By Yiannis Parganas
The uneventful summer lull which is coming to an end soon has left its stigma on the newbuilding market, which has already been devastated by the global social and economic effects of Covid-19 pandemic during the first half of 2020.
The newbuilding sector has been rather discouraging in terms of its activity levels over the past summer lull period of time. Over the past summer months, the asset investment decision between purchasing a newbuilding versus a modern secondhand dry bulk vessel has been illustrated. Owners are inclined to choose respective modern ships owing to the lucrative price discounts on display over pricey, time and capital intensive newbuildings. Both vessel investments do not differ significantly in terms of operational efficiencies. Sectoral newbuilding analysis has shown that dry bulk vessel orders remained at significant lows over the past summer months whereas tanker candidates (especially MR and clean product vessels) monopolized the global vessel orderbook with volumes however being at low levels.
Owners are not able to pin down their future green fleet-composition strategies adding an extra burden on shipyards which are already struggling to stay afloat during the pandemic. The shipping industry’s “divided” view on the commercial and long-term implementation feasibility of eco-friendliness and sustainability is causing concern and investment ambiguity. The key rationale behind this uncertainty is that there is a need to promote decarbonization in shipping by reducing its carbon footprint. This will be achieved through the further digitization of vessels and their navigation technologies. Current eco-friendly alternatives in shipping include LNG-fueled vessels & carrier of ammonia, alternative propulsion fuels and batteries. The path towards greener shipping is non-trivial and most definitely non-obvious. Therefore, this cloud of uncertainty regarding eco-friendliness has adversely impacted newbuilding orders.
This widespread scepticism is more than justified when taking the example of scrubbers into consideration. Up to now scrubber installations have simultaneously seen a decent amount of praise and criticism. Scrubbers have not yet been proven to be environmentally friendly and their exact effects on the environment remain to be seen. In the end of 2019, the low Sulphur to high Sulphur fuel oil price differential was over $350/ton, which rendered the decision to install scrubbers an intuitive one. However, with the differential falling to below half the aforementioned value, scrubber adoptions have seen a rapid cessation, and this has adversely impacted the respective investor sentiment for eco-friendly newbuildings further.
The last quarter of the year is ahead us, however the economic fundamentals remain weak and poised towards a bleak year over year newbuilding orderbook. The soft freight market activity in both the dry bulk and tanker sector coupled with the aforementioned necessity for environmentally friendly adoptions have pushed potential newbuilding investors to the sidelines. This new reality, has intensified the competition among shipyards for the less available newbuilding order market share. Nonetheless, in every crisis there is always a story silver lining which in the newbuilding front is depicted by the smiles of owners who are destined to see a substantial overall fleet supply decrease with the current year contracting activity being analogous to the 2017 very low levels.
Chartering (Wet: Soft- / Dry: Soft-)
Momentum in the dry bulk market remains soft, with consecutive negative closings being noted across all sizes. Capesize and Panamax performance witnessed most of the pressure with substantial earnings discounts reported w-o-w. The BDI today (08/09/2020) closed at 1328 points, down by 21 points compared to Monday’s (07/09/2020) levels and decreased by 143 points when compared to previous Tuesday’s closing (01/09/2020). Rates in the crude carrier market are still pointed south, with average earnings hovering below OPEX levels across every sector. The BDTI today (08/09/2020) closed at 446, decreased by 20 points and the BCTI at 465, a decrease of 17 point compared to previous Tuesday’s (01/09/2020) levels.
Sale & Purchase (Wet: Stable+ / Dry: Firm+)
Sale and Purchase activity remained healthy in the dry bulk sector realm for yet another week. Tanker sales were subdued w-o-w with deals focusing on older vessels (above 15 years of age) while clean product carriers were the most common secondhand transactions. All bulker segments exhibited healthy transactional volumes. In the tanker sector we had the sale of the “PETROPAVLOVSK” (106,532dwt-blt ‘02, Japan), which was sold to U.A.E based owner, Kasco, for a price in the region of $10.2m. On the dry bulker side sector we had the sale of the “CAPE VANGUARD” (206,180dwt-blt ‘06, Japan), which was sold to Chinese buyers, for a price in the region of $14.7m.
Newbuilding (Wet: Soft- / Dry: Stable+)
Some spark of life has emerged in the Newbuilding dry bulk front; however, the overall contracting activity remain soft, a trend which has continued from the start of the year. Among the recently surfacing orders, owners kept showing no particular interest for crude carrier vessels with their appetite concentrating on the chemical sector. As far as the dry bulk orders are concerned, interest has been for another week displayed on the Ultramax and Kamsarmax sizes while the four firm plus four options Kamsarmax order from China Minsheng Trust at Chengxi shipyard made the headlines. It remains to be seen how the market activity and the criteria that shape it will develop over the remaining last quarter with its current volume being at significant low levels. In terms of recently reported deals, Japanese owner, Noma Kaiun, placed an order for two firm Ultramax vessels (64,000 dwt) at Tsuneishi Cebu, in Philippines, for a price in the region of $28.0m each and delivery set in 2022.
Please click here to open Intermodal's Weekly Market Report for the week 36,2020