With the IMO 2020 global sulphur cap now officially in place, changes to data series will be presented in the first Shipping Intelligence Weekly (SIW) of the 2020s. In this week’s Analysis we discuss some of these changes and our ongoing plans to track the impact of technology and accelerating environmental regulation on market supply-demand, vessel earnings, asset value and shipping company ratings.
As the shipping industry has transitioned to compliant fuel, we have been collecting expanded data while adjusting some assumptions we use. Firstly we have expanded the range of bunker prices we monitor, to include the new grades and to better understand some of the regional volatility of recent months. While the “spread” had been averaging ~$225t, recent data suggests this has, for the moment, “spiked” to ~$325t. Secondly, from the start of Q4 2019, we began publishing estimates of the impact of this more expensive fuel on our theoretical Time Charter Equivalent (TCE) earnings and, in the first SIW of 2020, our main reference ships will now use low sulphur fuel assumptions (see pages 2-5). For the moment, it’s too early to understand exactly how these fuel costs will be allocated, given broader ongoing market forces / trends, the wide diversity of fixtures, regional bunker trends, fuel hedging strategies, WS flat assumptions etc.
While the majority of tonnage has worked through this fuel transition, a major trend of the past 24 months has been the ramping up of scrubber adoption to allow the continued use of Heavy Fuel Oil (HFO). While this is still only ~12% of overall tonnage on the water today (rising to 19% by end 2020), it is already a significant minority in some sectors: as high as one in five VLCCs and Capesizes. Assuming the same freight rate (there seems no obvious differential for the moment), we calculate this now equates to ~$22,000/day “upside” for a c.2010-built VLCC and ~$10,000/day for a Capesize. But it’s “early days” and in Q4 the differentials averaged ~$18,000/day and ~$8,000/day. We will be tracking vessel earnings series assuming HFO consumption across major markets and routes, with a selection in SIW and the balance downloadable from SIN. Where possible we will be doing the same for the Timecharter market and, while our S&P price benchmarks are “non-scrubber”, Clarksons Valuations have been applying premiums ship by ship for some time.
Additionally we are tracking the evolution of the “eco” ship, now the typical five year old vessel and projected to be 25% of the fleet by year end (defining this is tricky but initially we assumed vessels with an electronic main engine ordered after 2012). With typical fuel consumption savings of >20% on older designs, we have introduced an additional reference “eco” ship for our TCE calculations (see SIN). Most of our five year old S&P reference ships have already transitioned to “eco”, with a significant impact in containers. For those of you who want more detail, there are various footnotes, along with an expanded Sources & Methods. We will keep you posted on our plans to track the impact of regulation and technology uptake: perhaps next, benchmarks for alternative fuelled vessels? Have a nice day!
The author of this feature article is Stephen Gordon. Any views or opinions presented are solely those of the author and do not necessarily represent those of the Clarksons group.