Taal selectie

Shipping

Out of the doldrums

The SEA shipping index (covering all types of vessels) fell 5.3% in August, while our selection of stocks gained 1.8%. Year-to-date, the index is up 5.3% and our selection 15.4%. Major bulk shipping companies gained an average 2.9% (on an unweighted basis) over the month, but their fellow tankers shed 0.7% (also unweighted) and most other sectors (e.g. containers) fared worse.

Graph 1 : Shipping stocks since end of October

EWBulkersDSX, SBLK, SALT and GOGL equally weighted. Source : Bloomberg

Spot market freight rates for Capesize and Panamax bulkers posted a new record at the end of August, with the Baltic Dry Index reaching 2,378, its highest level since 2010 (see graph). One-year time charter rates, however, moved up only marginally, to ca. USD 22,000 /day for Capesize vessels and ca. USD 13,000 /day for Panamax vessels. This large gap between spot and time charter rates suggests that the current shortage in capacity is not deemed to last for very long, or else freighters would be ready to pay more for time charter contracts. Forward freight agreements (future contracts) also point to lower tariffs next year – owing to the escalating trade war and the ongoing swine fever epidemic in China (which began a year ago and will certainly impact soybean imports, a major trade for Panamax vessels).

That said, the outlook remains quite favourable for dry bulk freight rates at least through the end of this year. Numerous vessels are dry docking for several weeks to install scrubbers, reducing the available capacity, while demand for transport tends to peak towards the Chinese New Year. Next year is indeed a question mark, not least because of the introduction of IMO 2020 regulations and the US Presidential election, but it could prove – contrary to what the forward agreements currently suggest – one of the best years ever for dry bulk shipping. Planned deliveries of new ships are too low to offset the expected scrapping of older vessels and new build orders remain exceptionally low (due to the Trump-related uncertainty, pending new IMO rules, and hard-to-obtain bank financing).

Freight rates for midsize and big container ships (>5.000 TEU) have also moved up sharply, mainly due to the dry docking of the largest vessels for scrubber retrofitting. At the same time, the announcement of ever-higher import tariffs by President Trump has resulted in a jump in demand for transpacific container transport, as US distributors strive to fill their warehouses with products that are not yet taxed, or still taxed at a low rate. Both these drivers for the current high container freight rates should be considered exceptional and therefore temporary. Beyond that, a lot of huge mega containerships (>22.000 TEU) are in construction and should hit the water as from next year. Hence our (very) cautious view on this subsector.

Finally, as regards tankers, now that the low season, due to annual spring time refinery maintenance, is over and most refineries are back to their normal running speed, charter rates are firming up – especially for larger vessels in the “dirty” segment (crude oil). Rates in “clean” trade (petroleum products) are lagging but, with the IMO 2020 deadline fast approaching, the production of low sulphur fuel oil and marine diesel oil is set to increase soon, and demand for clean product tankers will follow suit. The market outlook for tankers, whether transporting crude oil or petroleum products, remains very promising for the next 12 to 18 months at least.

Update : 09/2019

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