Six months on from our last Shipping Review & Outlook, an encouraging market recovery has since developed into a range of exceptional market conditions. And stakeholders across maritime are balancing a focus on returning volumes and management of widespread disruption with an increasing urgency to implement regulation and policy around greenhouse gas emissions reduction.
The encouraging recovery in shipping markets we profiled six months ago has since developed into a remarkably strong year, driven by rebounding volumes and widespread logistical disruption. Reflecting this, our cross-sector ship earnings index, the ClarkSea, has risen sharply, averaging $23,943/day in Jan-Aug (up 55% y-o-y, double the 10 year trend). By September the Index reached $38,944/day, within the top 2% of all values recorded over the last 30 years!
Demand Recovery & Disruption
Strong economic recovery from Covid-19 (GDP projection: up 6.0% in 2021 vs -3.2% in 2020) continues to be supported by $16tn of global stimulus (perhaps two-thirds has now been “spent”), the roll-out of vaccines and “pent-up” demand. Against this backdrop, overall seaborne trade has already returned to pre-pandemic levels, with growth of 3.9% (tonne-miles: 4.4%) projected to take volumes to 12bn tonnes by year end. However, the recovery profile varies; container, gas and dry bulk trade have seen the strongest trends whilst oil trade volumes remain 10% down and may not return to pre-Covid levels until late 2022. While risks remain from Covid-19 outbreaks, “cooling” trends in China’s industrial sector and increased taxation, the trade outlook seems broadly healthy: we are projecting 3.2% growth for 2022 (12.4bn t).
Disruption to global logistics and supply chains is widespread. Congestion at ports is now estimated to be absorbing an additional 4% of the containership fleet (today our index of containership capacity in port is up 13% y-o-y) and 3% of bulker fleet capacity. In the short term at least, continued “bottlenecks” are likely.
The container market has seen all time high freight and charter rates (up 300% this year). The short term outlook remains firm: further ahead changes in consumer spending, any easing to congestion and the newbuild backlog (heavier from 2023) may come into play. Bulker earnings have increased to their highest levels for over a decade and our supply / demand projections are positive, even if some congestion may ease. After last winter’s “spike”, LNG has again seen encouraging developments and we expect a strong winter. LPG has been better than expected but more volatile. Car carriers are seeing good rate gains (congestion again a factor); cruise (nearing 50% of pre-Covid levels) and ferry activity is gradually increasing, while offshore oil and gas are seeing slight improvements (wind remains very positive). However with floating storage having unwound and trade down, tanker markets have been very weak and any immediate improvements are likely to be modest (wildcards aside).
Shipping supply growth remains below trend: the orderbook is limited (9% of fleet capacity; 2008: >50%) and shipyard capacity reduced (111 active “large” yards vs 320 at peak). Newbuild ordering has increased (85m dwt in Jan-Aug, the strongest since 2014), with record containership ordering (3.4m TEU, taking the orderbook to 22% of the fleet). Sharply rising steel prices and reduced berth availability have led to higher newbuild prices (up 20% so far in 2021, more in containers, to the highest levels since 2009). Deliveries have been fairly steady (projected at 86m dwt in 2021, similar to 2020): output is expected to decline in 2022 before recovering in 2023. Recycling has been limited (16m dwt in Jan-Aug): scrap prices have surged (now at ~$600/ldt, up from $400/ldt at start year). Fleet capacity is projected to grow by a moderate 3.1% in 2021 and 1.9% in 2022 (to reach 1.5bn GT). The S&P market has also seen record activity (105m dwt ytd is already an annual record). Containership and bulker S&P prices are up an impressive ~120% and ~70% since start year.
Green & Tech…
‘Green and Tech’ are dominating post-Covid planning, with the focus intensifying on reducing the industry’s emissions (2021: ~855mt of CO2). The framework is ramping up: the IMO’s EEXI and CII measures come into force in 2023 (potential impacts: speed, EST retrofitting, recycling?) while the inclusion of shipping in the EU’s Emissions Trading Scheme and the bloc’s ‘FuelEU Maritime’ initiative are also set to impact. Debate continues over the policies and technology to drive the long term Fuelling Transition. For the moment, 30% of the orderbook by GT is alternative fuel and 27% of the fleet is ‘eco’. Energy Transition will also impact trade patterns long-term.
With the recovery from Covid-19 continuing and disruption likely to take time to unwind, market sentiment remains positive. While risks remain and progress may be uneven, the improving economy, limited orderbook in many sectors and the Green Transition seem supportive tailwinds for the moment.
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.