19%
54% 70%
83%
29% 18%
33%
67%
33%
-5% 15% 35%
55% 75%
95%
China resale
Japan resale
5-yr old
10-yr old
15-yr old
China resale
Japan resale
5-yr old
10-yr old
15-yr old
China resale
Japan resale
5-yr old
10-yr old
15-yr old
China resale
Japan resale
5-yr old
10-yr old
15-yr old
Capesize Panamax Supramax Handysize
inde
x
inde
x
0 100 200 300 400 500 600 700 800 900
1000
1H16 2H16 0
200
400
600
800
1000
1200
1400
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2015 2016
90%
65% 59%
50%
26%
12%
0%
20%
40%
60%
80%
100%
Iron ore 62%Fe Newcastle FOB Shanghai rebar Nickel ore Shanghai copper Bloomberg Commodity
Index
12% 6% -1%
22%
80%
15% 7% 25% 31%
83%
19% 19%
54% 70%
83%
29% 18%
33%
67%
33%
-5% 15%
35% 55%
75% 95%
China resale
Japan resale
5-yr old
10-yr old
15-yr old
China resale
Japan resale
5-yr old
10-yr old
15-yr old
China resale
Japan resale
5-yr old
10-yr old
15-yr old
China resale
Japan resale
5-yr old
10-yr old
15-yr old
Capesize Panamax Supramax Handysize
inde
x
inde
x 0 100 200 300 400 500 600 700 800 900
1000
1H16 2H16 0
200
400
600
800
1000
1200
1400
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2015 2016
90%
65% 59%
50%
26%
12%
0%
20%
40%
60%
80%
100%
Iron ore 62%Fe Newcastle FOB Shanghai rebar Nickel ore Shanghai copper Bloomberg Commodity
Index
12% 6% -1%
22%
80%
15% 7% 25% 31%
83%
19% 19%
54% 70%
83%
29% 18%
33%
67%
33%
-5%
15% 35% 55%
75% 95%
China resale
Japan resale
5-yr old
10-yr old
15-yr old
China resale
Japan resale
5-yr old
10-yr old
15-yr old
China resale
Japan resale
5-yr old
10-yr old
15-yr old
China resale
Japan resale
5-yr old
10-yr old
15-yr old
Capesize Panamax Supramax Handysize
inde
x
inde
x
1. 2016 was a year of two halves…
3. Sentiment improved as commodity prices recovered
2. …as BDI dropped to its lowest level in February before recovering to a 24 month high in November
Baltic Dry Index average Source: Baltic Exchange, Hartland Shipping
Change in commodity prices (Jan-Dec ‘16) Source: Thomson Reuters, Hartland Shipping
BDI – 2015 vs 2016Source: Baltic Exchange, Hartland Shipping
0 100 200 300 400 500 600 700 800 900
1000
1H16 2H16 0
200
400
600
800
1000
1200
1400
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2015 2016
90%
65% 59%
50%
26%
12%
0%
20%
40%
60%
80%
100%
Iron ore 62%Fe Newcastle FOB Shanghai rebar Nickel ore Shanghai copper Bloomberg Commodity
Index
12% 6% -1%
22%
80%
15% 7% 25% 31%
83%
19% 19%
54% 70%
83%
29% 18%
33%
67%
33%
-5%
15%
35%
55%
75%
95%
China resale
Japan resale
5-yr old
10-yr old
15-yr old
China resale
Japan resale
5-yr old
10-yr old
15-yr old
China resale
Japan resale
5-yr old
10-yr old
15-yr old
China resale
Japan resale
5-yr old
10-yr old
15-yr old
Capesize Panamax Supramax Handysize
inde
x
inde
x
4. Asset values also surged, although from a very low base
Change in asset values by segment & age (March-16 to Dec-16) Source: Hartland Shipping
35%
30% 26%
29%
36%
30%
35%
42%
10%
15%
20%
25%
30%
35%
40%
45%
2009 2010 2011 2012 2013 2014 2015 2016
0
500
1,000
1,500
2,000
2,500
2000 2002 2004 2006 2008 2010 2012 2014 2016
0
100
200
300
400
500
600
700
2000 2002 2004 2006 2008 2010 2012 2014 2016
47.2
28.9
0
10
20
30
40
50
Deliveries Demolitions
0
200
400
600
800
1000
2000
20
01
2002
20
03
2004
20
05
2006
20
07
2008
20
09
2010
20
11
2012
20
13
2014
20
15
2016
M-DW
T
no o
f shi
ps
no o
f shi
psno
of s
hips
35%
30% 26%
29%
36%
30%
35%
42%
10%
15%
20%
25%
30%
35%
40%
45%
2009 2010 2011 2012 2013 2014 2015 2016
0
500
1,000
1,500
2,000
2,500
2000 2002 2004 2006 2008 2010 2012 2014 2016
0
100
200
300
400
500
600
700
2000 2002 2004 2006 2008 2010 2012 2014 2016
47.2
28.9
0
10
20
30
40
50
Deliveries Demolitions
0
200
400
600
800
1000
2000
20
01
2002
20
03
2004
20
05
2006
20
07
2008
20
09
2010
20
11
2012
20
13
2014
20
15
2016
M-DW
T
no o
f shi
ps
no o
f shi
psno
of s
hips
35%
30% 26%
29%
36%
30%
35%
42%
10%
15%
20%
25%
30%
35%
40%
45%
2009 2010 2011 2012 2013 2014 2015 2016
0
500
1,000
1,500
2,000
2,500
2000 2002 2004 2006 2008 2010 2012 2014 2016
0
100
200
300
400
500
600
700
2000 2002 2004 2006 2008 2010 2012 2014 2016
47.2
28.9
0
10
20
30
40
50
Deliveries Demolitions
0
200
400
600
800
1000
2000
20
01
2002
20
03
2004
20
05
2006
20
07
2008
20
09
2010
20
11
2012
20
13
2014
20
15
2016
M-DW
T
no o
f shi
ps
no o
f shi
psno
of s
hips
5. Recovery was partly due to slowing supply growth…
7. High slippage…
6. ….which was the lowest in 13 years
2016 total drybulk deliveries & demolitions Source: CRS, Hartland Shipping
Historical slippage Source: CRS, Hartland Shipping
Historical net fleet additionsSource: CRS, Hartland Shipping
Shipping Markets Outlook 2017: Dry Bulk MarketShipping Markets Outlook 2017: Dry Bulk Market40 41
35%
30% 26%
29%
36%
30%
35%
42%
10%
15%
20%
25%
30%
35%
40%
45%
2009 2010 2011 2012 2013 2014 2015 2016
0
500
1,000
1,500
2,000
2,500
2000 2002 2004 2006 2008 2010 2012 2014 2016
0
100
200
300
400
500
600
700
2000 2002 2004 2006 2008 2010 2012 2014 2016
47.2
28.9
0
10
20
30
40
50
Deliveries Demolitions
0
200
400
600
800
1000
2000
20
01
2002
20
03
2004
20
05
2006
20
07
2008
20
09
2010
20
11
2012
20
13
2014
20
15
2016
M-DW
T
no o
f shi
ps
no o
f shi
psno
of s
hips
8. …and heavy scrapping helped
Historical scrapping Source: CRS, Hartland Shipping
-5
5
15
25
35
45
55
65
75
Iron ore Thermal Coal Coking Coal
Jan-Dec 2015 vs Jan-Dec 2016
Logs Copper Scrap Bauxite Fertilisers Agribulks Nickel ore Grains
0%
10%
20%
30%
40%
50%
60%
2013 2014 2015 2016 -10%
-5%
0%
5%
10%
15%
2013 2014 2015 2016
2013 2014 2015 2016
Steel exports 6 per. Mov. Avg. (Steel exports)
-200
-100
0
100
200
300
400
500
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
mill
ion to
nnes
mill
ion to
nnes
mill
ion to
nnes
mill
ion to
nnes
mill
ion to
nnes
0
2
4
6
8
10
12
60 65 70 75 80 85 90 95 100
600
700
800
900
1,000
1,100
Jan-
14
Apr-
14
Jul-1
4
Oct-1
4
Jan-
15
Apr-
15
Jul-1
5
Oct-1
5
Jan-
16
Apr-
16
Jul-1
6
Oct-1
6
Jan-
17
Monthly imports (RHS) Annual cummulative imports (LHS)
35%
30% 26%
29%
36%
30%
35%
42%
10%
15%
20%
25%
30%
35%
40%
45%
2009 2010 2011 2012 2013 2014 2015 2016
0
500
1,000
1,500
2,000
2,500
2000 2002 2004 2006 2008 2010 2012 2014 2016
0
100
200
300
400
500
600
700
2000 2002 2004 2006 2008 2010 2012 2014 2016
47.2
28.9
0
10
20
30
40
50
Deliveries Demolitions
0
200
400
600
800
1000
2000
20
01
2002
20
03
2004
20
05
2006
20
07
2008
20
09
2010
20
11
2012
20
13
2014
20
15
2016
M-DW
T
no o
f shi
ps
no o
f shi
psno
of s
hips
9. A collapse in contracting is also good for limiting future supply
10. Demand recovered too…
Historical contracting Source: CRS, Hartland Shipping
Incremental seaborne trade growth, annual Source: CRS, Hartland Shipping
-5
5
15
25
35
45
55
65
75
Iron ore Thermal Coal Coking Coal
Jan-Dec 2015 vs Jan-Dec 2016
Logs Copper Scrap Bauxite Fertilisers Agribulks Nickel ore Grains
0%
10%
20%
30%
40%
50%
60%
2013 2014 2015 2016 -10%
-5%
0%
5%
10%
15%
2013 2014 2015 2016
2013 2014 2015 2016
Steel exports 6 per. Mov. Avg. (Steel exports)
-200
-100
0
100
200
300
400
500
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
mill
ion to
nnes
mill
ion to
nnes
mill
ion to
nnes
mill
ion to
nnes
mill
ion to
nnes
0
2
4
6
8
10
12
60 65 70 75 80 85 90 95 100
600
700
800
900
1,000
1,100
Jan-
14
Apr-
14
Jul-1
4
Oct-1
4
Jan-
15
Apr-
15
Jul-1
5
Oct-1
5
Jan-
16
Apr-
16
Jul-1
6
Oct-1
6
Jan-
17
Monthly imports (RHS) Annual cummulative imports (LHS)
11. …led by China
China incremental growth in imports Source: Thomson Reuters, Hartland Shipping
-5
5
15
25
35
45
55
65
75
Iron ore Thermal Coal Coking Coal
Jan-Dec 2015 vs Jan-Dec 2016
Logs Copper Scrap Bauxite Fertilisers Agribulks Nickel ore Grains
0%
10%
20%
30%
40%
50%
60%
2013 2014 2015 2016 -10%
-5%
0%
5%
10%
15%
2013 2014 2015 2016
2013 2014 2015 2016
Steel exports 6 per. Mov. Avg. (Steel exports)
-200
-100
0
100
200
300
400
500
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
mill
ion to
nnes
mill
ion to
nnes
mill
ion to
nnes
mill
ion to
nnes
mill
ion to
nnes
0
2
4
6
8
10
12
60 65 70 75 80 85 90 95 100
600
700
800
900
1,000
1,100
Jan-
14
Apr-
14
Jul-1
4
Oct-1
4
Jan-
15
Apr-
15
Jul-1
5
Oct-1
5
Jan-
16
Apr-
16
Jul-1
6
Oct-1
6
Jan-
17
Monthly imports (RHS) Annual cummulative imports (LHS)
-5
5
15
25
35
45
55
65
75
Iron ore Thermal Coal Coking Coal
Jan-Dec 2015 vs Jan-Dec 2016
Logs Copper Scrap Bauxite Fertilisers Agribulks Nickel ore Grains
0%
10%
20%
30%
40%
50%
60%
2013 2014 2015 2016 -10%
-5%
0%
5%
10%
15%
2013 2014 2015 2016
2013 2014 2015 2016
Steel exports 6 per. Mov. Avg. (Steel exports)
-200
-100
0
100
200
300
400
500
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
mill
ion to
nnes
mill
ion to
nnes
mill
ion to
nnes
mill
ion to
nnes
mill
ion to
nnes
0
2
4
6
8
10
12
60 65 70 75 80 85 90 95 100
600
700
800
900
1,000
1,100 Ja
n-14
Apr-
14
Jul-1
4
Oct-1
4
Jan-
15
Apr-
15
Jul-1
5
Oct-1
5
Jan-
16
Apr-
16
Jul-1
6
Oct-1
6
Jan-
17
Monthly imports (RHS) Annual cummulative imports (LHS)
12. The stimulus introduced by the government in March…
13. …led to an improvement in steel demand…
No. of newly started fixed asset projects in China cumulative, YoY % Source: Thomson Reuters, Hartland Shipping
China steel production growth, YoY %Source: Thompson Reuters, Hartland Shipping
-5
5
15
25
35
45
55
65
75
Iron ore Thermal Coal Coking Coal
Jan-Dec 2015 vs Jan-Dec 2016
Logs Copper Scrap Bauxite Fertilisers Agribulks Nickel ore Grains
0%
10%
20%
30%
40%
50%
60%
2013 2014 2015 2016 -10%
-5%
0%
5%
10%
15%
2013 2014 2015 2016
2013 2014 2015 2016
Steel exports 6 per. Mov. Avg. (Steel exports)
-200
-100
0
100
200
300
400
500
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
mill
ion to
nnes
mill
ion to
nnes
mill
ion to
nnes
mill
ion to
nnes
mill
ion to
nnes
0
2
4
6
8
10
12
60 65 70 75 80 85 90 95 100
600
700
800
900
1,000
1,100
Jan-
14
Apr-
14
Jul-1
4
Oct-1
4
Jan-
15
Apr-
15
Jul-1
5
Oct-1
5
Jan-
16
Apr-
16
Jul-1
6
Oct-1
6
Jan-
17
Monthly imports (RHS) Annual cummulative imports (LHS)
14. …at a time when steel exports remained high
China steel exports Source: Thomson Reuters, Hartland Shipping
Shipping Markets Outlook 2017: Dry Bulk MarketShipping Markets Outlook 2017: Dry Bulk Market42 43
-2% 0% 2% 4% 6% 8%
10% 12% 14%
2011 2012 2013 2014 2015 2016
0
5
10
15
20
25
2011 2012 2013 2014 2015 2016
400
450
500
550
600
650
700
2011 2012 2013 2014 2015 2016 estimate
1.25%
2%
2.3%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
2016e 2017f 2018f
-20%
-10%
0%
10%
20%
30%
40%
2011 2012 2013 2014 2015 2016 -40%
0%
60%
110%
160%
2011 2012 2013 2014 2015 2016
mill
ion to
nnes
mill
ion to
nnes
mill
ion to
nnes
Y-O-
Y % ch
ange
y-o-
y % ch
ange
y-o-
y % ch
ange
y-o-
y % ch
ange
Inclusive of overland deliveries
-150 -100
-50 0
50 100 150 200 250 300 350
-2% 0% 2% 4% 6% 8%
10% 12% 14%
2011 2012 2013 2014 2015 2016
0
5
10
15
20
25
2011 2012 2013 2014 2015 2016
400
450
500
550
600
650
700
2011 2012 2013 2014 2015 2016 estimate
1.25%
2%
2.3%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
2016e 2017f 2018f
-20%
-10%
0%
10%
20%
30%
40%
2011 2012 2013 2014 2015 2016 -40%
0%
60%
110%
160%
2011 2012 2013 2014 2015 2016
mill
ion to
nnes
mill
ion to
nnes
mill
ion to
nnes
Y-O-
Y % ch
ange
y-o-
y % ch
ange
y-o-
y % ch
ange
y-o-
y % ch
ange
Inclusive of overland deliveries
-150 -100
-50 0
50 100 150 200 250 300 350
16. …as domestic production dropped 17. Coal volumes also recovered...
China domestic iron ore production Source: Thompson Reuters, Hartland Shipping
China coal imports (3mma) Source: Thompson Reuters, Hartland Shipping
-2% 0% 2% 4% 6% 8%
10% 12% 14%
2011 2012 2013 2014 2015 2016
0
5
10
15
20
25
2011 2012 2013 2014 2015 2016
400
450
500
550
600
650
700
2011 2012 2013 2014 2015 2016 estimate
1.25%
2%
2.3%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
2016e 2017f 2018f
-20%
-10%
0%
10%
20%
30%
40%
2011 2012 2013 2014 2015 2016 -40%
0%
60%
110%
160%
2011 2012 2013 2014 2015 2016
mill
ion to
nnes
mill
ion to
nnes
mill
ion to
nnes
Y-O-
Y % ch
ange
y-o-
y % ch
ange
y-o-
y % ch
ange
y-o-
y % ch
ange
Inclusive of overland deliveries
-150 -100
-50 0
50 100 150 200 250 300 350
-2% 0% 2% 4% 6% 8%
10% 12% 14%
2011 2012 2013 2014 2015 2016
0
5
10
15
20
25
2011 2012 2013 2014 2015 2016
400
450
500
550
600
650
700
2011 2012 2013 2014 2015 2016 estimate
1.25%
2%
2.3%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
2016e 2017f 2018f
-20%
-10%
0%
10%
20%
30%
40%
2011 2012 2013 2014 2015 2016 -40%
0%
60%
110%
160%
2011 2012 2013 2014 2015 2016
mill
ion to
nnes
mill
ion to
nnes
mill
ion to
nnes
Y-O-
Y % ch
ange
y-o-
y % ch
ange
y-o-
y % ch
ange
y-o-
y % ch
ange
Inclusive of overland deliveries
-150 -100
-50 0
50 100 150 200 250 300 350
-2% 0% 2% 4% 6% 8%
10% 12% 14%
2011 2012 2013 2014 2015 2016
0
5
10
15
20
25
2011 2012 2013 2014 2015 2016
400
450
500
550
600
650
700
2011 2012 2013 2014 2015 2016 estimate
1.25%
2%
2.3%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
2016e 2017f 2018f
-20%
-10%
0%
10%
20%
30%
40%
2011 2012 2013 2014 2015 2016 -40%
0%
60%
110%
160%
2011 2012 2013 2014 2015 2016
mill
ion to
nnes
mill
ion to
nnes
mill
ion to
nnes
Y-O-
Y % ch
ange
y-o-
y % ch
ange
y-o-
y % ch
ange
y-o-
y % ch
ange
Inclusive of overland deliveries
-150 -100
-50 0
50 100 150 200 250 300 350
18. …partly due to rising demand…
19. …partly due to declining domestic production 20. But Indian coal imports are falling…
China electricity consumption growth Source: Thompson Reuters, Hartland Shipping
China domestic coal production Source: Thompson Reuters, Hartland Shipping
India historical coal imports Source: Com trade, Hartland Shipping
-2% 0% 2% 4% 6% 8%
10% 12% 14%
2011 2012 2013 2014 2015 2016
0
5
10
15
20
25
2011 2012 2013 2014 2015 2016
400
450
500
550
600
650
700
2011 2012 2013 2014 2015 2016 estimate
1.25%
2%
2.3%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
2016e 2017f 2018f
-20%
-10%
0%
10%
20%
30%
40%
2011 2012 2013 2014 2015 2016 -40%
0%
60%
110%
160%
2011 2012 2013 2014 2015 2016
mill
ion to
nnes
mill
ion to
nnes
mill
ion to
nnes
Y-O-
Y % ch
ange
y-o-
y % ch
ange
y-o-
y % ch
ange
y-o-
y % ch
ange
Inclusive of overland deliveries
-150 -100
-50 0
50 100 150 200 250 300 350
-2% 0% 2% 4% 6% 8%
10% 12% 14%
2011 2012 2013 2014 2015 2016
0
5
10
15
20
25
2011 2012 2013 2014 2015 2016
400
450
500
550
600
650
700
2011 2012 2013 2014 2015 2016 estimate
1.25%
2%
2.3%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
2016e 2017f 2018f
-20%
-10%
0%
10%
20%
30%
40%
2011 2012 2013 2014 2015 2016 -40%
0%
60%
110%
160%
2011 2012 2013 2014 2015 2016
mill
ion to
nnes
mill
ion to
nnes
mill
ion to
nnes
Y-O-
Y % ch
ange
y-o-
y % ch
ange
y-o-
y % ch
ange
y-o-
y % ch
ange
Inclusive of overland deliveries
-150 -100
-50 0
50 100 150 200 250 300 350
21. …as domestic production is rising 22. Overall, we expect seaborne trade to rise…
India domestic coal production Source: Thomson Reuters, Hartland Shipping
Seaborne trade growth projections Source: CRS, Hartland shipping
2.3%
0.9% 0.6%
-0.7% 2016 2017f 2018f 2019f
100
150
200
250
300
Drybulk seaborne trade Drybulk fleet growth
2001
20
02
2003
20
04
2005
20
06
2007
20
08
2009
20
10
2011
20
12
2013
20
14
2015
20
16
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
Y-O-
Y % ch
ange
inde
x
2.3%
0.9% 0.6%
-0.7% 2016 2017f 2018f 2019f
100
150
200
250
300
Drybulk seaborne trade Drybulk fleet growth
2001
20
02
2003
20
04
2005
20
06
2007
20
08
2009
20
10
2011
20
12
2013
20
14
2015
20
16
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
Y-O-
Y % ch
ange
inde
x
23. …and fleet growth to slow down 24. But the recovery will be nervous as the market remains over-supplied
Fleet growth forecast Source: CRS, Hartland shipping
Drybulk seaborne trade vs fleet growthSource: CRS, Hartland shipping
-5
5
15
25
35
45
55
65
75
Iron ore Thermal Coal Coking Coal
Jan-Dec 2015 vs Jan-Dec 2016
Logs Copper Scrap Bauxite Fertilisers Agribulks Nickel ore Grains
0%
10%
20%
30%
40%
50%
60%
2013 2014 2015 2016 -10%
-5%
0%
5%
10%
15%
2013 2014 2015 2016
2013 2014 2015 2016
Steel exports 6 per. Mov. Avg. (Steel exports)
-200
-100
0
100
200
300
400
500
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
mill
ion to
nnes
mill
ion to
nnes
mill
ion to
nnes
mill
ion to
nnes
mill
ion to
nnes
0
2
4
6
8
10
12
60 65 70 75 80 85 90 95 100
600
700
800
900
1,000
1,100 Ja
n-14
Apr-
14
Jul-1
4
Oct-1
4
Jan-
15
Apr-
15
Jul-1
5
Oct-1
5
Jan-
16
Apr-
16
Jul-1
6
Oct-1
6
Jan-
17
Monthly imports (RHS) Annual cummulative imports (LHS)
15. Iron ore imports surged…
China iron ore imports Source: Thompson Reuters, Hartland Shipping
Shipping Markets Outlook 2017: Tanker MarketShipping Markets Outlook 2017: Tanker Market44 45
MBPD
MBPD
MBPD
MBPD
us$p
d
86
88
90
92
94
96
98
2011 2012 2013 2014 2015 2016 2017f
World demand World supply 0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
2013 2014 2015 2016 2017f
0
20
40
60
80
100
120
2011 2012 2013 2014 2015 2016e 2017f 2018f
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2013 2014 2015 2016 2017 2018 2019 2020
Change in OPEC Production (LHS) Change in Non-OPEC Production (LHS) Total Supply (RHS)
93
94
95
96
97
98
99
-1.5
-1
-0.5
0
0.5
1
1.5
Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17
MBPD
MBPD
MBPD
MBPD
us$p
d
86
88
90
92
94
96
98
2011 2012 2013 2014 2015 2016 2017f
World demand World supply 0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
2013 2014 2015 2016 2017f
0
20
40
60
80
100
120
2011 2012 2013 2014 2015 2016e 2017f 2018f
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2013 2014 2015 2016 2017 2018 2019 2020
Change in OPEC Production (LHS) Change in Non-OPEC Production (LHS) Total Supply (RHS)
93
94
95
96
97
98
99
-1.5
-1
-0.5
0
0.5
1
1.5
Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17
MBPD
MBPD
MBPD
MBPD
us$p
d
86
88
90
92
94
96
98
2011 2012 2013 2014 2015 2016 2017f
World demand World supply 0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
2013 2014 2015 2016 2017f
0
20
40
60
80
100
120
2011 2012 2013 2014 2015 2016e 2017f 2018f
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2013 2014 2015 2016 2017 2018 2019 2020
Change in OPEC Production (LHS) Change in Non-OPEC Production (LHS) Total Supply (RHS)
93
94
95
96
97
98
99
-1.5
-1
-0.5
0
0.5
1
1.5
Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17
1. Global oil production was close to record high…
2. …but demand is catching up 3. Spare capacity is in decline…
Global oil supply by producer Source: Thomson Reuters, Datastream, Hartland Shipping
Global crude oil supply & demand balance Source: EIA, HSBC Estimates, Hartland Shipping
Global crude oil spare capacity at call as % of demand Source: HSBC, Hartland Shipping
Tanker Market
Global oil production was close to record highs in 2016 but, from last December, OPEC announced its first production cuts in eight years to rescue oil prices
Both crude and product stocks are declining while the US oil rig count is rising. This is hardening oil prices even as it brings back more US shale production
Elevated deliveries in 2017 will keep exerting downward pressure on vessel earnings and asset values, while lower contracting in 2016 points to a better 2019
MBPD
MBPD
MBPD
MBPD
us$p
d
86
88
90
92
94
96
98
2011 2012 2013 2014 2015 2016 2017f
World demand World supply 0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
2013 2014 2015 2016 2017f
0
20
40
60
80
100
120
2011 2012 2013 2014 2015 2016e 2017f 2018f
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2013 2014 2015 2016 2017 2018 2019 2020
Change in OPEC Production (LHS) Change in Non-OPEC Production (LHS) Total Supply (RHS)
93
94
95
96
97
98
99
-1.5
-1
-0.5
0
0.5
1
1.5
Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17
MBPD
MBPD
MBPD
MBPD
us$p
d
86
88
90
92
94
96
98
2011 2012 2013 2014 2015 2016 2017f
World demand World supply 0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
2013 2014 2015 2016 2017f
0
20
40
60
80
100
120
2011 2012 2013 2014 2015 2016e 2017f 2018f
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2013 2014 2015 2016 2017 2018 2019 2020
Change in OPEC Production (LHS) Change in Non-OPEC Production (LHS) Total Supply (RHS)
93
94
95
96
97
98
99
-1.5
-1
-0.5
0
0.5
1
1.5
Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17
4. …suggesting that prices are likely to rise soon 5. With higher prices there will be stock draw-down…
Average Brent crude price forecasts Source: Thomson Reuters, HSBC Estimates, Hartland Shipping
Implied crude oil inventory build-up Source: HSBC Estimates, Hartland Shipping
MBPD
MBPD
us$p
dmi
llion
barr
els
mill
ion ba
rrel
sno
. of r
igs
1,200
1,250
1,300
1,350
1,400
1,450
1,500
1,550
1,600
2013 2014 2015 2016
0
1
2
3
4
5
6
2011 2012 2013 2014 2015 2016e 0
10
20
30
40
50
60
70
80
2013 2014 2015 2016
0
500
1,000
1,500
2,000
2,500
2011 2012 2013 2014 2015 2016
20
22
24
26
28
30
32
34
36
2001 2004 2007 2010 2013 2016
Official production target Actual production
750
800
850
900
950
1000
1050
2013 2014 2015 2016
MBPD
MBPD
us$p
dmi
llion
barr
els
mill
ion ba
rrel
sno
. of r
igs
1,200
1,250
1,300
1,350
1,400
1,450
1,500
1,550
1,600
2013 2014 2015 2016
0
1
2
3
4
5
6
2011 2012 2013 2014 2015 2016e 0
10
20
30
40
50
60
70
80
2013 2014 2015 2016
0
500
1,000
1,500
2,000
2,500
2011 2012 2013 2014 2015 2016
20
22
24
26
28
30
32
34
36
2001 2004 2007 2010 2013 2016
Official production target Actual production
750
800
850
900
950
1000
1050
2013 2014 2015 2016
MBPD
MBPD
us$p
dmi
llion
barr
els
mill
ion ba
rrel
sno
. of r
igs
1,200
1,250
1,300
1,350
1,400
1,450
1,500
1,550
1,600
2013 2014 2015 2016
0
1
2
3
4
5
6
2011 2012 2013 2014 2015 2016e 0
10
20
30
40
50
60
70
80
2013 2014 2015 2016
0
500
1,000
1,500
2,000
2,500
2011 2012 2013 2014 2015 2016
20
22
24
26
28
30
32
34
36
2001 2004 2007 2010 2013 2016
Official production target Actual production
750
800
850
900
950
1000
1050
2013 2014 2015 2016
MBPD
MBPD
us$p
dmi
llion
barr
els
mill
ion ba
rrel
sno
. of r
igs
1,200
1,250
1,300
1,350
1,400
1,450
1,500
1,550
1,600
2013 2014 2015 2016
0
1
2
3
4
5
6
2011 2012 2013 2014 2015 2016e 0
10
20
30
40
50
60
70
80
2013 2014 2015 2016
0
500
1,000
1,500
2,000
2,500
2011 2012 2013 2014 2015 2016
20
22
24
26
28
30
32
34
36
2001 2004 2007 2010 2013 2016
Official production target Actual production
750
800
850
900
950
1000
1050
2013 2014 2015 2016
6. Crude oil stocks are already declining…
8. US shale oil production held up well despite persistently low prices…
7. …so are product stocks
9. …as average production costs declined sharply
US & EU-16 crude oil inventories Source: Thomson Reuters, Datastream, Hartland Shipping
US tight oil productionSource: EIA, Hartland Shipping
US & EU-16 oil product inventoriesSource: Thomson Reuters, Datastream, Hartland Shipping
Average cost production in Bakken, North Dakota Source: Thomson Reuters, NASWellCube, Hartland Shipping
Shipping Markets Outlook 2017: Tanker MarketShipping Markets Outlook 2017: Tanker Market46 47
MBPD
us$P
D
MBPD
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5 1.53
1.0
0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8
2010-15 2016-20
Average Crude oil tanker earnings* Average Product tanker earnings†
* Includes VLCC, Suezmax and Aframax † Includes LR2, LR1 and MR
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
mill
ion d
wt
COT deliveries PT deliveries
0
20,000
40,000
60,000
80,000
2012-Jan 2013-Jan 2014-Jan 2015-Jan 2016-Jan 2017-Jan
MBPD
MBPD
us$p
dmi
llion
barr
els
mill
ion ba
rrel
sno
. of r
igs
1,200
1,250
1,300
1,350
1,400
1,450
1,500
1,550
1,600
2013 2014 2015 2016
0
1
2
3
4
5
6
2011 2012 2013 2014 2015 2016e 0
10
20
30
40
50
60
70
80
2013 2014 2015 2016
0
500
1,000
1,500
2,000
2,500
2011 2012 2013 2014 2015 2016
20
22
24
26
28
30
32
34
36
2001 2004 2007 2010 2013 2016
Official production target Actual production
750
800
850
900
950
1000
1050
2013 2014 2015 2016
MBPD
MBPD
us$p
dmi
llion
barr
els
mill
ion ba
rrel
sno
. of r
igs
1,200
1,250
1,300
1,350
1,400
1,450
1,500
1,550
1,600
2013 2014 2015 2016
0
1
2
3
4
5
6
2011 2012 2013 2014 2015 2016e 0
10
20
30
40
50
60
70
80
2013 2014 2015 2016
0
500
1,000
1,500
2,000
2,500
2011 2012 2013 2014 2015 2016
20
22
24
26
28
30
32
34
36
2001 2004 2007 2010 2013 2016
Official production target Actual production
750
800
850
900
950
1000
1050
2013 2014 2015 2016
15. …putting pressure on vessel earnings…10. US rig count is already on the rise… 11. …whereas OPEC is to cut production for the first time in 8 years
Average crude oil and product tanker earnings Source: CRS, Hartland Shipping
US active oil rig count Source: Thompson Reuters, Hartland Shipping
OPEC official production “targets” vs actual production Source: Thompson Reuters, Hartland Shipping
VLCC SuezmAX AframAX LR1 MR
110
266
126 150
424
230
422
51
0
100
200
300
400
500
2009 2010 2011 2012 2013 2014 2015 2016 Crude oil tanker Product tanker
0
50
100
150
200
2017 2018 2019+
VLCC Suezmax Aframax Panamax
0
50
100
150
200
155
100
8
138
5333
2017 2018 2019+ LR2 LR1 MR Handy
Resale
5-y old
10-y old
15-y old
Resale
5-y old
10-y old
15-y old
Resale
5-y old
10-y old
15-y old
Resale
5-y old
10-y old
15-y old
Resale
5-y old
10-y old
15-y old
no o
f shi
psno
of s
hips
no o
f shi
ps
-16% -20% -28%
-38%
-20%
-36% -32% -40%
-25%
-37% -37% -33%
-9% -13%
-35% -32%
-12%
-22% -18%
-23%
-50%
-40%
-30%
-20%
-10%
0%
MBPD
us$P
D
MBPD
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5 1.53
1.0
0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8
2010-15 2016-20
Average Crude oil tanker earnings* Average Product tanker earnings†
* Includes VLCC, Suezmax and Aframax † Includes LR2, LR1 and MR
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
mill
ion d
wt
COT deliveries PT deliveries
0
20,000
40,000
60,000
80,000
2012-Jan 2013-Jan 2014-Jan 2015-Jan 2016-Jan 2017-Jan
VLCC SuezmAX AframAX LR1 MR
110
266
126 150
424
230
422
51
0
100
200
300
400
500
2009 2010 2011 2012 2013 2014 2015 2016 Crude oil tanker Product tanker
0
50
100
150
200
2017 2018 2019+
VLCC Suezmax Aframax Panamax
0
50
100
150
200
155
100
8
138
5333
2017 2018 2019+ LR2 LR1 MR Handy
Resale
5-y old
10-y old
15-y old
Resale
5-y old
10-y old
15-y old
Resale
5-y old
10-y old
15-y old
Resale
5-y old
10-y old
15-y old
Resale
5-y old
10-y old
15-y old
no o
f shi
psno
of s
hips
no o
f shi
ps
-16% -20% -28%
-38%
-20%
-36% -32% -40%
-25%
-37% -37% -33%
-9% -13%
-35% -32%
-12%
-22% -18%
-23%
-50%
-40%
-30%
-20%
-10%
0%
MBPD
us$P
D
MBPD
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5 1.53
1.0
0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8
2010-15 2016-20
Average Crude oil tanker earnings* Average Product tanker earnings†
* Includes VLCC, Suezmax and Aframax † Includes LR2, LR1 and MR
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
mill
ion d
wt
COT deliveries PT deliveries
0
20,000
40,000
60,000
80,000
2012-Jan 2013-Jan 2014-Jan 2015-Jan 2016-Jan 2017-Jan
MBPD
us$P
D
MBPD
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5 1.53
1.0
0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8
2010-15 2016-20
Average Crude oil tanker earnings* Average Product tanker earnings†
* Includes VLCC, Suezmax and Aframax † Includes LR2, LR1 and MR
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
mill
ion d
wt
COT deliveries PT deliveries
0
20,000
40,000
60,000
80,000
2012-Jan 2013-Jan 2014-Jan 2015-Jan 2016-Jan 2017-Jan
16. …and asset values12. Overall oil demand is expected to grow…
17. At least contracting declined…14. In the meantime deliveries have been rising…
13. …though at a lower pace
Change in asset values by segment and age group (Jan-16 to Dec-16) Source: Hartland Shipping
Global oil demand incremental growth Source: Thomson Reuters, HSBC, Hartland Shipping
Annual tanker contractingSource: CRS, Hartland Shipping
Quarterly vessel deliveriesSource: CRS, Hartland Shipping
Average global oil demand growth historical vs projectionsSource: Thomson Reuters, HSBC, Hartland Shipping
Shipping Markets Outlook 2017: Containership Market 49 Shipping Markets Outlook 2017: Tanker Market48
VLCC SuezmAX AframAX LR1 MR
110
266
126 150
424
230
422
51
0
100
200
300
400
500
2009 2010 2011 2012 2013 2014 2015 2016 Crude oil tanker Product tanker
0
50
100
150
200
2017 2018 2019+
VLCC Suezmax Aframax Panamax
0
50
100
150
200
155
100
8
138
5333
2017 2018 2019+ LR2 LR1 MR Handy
Resale
5-y old
10-y old
15-y old
Resale
5-y old
10-y old
15-y old
Resale
5-y old
10-y old
15-y old
Resale
5-y old
10-y old
15-y old
Resale
5-y old
10-y old
15-y old
no o
f shi
psno
of s
hips
no o
f shi
ps
-16% -20% -28%
-38%
-20%
-36% -32% -40%
-25%
-37% -37% -33%
-9% -13%
-35% -32%
-12%
-22% -18%
-23%
-50%
-40%
-30%
-20%
-10%
0%
VLCC SuezmAX AframAX LR1 MR
110
266
126 150
424
230
422
51
0
100
200
300
400
500
2009 2010 2011 2012 2013 2014 2015 2016 Crude oil tanker Product tanker
0
50
100
150
200
2017 2018 2019+
VLCC Suezmax Aframax Panamax
0
50
100
150
200
155
100
8
138
5333
2017 2018 2019+ LR2 LR1 MR Handy
Resale
5-y old
10-y old
15-y old
Resale
5-y old
10-y old
15-y old
Resale
5-y old
10-y old
15-y old
Resale
5-y old
10-y old
15-y old
Resale
5-y old
10-y old
15-y old
no o
f shi
psno
of s
hips
no o
f shi
ps
-16% -20% -28%
-38%
-20%
-36% -32% -40%
-25%
-37% -37% -33%
-9% -13%
-35% -32%
-12%
-22% -18%
-23%
-50%
-40%
-30%
-20%
-10%
0%
18. …but there are many crude oil tankers… 19. …and product carriers still to deliver
Crude oil tanker delivery schedule Source:CRS, Hartland Shipping
Product tanker delivery schedule Source: CRS, Hartland Shipping
0%
1%
2%
3%
4%
5%
6%
7%
2015 2016 2017f 2018f 0%
1%
2%
3%
4%
5%
6%
7%
2015 2016 2017f 2018f Demand Fleet Demand Fleet
0%
1%
2%
3%
4%
5%
6%
7%
2015 2016 2017f 2018f 0%
1%
2%
3%
4%
5%
6%
7%
2015 2016 2017f 2018f Demand Fleet Demand Fleet
20. With an accelerating fleet… 21. …and slowing demand growth, the tanker market will remain under short-term pressure
Crude oil tanker supply & demand forecast Source: CRS, Hartland Shipping
Product tanker supply & demand forecastSource: CRS, Hartland Shipping
200
400
600
800
1,000
1,200
1,400
2014 2015 2016 2017
13
37
12
19 19
0
5
10
15
20
25
30
35
40
45
100-1,999 2,000-5,099 5,100-7,499 7,500-9,999 10,000-13,300
6.8%
4.9% 4.0%
1.7% 1.7% 0.8%
0.4% 0.2% 0.0% 0%
1%
2%
3%
4%
5%
6%
7%
8%
FE-N.Am FE-Eur ME/ISC related
Intra-FE Oceania related EU-N.Am Africa related Latam related Intra Eur
no of
ships
INDE
X%
shar
e
200
400
600
800
1,000
1,200
1,400
2014 2015 2016 2017
13
37
12
19 19
0
5
10
15
20
25
30
35
40
45
100-1,999 2,000-5,099 5,100-7,499 7,500-9,999 10,000-13,300
6.8%
4.9% 4.0%
1.7% 1.7% 0.8%
0.4% 0.2% 0.0% 0%
1%
2%
3%
4%
5%
6%
7%
8%
FE-N.Am FE-Eur ME/ISC related
Intra-FE Oceania related EU-N.Am Africa related Latam related Intra Eur
no of
ships
INDE
X%
shar
e
1. Container freight rates improved in 2016
2. But it was mainly due to the collapse of Hanjin Shipping…
SCFI Comprehensive index Source: CRS, Hartland Shipping
Number of ships operated by Hanjin as of Aug-16 Source: Alphaliner, Hartland Shipping
Containership Market
Although freight rates improved slightly in 2016, the container market had another difficult year, resulting in the collapse of Hanjin Shipping and accelerated consolidation
Vessel earnings and asset values remain at low levels and Panamax vessels are suffering from the opening of the new Panama locks, triggering unusually young demolitions
Contracting dropped sharply in 2016, nevertheless continuous deliveries and marginal demand growth are keeping recovery at bay, but the dynamics are slowly improving
Shipping Markets Outlook 2017: Containership MarketShipping Markets Outlook 2017: Containership Market50 51
200
400
600
800
1,000
1,200
1,400
2014 2015 2016 2017
13
37
12
19 19
0
5
10
15
20
25
30
35
40
45
100-1,999 2,000-5,099 5,100-7,499 7,500-9,999 10,000-13,300
6.8%
4.9% 4.0%
1.7% 1.7% 0.8%
0.4% 0.2% 0.0% 0%
1%
2%
3%
4%
5%
6%
7%
8%
FE-N.Am FE-Eur ME/ISC related
Intra-FE Oceania related EU-N.Am Africa related Latam related Intra Eur
no of
ships
INDE
X%
shar
e3. …which accounted for 3% of the global fleet and 7% of the Transpacific trade
Hanjin Shipping share of major container trade routes Source: Alphaliner, Hartland Shipping
0
20
40
60
80
100
120
140
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Demolition Deliveries
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
0
10
20
30
40
50
60
2010 2011 2012 2013 2014 2015 2016
18.6 17.0
7.0
0 2 4 6 8
10 12 14 16 18 20
Total containership fleet old Panamax fleet Youngest panamax scrapped
INDE
X
THOU
SAND
TEU
US$P
D
US$M
year
s
0
500
1,000
1,500
2,000
250
750
1,250
1,750
0
20
40
60
80
100
120
140
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Demolition Deliveries
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
0
10
20
30
40
50
60
2010 2011 2012 2013 2014 2015 2016
18.6 17.0
7.0
0 2 4 6 8
10 12 14 16 18 20
Total containership fleet old Panamax fleet Youngest panamax scrapped
INDE
X
THOU
SAND
TEU
US$P
D
US$M
year
s
0
500
1,000
1,500
2,000
250
750
1,250
1,750
0
20
40
60
80
100
120
140
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Demolition Deliveries
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
0
10
20
30
40
50
60
2010 2011 2012 2013 2014 2015 2016
18.6 17.0
7.0
0 2 4 6 8
10 12 14 16 18 20
Total containership fleet old Panamax fleet Youngest panamax scrapped
INDE
X
THOU
SAND
TEU
US$P
D
US$M
year
s
0
500
1,000
1,500
2,000
250
750
1,250
1,750
0
20
40
60
80
100
120
140
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Demolition Deliveries
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
0
10
20
30
40
50
60
2010 2011 2012 2013 2014 2015 2016
18.6 17.0
7.0
0 2 4 6 8
10 12 14 16 18 20
Total containership fleet old Panamax fleet Youngest panamax scrapped
INDE
X
THOU
SAND
TEU
US$P
D
US$M
year
s
0
500
1,000
1,500
2,000
250
750
1,250
1,750
4. Vessel earnings dropped to their lowest since 2010…
6. With the opening of the new Panama Canal, demand for classic Panamax vessels collapsed…
5. ... despite record scrapping and slowing deliveries
7. …so did asset values!
Containership timecharter index Source: CRS, Hartland Shipping
1-yr TC rate – 4,400 teu Source: CRS, Hartland Shipping
Historical containership demolition - deliveriesSource: CRS, Hartland Shipping
5-yr old – 4,500 teu values Source: CRS, Hartland Shipping
0
20
40
60
80
100
120
140
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Demolition Deliveries
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
0
10
20
30
40
50
60
2010 2011 2012 2013 2014 2015 2016
18.6 17.0
7.0
0 2 4 6 8
10 12 14 16 18 20
Total containership fleet old Panamax fleet Youngest panamax scrapped
INDE
X
THOU
SAND
TEU
US$P
D
US$M
year
s
0
500
1,000
1,500
2,000
250
750
1,250
1,750
8. …even 7 year old ships have been scrapped!
Average containership demolition age Source: CRS, Hartland Shipping
588
1,838
431
2,161
1,120
2,289
178
0
500
1,000
1,500
2,000
2,500
2010 2011 2012 2013 2014 2015 2016
115
21 19
57
25
86
10 1
43 37
0
20
40
60
80
100
120 140
1-2,999
3-5,099
5.1-9,999
10-17,999
18,000+
1-2,999
3-5,099
5.1-9,999
10-17,999
18,000+
-10%
-5%
0%
5%
10%
15%
20%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017f 2018f
Trade growth Fleet growth
2017 2018+
no of
ships
thou
sand
teu
588
1,838
431
2,161
1,120
2,289
178
0
500
1,000
1,500
2,000
2,500
2010 2011 2012 2013 2014 2015 2016
115
21 19
57
25
86
10 1
43 37
0
20
40
60
80
100
120 140
1-2,999
3-5,099
5.1-9,999
10-17,999
18,000+
1-2,999
3-5,099
5.1-9,999
10-17,999
18,000+
-10%
-5%
0%
5%
10%
15%
20%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017f 2018f
Trade growth Fleet growth
2017 2018+
no of
ships
thou
sand
teu
9. Contracting dropped sharply…
10. …but there are still many ships to deliver
Containership contracting Source: CRS, Hartland Shipping
Containership delivery schedule by size range Source: CRS, Hartland Shipping
Shipping Markets Outlook 2017: Containership MarketShipping Markets Outlook 2017: Containership Market52 53
588
1,838
431
2,161
1,120
2,289
178
0
500
1,000
1,500
2,000
2,500
2010 2011 2012 2013 2014 2015 2016
115
21 19
57
25
86
10 1
43 37
0
20
40
60
80
100
120 140
1-2,999
3-5,099
5.1-9,999
10-17,999
18,000+
1-2,999
3-5,099
5.1-9,999
10-17,999
18,000+
-10%
-5%
0%
5%
10%
15%
20%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017f 2018f
Trade growth Fleet growth
2017 2018+
no of
ships
thou
sand
teu
11. And demand growth is likely to be marginal
Containership supply – demand growth forecast Source: Alphaliner, Hartland Shipping
Shipping Markets Outlook2017 Edition
Appendices
Shipping Markets Outlook 2017Shipping Markets Outlook 201754 55
AppendicesThisdocumenthasbeenpreparedbyHartlandShippingServicesLimitedandisbeingmadeavailabletoalimitednumberofrecipientsforgeneralinformationpurposesonly.
TheinformationcontainedinthisdocumenthasbeenprovidedbythesourcesreferencedhereinandhasnotbeenindependentlyverifiedbyHartlandShippingServicesLimited.Exceptinthecaseoffraudulentmisrepresentation,noresponsibilityorliabilityisacceptedforitsaccuracyorsufficiency.Norepresentationsorwarrantiesaregivenastotheachievementorreasonablenessof,andnorelianceshouldbeplacedon,anyprojections,estimatesforecastsortargetscontainedherein.Any projections, estimates, forecasts and targets are not a reliable indicator of future performance.HartlandShippingServicesLimiteddoesnotundertaketoprovideanyadditionalinformationortoremedyanyomissionsinorfromthisdocument.
Thisdocumentisconfidentialandmayonlybeusedforthepurposesdescribedabove.ThisdocumentmaynotbedistributedwithouttheexpresswrittenagreementofHartlandShippingServicesLimited.AllcontactandanyquestionsrelatingtothisdocumentmustbedirectedthroughthefollowingpersonatHartlandShippingServicesLimited:
NigelBPrentis Director/HeadofShippingConsultancy HartlandShippingServicesLondon E-mail:[email protected]
Byacceptingthisdocument,recipientsagreetobe boundbytheforegoinglimitations.
Informationinthisdocumentwaspreparedasof24February2017.
A Note on Sources
Thisreportnecessarilydrawsonawiderangeofsources,includingourownresearchandnetworkofcontactsandcorrespondentsworld-wide.Anumberofthirdpartysourceshavealsobeenused,includingAXSAlphaliner,theBalticExchange,ChinaIronandSteelAssociation(CISA),CIAFactbook,ClarksonResearchServicesLtd,ContainerisationInternational,E.A.GibsonWeeklyTankerReport,theEconomist,Equasis,Eurostat,Fearnley’sWeekly,theFinancialTimes,FISIronOre
SwapsReport,HSBCBankplc,HSBCGlobalResearch,theInternationalEnergyAgency,theInternationalGrainsCouncil,InternationalMonetaryFund(IMF),Lloyd’sList,Lloyd’sShippingEconomist,Lloyd’sRegister-Fairplay,MaerskBrokerContainerCharterMarketMonthly,MoneyWeek,MorganStanley,NationalBureauofStatisticsofChina,OrganisationofPetroleumExportingCountries(OPEC),PetroleumEconomist,ThomsonReutersDatastream,ThomsonReutersEikon,UnitedNationsConferenceonTradeandDevelopment(UNCTAD),USDepartmentofEnergy(EnergyInformationAdministration),WorldSteelAssociation.Wegratefullyacknowledgeallofthese.
A Note from Clarkson Research Services Ltd
ClarksonResearchServicesLimited(CRSL)havenotreviewedthecontextofanyofthestatisticsorinformationcontainedinthecommentariesandallstatisticsandinformationwereobtainedbyHartlandShippingServicesLimitedfromstandardCRSLpublishedsources.Furthermore,CRSLhavenotcarriedoutanyformofduediligenceexerciseontheinformation,aswouldbethecasewithfinanceraisingdocumentationsuchasInitialPublicOffering(IPOs)orBondPlacements.ThereforerelianceonthestatisticsandinformationcontainedwithinthecommentarieswillbefortheriskofthepartyrelyingontheinformationandCRSLdoesnotacceptanyliabilitywhatsoeverforrelyingonthestatisticsorinformation.
InsofarasthestatisticalandgraphicalmarketinformationcomesfromCRSL,CRSLpointsoutthatsuchinformationisdrawnfromtheCRSLdatabaseandothersources.CRSLhasadvisedthat:(i)someinformationinCRSL’sdatabaseisderivedfromestimatesorsubjectivejudgements;and(ii)theinformationinthedatabasesofothermaritimedatacollectionagenciesmaydifferfromtheinformationinCRSL’sdatabase;and(iii)whilstCRSLhastakenreasonablecareinthecompilationofthestatisticalandgraphicalinformationandbelievesittobeaccurateandcorrect,datacompilationissubjecttolimitedauditandvalidationproceduresandmayaccordinglycontainerrors;and(iv)CRSL,itsagents,officersandemployeesdonotacceptliabilityforanylosssufferedinconsequenceofrelianceonsuchinformationorinanyothermanner;and(v)theprovisionofsuchinformationdoesnotobviateanyneedtomakeappropriatefurtherenquiries;(vi)theprovisionofsuchinformationisnotanendorsementofanycommercialpoliciesand/oranyconclusionsbyCRSL.
Shipping Markets Outlook2017 Edition
About us
Shipping Markets Outlook 2017Shipping Markets Outlook 201756 57
About usWeareHartlandShippingServicesLimited.WebeganinHongKongin1981asWardleyShippingServices,awhollyownedsubsidiaryofWardleyLimited,themerchantbankingarmoftheHongKongandShanghaiBankingCorporation.In2001webecameHSBCShippingServices,awhollyownedsubsidiaryofHSBCBank,oneoftheworld’sleadingfinancialservicescompanies.InAugust2012anagreementwasreachedwithHSBCforthebusinesstobesoldtomembersoftheseniormanagementteam,andthecompanywasrenamedHartlandShippingServicesLimited.AspartofthesaleHartlandhasbeenretainedtoprovideshippingconsultancyservicestotheHSBCGroupworldwide.
Our servicesOurshipbrokingservicesinclude:
• Newbuildingcontracting• Second-handsaleandpurchase• Drycargochartering• Tankerperiodchartering
Ourresearchandconsultingservicesinclude:
• Marketresearch• Vesselvaluationandfleetanalysis• Commercialduediligence,corporateand assetrestructuring
• Feasibilitystudiesandbusinessriskassessment• Bespokeconsultancyprojects
Wewelcomeyoutocontactuswithregardtoanyoftheservicesweoffer.
Contact usLondonOffice 28BedfordStreet CoventGarden London WC2E9ED
Telephone:+442030771600 Fax:+442072409603 E-mail:[email protected] [email protected] [email protected] [email protected]
ShanghaiOffice Suite2113,HSBCBuilding 8CenturyAvenue Shanghai, 200120
Telephone:+862120280618 Fax:+862150120694 E-mail:[email protected] [email protected]
SingaporeOffice 85ACircularRoad Singapore049437
Telephone:+6567020400 E-mail:[email protected]
www.hartlandshipping.com
DesignbyFranksan
dFran
ks