BIMCO: US crude oil production takes 1.1m bpd hit due to snowstorm
The snowstorm that hit Texas in the middle of February caused a 1.1 million barrels per day (bpd) drop in US crude oil production between the second and third week of that month. In the week ending 19 February, US crude oil production averaged 9.7m bpd, its lowest level since late August 2020 when Hurricane Laura hit production. Texas is by far the largest crude oil producing state in the US, accounting for 43.0% of total US crude oil production in 2020.
Lack of Tonnage Prevalent in the Demolition Market
A lack of tonnage is becoming evident in the ship recycling market, as the firming up of the freight market has limited selling opportunits among ship owners. In its latest weekly report, shipbroker Clarkson Platou Hellas said that "with owners still enjoying the fruits of the continued firm freight markets, particularly in the dry sector, the alarming lack of tonnage in the market gives a barren feel to discussions. There seems to be no stimulus at present, with the industry crying out for a spark which could ignite a flurry.
COVID 19: 2020 global shipping CO2 emissions down 1%
Global shipping CO2 emissions decreased 1% last year as the Coronavirus pandemic curtailed 2020 shipping activity, according to maritime data provider Marine Benchmark. CO2 emissions among the 'Big-3' – Tankers, Bulkers and Containers – actually increased 1.2%, with a 2.4% decline in Container emissions offset by growth in the Bulker and Tanker sectors. However, the smaller sectors reversed this growth, with cruise ship emissions experiencing the greatest contraction – down 45% – and with steep declines in ferries, roro's and vehicles carriers consistent with the weak demand. Torbjorn Rydbergh, Marine
S&P Frenzy supercharged by Handy / Supramax rates environment
Amidst the rapidly improving sentiment for the whole dry bulk shipping market, February witnessed multi-year record breaking performance for the smaller asset classes of Supramax and Handysize bulkers. BSI 10TC routes broke the US$20,000/d mark for the first time in a decade (rising nearly US$8,000/d since Feb 1st), while in the Handysize sector, the BHSI broke last week the 1,000 points mark for the first time since Oct 2010, when a smaller Handy of 28k dwt served as benchmark instead of the 38k dwt currently.
Freight Market Vs Commodities Rally: A Match Made In Heaven?
Shipping shouldn't get too carried away by the bullish sentiment which is prevalent in the commodities markets these days, amid talk of a new "super-cycle". Sustainability of demand is of paramount importance when it comes to maintaining an upward momentum in the freight market. In its latest weekly report, shipbroker Allied Shipbroking said that "are we seeing a "Super-cycle" or a short term "bull-run" in commodity markets? It is rather surprising how swiftly global markets have shifted and how quickly we have come to such sort of a dilemma.
Greek Shipping and economy 2020: The Strategic And Economic Role Of Greek Shipping
Global Shipping Outlook
The pace of global economic activity remained weak throughout 2019, with declining momentum in manufacturing activity and rising trade and geopolitical tensions, especially between the United States of America (U.S.) and China. Uncertainty about the future of global trading system and international co-operation more generally has had an impact on business confidence, investment decisions and global trade1, with trade volumes increasing by a marginal 0.3% in 20192. Projections for trade volume growth in 2020, prior to the new coronavirus (COVID-19) outbreak, hovered around 2.7%3, denoting a fragile recovery anyway. The unprecedented global crisis that was brought about by the coronavirus pandemic has made the outlook for the global economy and international seaborne trade for 2020 even more precarious and gloomy. For example, the World Trade Organization (WTO) forecasts4 that the world trade is expected to fall by between 13% and 32% in 2020.
Financially, many shipping sectors have been faced with a sudden and steep drop in demand, which in turn has considerably affected freight rates and earnings. In the dry bulk segment, for example, average daily earnings between January and April 2020, compared to 2019, were more than 85% lower for capesizes, 40% lower for Panamaxes and 35% lower for Supramaxes5. Though these rates could recover somewhat as Chinese factories come back online, the looming global recession and accompanying drop in global demand resulting from the lockdowns in Europe and North America have severely impacted on demand for shipping services.
The lockdown in Europe and North America will have considerable knock-on effects on employment rates, too. The International Monetary Fund (IMF) has declared that the COVID-19 pandemic will likely push the global economy into its worst recession since the Great Depression6, warning that prospects over a global rebound are highly uncertain. The recession in shipping is projected to last more than a year and shipping activity is not expected to improve in the following few months. This is also because, with shipping being a global industry, much of its activity takes place in the southern hemisphere, where major exporting countries of raw materials, such as Brazil, have only recently started being hit by COVID-19 as hard, if not harder.
The Greek-Owned Fleet
The top five shipowning nations include Greece, Japan, China, Singapore and Hong Kong. These five countries account for more than 50% of the world's tonnage. In recent years Germany, Japan and the Republic of Korea have been losing ground, while Greece, Singapore, China and Hong Kong have increased the size of their fleet7.
Greece remains the world's largest shipowning nation. Though the country accounts for only 0.16% of the world's population, Greek shipowners own 20.67% of global tonnage8 and 54.28% of the European Union (EU)-controlled tonnage (Figure 1)9. Between 2007 and 2019, Greek shipowners have more than doubled the carrying capacity of their fleet (Figure 2)10, while they control (Figure 3)11:
• 32.64% of the world tanker fleet, 15.14% of the world chemical and products tankers and 16.33% of the global LNG / LPG fleet,
• 21.7% of the world bulk carriers, and
• 8.92% of the world container vessels.
Global oil demand could shrink over 3 mil b/d in 2020 due to virus: S&P Global
Global oil demand could collapse by over 3 million b/d this year due to growing social and economic lockdown measures aimed at slowing the spread of the coronavirus pandemic, according to S&P Global Platts Analytics.
World oil demand could fall by over 12 million b/d on the year in April and May and result in annualized fall of as much as 3.2 million b/d in 2020, the head of S&P Global Platts Analytics Chris Midgley said.
The estimate for the potential demand impact from coronavirus is one of the most bearish by forecasters to date. It also marks a major revision to S&P Global Analytics' March 11 estimate of a 960,000 b/d contraction in oil demand this year due to coronavirus.
Since then, moves by countries to further shut schools and other public venues while imposing tougher travel restrictions have escalated sharply.
US gasoline demand alone could fall by 2 million b/d in the second quarter, in an "extreme scenario" where the pandemic temporarily shutters 34% of workplaces and 50% of non-essential travel miles, according to London-based consultants Thunder Said Energy.
Norway-based consultant Rystad Energy on Wednesday estimated that global oil demand will contract by 2.8 million b/d this year with jet fuel hit the hardest. Rystad estimated that jet fuel demand would fall by 12% year on year, or at least 800,000 b/d from last year's average of about 7.2 million b/d.
The International Energy Agency on Match 9 forecast a contraction in global demand for 2020 of 90,000 b/d — which would be the first shrinkage in consumption since the financial crisis in 2009.
Coronavirus could deliver 17 million-TEU blow to container shipping
The world is in the third phase of a global supply chain crisis, according to SeaIntelligence Consulting.
The impact on container shipping lines from the coronavirus pandemic could total about 17 million twenty-foot equivalent units (TEUs), according to Lars Jensen, CEO of Copenhagen-based SeaIntelligence Consulting.
That amounts to about 10% of global volumes in a normal world, Jensen told wealth management firm UBS.
Jensen did say he expects a strong volume rebound in 2021.
Jensen told UBS during a conference call that there currently is a ripple effect from the supply crunch in China. "This consists of insufficient transport capacity for EU and U.S. exporters," the UBS call summary said.
With the rapid spread of the coronavirus in Europe and the United States, Jensen expects importers to reduce stock levels "until they see clear evidence of demand rebounding."
The world is in the early stages of the third phase of the global supply chain crisis, according to Jensen.
Jensen explained to American Shipper: "Phase one was when China was closed down due to the virus and therefore there was a shortfall of container volumes due to closure of manufacturing. Phase two is the rebound when Chinese manufacturing was getting up to speed.
Phase three is the shutdown of the rest of the world as the pandemic spreads, causing a sharp drop in demand.
"There is an overlap between phase two and phase three. Phase two was only beginning as phase three suddenly ramped up rapidly and therefore we did not get to see the full effect," Jensen told American Shipper.
"The problem with phase three is that we are right now in the very early stage of this. Container cargo being booked and shipped right now is based on orders that were sent to the factories one, two and three weeks ago, and this does not reflect what is happening in the market right now," he said.
Jensen told UBS he is seeing more discipline from ocean carriers on rates.
"In contrast with the past, ocean carriers have moved more swiftly to blank sailings," the UBS call summary said. This has protected freight rates, and backhaul routes from Europe and the United States "are now seeing increases in freight rates on the back of tight capacity."
Jensen told American Shipper that freight rates have not plummeted during the coronavirus pandemic.
"Freight rates did decline somewhat during phase one but actually not in any large or catastrophic way. This is because carriers were very quick in removing capacity from the market and in addition held a reasonable price discipline where they saw little need to aggressively pursue volumes through price discounts. As we entered phase one, we were indeed beginning to see price increases caused by capacity/equipment imbalances," he said.
Earlier this month Jensen wrote in an online post that the "the situation is unprecedented" but "there is one clear comparison: the financial crisis in 2008," when global container volumes dropped by 10%. If the same contraction rate occurs this year, "this equals a decline of 17 million TEU globally for container lines" and ports and terminals could "potentially be looking at a loss of 80 million TEU of handling volume."
Source: Freight Waves by Greg Miller (https://www.freightwaves.com/news/coronavirus-could-deliver-17-million-teu-blow-to-container-shipping)
Shipowners eye long term marine fuel contracts on price plunge, some cautious
The recent plunge in shipping fuel prices is prompting some shipowners to eye long term supply contracts on a fixed price basis, but both buyers and sellers remain cautious because of volatile oil markets, several market participants told S&P Global Platts.
The selloff in oil prices this month has pushed price for the mainstay Singapore-delivered Marine Fuel 0.5% bunker down 28.88% to average $355.54/mt so far in March as compared to $499.9/mt in February, Platts data showed.
The sharp drop encouraged shipowners to rush in to buy short term supplies. And many are now exploring longer term contracts.
"I covered most of my LSFO requirements with term contracts for Q1 and Q2 but now I am going to see if I can cover my term for Q3 and Q4 too," a shipowner said.
A dwindling flat price has also enticed ship owners to not just consider locking in longer term contracts, but also volumes for April, and for high sulfur bunker fuel as well, said traders.
"I am hearing a few fixed price contracts for high sulfur bunker fuel into April…flat price is pretty weak, might be good to lock in some bunker costs," a Singapore-based bunker trader said.
Singapore-delivered 380 CST bunker is down 24.66% to average $231.31/mt so far in March as compared to $307.03/mt in February, Platts data showed.
The incentive to secure additional short- and longer-term volumes at these low flat price levels is compelling to some of the ship owners who apparently already have contractual volumes with suppliers that they haven't been able to lift fully due to a demand slump from the coronavirus outbreak.
"We still have inventories, but I think prices are attractive enough for us to procure some [more] spot and term volume," said another shipowner.
NOT ALL ARE BUYING THOUGH
Even as a good number of shipowners have said they are looking to take the fixed price term contract route, there are some that are skeptical to opt long term sourcing of bunker fuel on a fixed price basis.
The naysayers among shipowners hold a view that the worst with respect to a drop in flat price is perhaps yet to come.
"How can I take a [fixed price] contract knowing there's a potential that crude could see new lows? It could go terribly wrong," a Singapore-based head of bunker procurement at one of the largest dry bulk shipping companies said.
Meanwhile, some shipowners were still evaluating their options between taking a fixed price route or on a floating price basis.
"We are trying to see if that's possible, but on the other hand the discounts to conclude contracts on a floating [price] basis have also widened, so we're looking at both options," said a fourth shipowner.
According to traders and shipowners, suppliers are currently looking to tie up Q2 volumes for Singapore-delivered Marine Fuel 0.5% bunker at a discount in the high teens to Singapore gasoil 10 ppm. This compares to a premium of $50-$60/mt at which term volumes were concluded at for Q1 delivery.
Singapore-delivered Marine Fuel 0.5% spot differential to Singapore gasoil 10 ppm cargo has averaged a discount of $19.49/mt so far this month as compared to a premium of $8.44/mt in February and a premium of $88.87/mt in January, Platts data showed.
NOT ALL ARE SELLING EITHER
Some of the suppliers who held a view that shipping fuel demand would improve as global trade claws back to normalcy from the aftermath of coronavirus outbreak going into the second half of the year, were said to be less eager to ink contracts at prevailing low levels, said traders.
This was especially true apparently in the case of tier-2 traders and bunker suppliers who don't want to, or have the appetite to, take on risk management positions to hedge their fixed price physical exposure.
"We got some inquiries from buyers…we also have some other traders asking us, but we are not so keen," said one such Singapore-based trader about their reluctance to tie up fixed price-based term contracts.
Major suppliers have been less reluctant though, with a few heard to be approaching shipowners to tie up contracts on a fixed price basis.
"Oil majors and most major traders [now] have presence in the delivered [bunker] market, so they will be able to offer [basis] fixed price as they can hedge their physical exposure," said a Singapore-based senior trader at a western trading company.
The Cruise Industry's War Against COVID-19
By Salvatore R. Mercogliano, Ph.D. – On Friday, March 13, 2020, the Cruise Lines International Association (CLIA) announced that their ocean-going cruise lines would be, "voluntarily and temporarily suspending cruise ship operations from U.S. ports of call for 30 days as public health officials and the U.S. Government continue to address COVID-19." This decision followed on the heels of many shipping lines, making similar choices and marked a historic event.
The outbreak of the Coronavirus gripped most western news sources when the plight of the Diamond Princess in Yokohama, Japan began to unfold. It was followed by the Grand Princess off San Francisco, and others around the world. Some cruise ships, such as Westerdam of Holland-American Lines, found themselves unable to offload their passengers in any ports, a veritable Flying Dutchman. With the suspension of cruises and most vacationers offloaded, the ships are docked or at anchor around the world awaiting a callback. But what that call entails, no one is quite sure.
Over a century ago, the world was in the grip of a global conflict. Stemming from a seemingly insignificant event in the city of Sarajevo on June 28, 1914, within the span of five weeks, the world had been upended. Fighting had erupted in Europe and it would spread like a virus across the Old World, to Africa and Asia, and upon the high seas and even as far away as Bar Harbor, Maine.
On August 4, 1914, the small northern Maine town, the summer resort of the rich and famous was awaiting the arrival of Vincent Astor on board his yacht Noma. One of the stories in the papers was that of the North German Lloyd liner SS Kronprinzessin Cecilie. She had sailed from New York to Germany with over 1,200 passengers. As one of the largest German liners, she was a prize for any British warship that could capture her, for in her hold were $10 million in gold and $3 million in silver to fund the war effort.
That morning, with reports that the ship was making a dash north of the British Isles, the residents and visitors of Bar Harbor awoke to the sight of Kronprinzessin Cecilie swinging from her anchor off The Porcupines. A few days earlier, the ship's master, Charles Polack, met with the first and second-class male passengers to discuss a strategy to avoid the British and French warships on the prowl for the liner. Among the passengers was C. Ledyard Blair, a New York investment banker who was sailing to Scotland for grouse hunting. An avid yachtsman, he informed Captain Polack of Bar Harbor and volunteered to pilot the vessel to the anchorage, since he owned a cottage and sailed those waters every summer.
After its arrival and with the passengers offloaded, she sailed to Boston, staying within three miles of the New England coast to avoid capture. She, along with other German and Austrian liners, were interned in the United States and neutral ports around the world. The ships lingered for nearly three years. Other passenger liners served as auxiliary cruisers and some became noteworthy, such as when RMS Lusitania met her fate off southern Ireland at the hands of U-20 on May 7, 1915. The interned liners, such as Kronzprinzessin Cecilie, awaited the end of the war to return back to service, but Germany's resumption of unrestricted submarine warfare in early 1917, and the sinking of ten American ships and the loss of 64 merchant mariners led to the United States entering the war.
German crews, living onboard, sabotaged the vessels with the aim to prevent them from falling into American hands. They envisioned that their efforts would require at least two years of repairs, since the Americans lacked the schematics and parts. However, American naval engineers and U.S. Navy shipyards were able to utilize new techniques, such as electric welding, to return the ships to service in under six months. Kronprinzessin Cecilie joined the U.S. Navy as USS Mount Vernon. She and nineteen other former German and Austrian vessels carried over 500,000 doughboys of the American Expeditionary Force to France. In World War Two, this was repeated when interned liners and those seeking refuge from the Axis powers were used to transport forces around the globe.
Today, the three mega-cruise lines – Carnival, Royal Caribbean, and Norwegian – are scrambling to ride out this storm, much as the German liners did at the start of the First World War. In the Bahamas, over a dozen ships are riding at anchor, while in ports around the world, others are tied up at the docks awaiting a return to normalcy, that may not come any time soon. Taking a page out of history, the cruise lines, which were the early focus of the COVID-19 outbreak, much like Kronprinzessin Cecilie was early in the First World War, may be part of the solution to this issue.
The fear of COVID-19 is that the virus will swamp existing medical facilities and expose additional people. Nations around the world have a finite capability to house and care for patients. The nearly 200 cruise ships currently awaiting a return to duty could serve that role. Those interned liners, besides transporting American soldiers to Europe, also doubled as hospital ships and returned the injured and ill from Europe, including many infected with the Spanish Flu (H1N1 influenza). Perhaps these cruise ships can serve this role around the world.
In the United States, plans are underway to deploy the two hospital ships – USNS Comfort and Mercy – and potentially activate maritime academy training ships to fill this role. Several firms, including Carnival, indicate that their ships are available for such missions. To assist in this endeavor, the U.S. Navy's Strategic Sealift Officer program is ideally situated. They employ licensed merchant mariners who could serve as liaisons between the vessels and government agencies ashore. If cruise ships from the mega-lines are used, will they be taken over and manned by American's as happened with the German liners in the First World War?
The cruise lines have obtained substantial loans – Carnival was able to acquire $3 billion alone – to offset losses, but charters to governments and their use as hospital and berthing facilities serves two purposes. First, it could generate revenue through charter rates. While this will not equal the money lost from passengers, it does alleviate some of the loss. Second, it will help repair their image tarnished by those early breakouts and issues with finding ports of debarkation.
The future of the cruise line industry is in a state of flux. Smaller domestic firms, such as American Cruise Lines – which operates under United States cabotage rules, with ships built in Maryland – may be able to get some relief from the federal government. The larger companies that are incorporated offshore in nations like Panama, Liberia, and the Bahamas, and register their ships in similar nations, have forfeited their justification of aid from the American government since they gambled on operating outside American jurisdiction. That decision may have long-term implications. No matter what the future holds, in the short-term, the world is once again looking upon the maritime industry to maintain the flow of goods and help fight this new world enemy.