By Zisis Stylianos
The global strive towards eco-friendliness and environmental sustainability in the shipping industry is mounting. There are currently almost 200 countries which are nearing an agreement on commitments aimed at reducing pollutant emissions in commercial shipping as part of the international effort to tackle climate change. Since 2018, ongoing negotiations have materialized under the umbrella of the UN and the International Maritime Organization (IMO), which have been primarily aimed at finding a common ground on how shipping as a whole will reduce its GHG and toxic emissions. From containers to tankers, the industry is in search of a way forward which will encompass a level playing field for all involved stakeholders.
Currently, the main area of conflict among negotiators is the method and severity via which sanctions will be imposed in the event(s) of non-compliance to established and agreed emission benchmarks. European countries believe that the most environmentally harmful ships should be withdrawn by 2029 if they are unable to comply with all emission standards set forth. Other countries, such as China and Japan, consider Europe's proposals to be too strict and recommend mechanisms for imposing fines or sanctions in the event of non-compliance with environmental regulations.
On the other hand, organizations such as the MEPC are seeking to and advocating for the imposition of even more stringent measures than the current ones. This is because they believe that shipping emissions will continue to rise in the coming years. The elevated market and investment uncertainty caused by looming regulatory restrictions coupled with the COVID-19 pandemic have significantly slowed down global seaborne trade. According to the IESC report, the pace of international economic activity remained sluggish throughout 2019, but in 2020 the data changed dramatically due to the COVID-19 epidemic. The World Trade Organization (WTO) predicts that global trade is expected to decrease by approximately 20% in 2020. Many shipping sectors have been faced with a sudden and sharp drop in demand, which in turn has significantly affected fares and revenues. In the dry bulk sector, average daily revenues between January and April 2020, compared to 2019, were lowered by more than 85%, 40% and 35% for Capesize, Panamax and Supramax vessels respectively.
Lockdowns in Europe and North America have had a significant impact on employment rates. The International Monetary Fund has announced that the COVID-19 pandemic will likely push the global economy into a worse recession than that of the 1930s and is warning that the prospects for a global recovery are extremely uncertain. The downturn in shipping is projected to last for more than a year and shipping activity is not expected to improve in the coming months. Given that shipping is a global industry, the decrease in its performance is also due to the fact that much of its active is in the southern hemisphere, where major raw material exporting countries, such as Brazil, are being significantly and adversely affected by the COVID-19 Pandemic. It remains to be seen whether the potential release of a new vaccine in the coming winter months will spark the commencement of a recovery phase in the maritime sector. Moreover, it will be interesting to see whether and to what extent the imposition of more rigorous emission regulations will affect the industry’s much needed recovery.
Chartering (Wet: Soft- / Dry: Soft-)
In the dry bulk market, the Capesize sector set the negative tone for another week with declines being recorded in most of its trading routes. Geared sizes resisted significant discounts in their respective rates with the exception of the USG region charterers in which managed to take control. The BDI today (27/10/2020) closed at 1413 points, up by 11 points compared to Monday’s (26/10/2020) levels and increased by 63 points when compared to previous Tuesday’s closing (20/10/2020). Further discounts were recorded in the crude carrier market, with average earnings across all sectors appearing at exceedingly low levels as last week came to an end. The BDTI today (27/10/2020) closed at 426, increased by 3 points and the BCTI at 330, a decrease of 14 point compared to previous Tuesday’s (20/10/2020) levels.
Sale & Purchase (Wet: Firm+ / Dry: Firm+)
Bulk carrier SnP activity was strong for another week among all sector sizes. Tanker secondhand transactions surged from last week’s subdued volumes with an impressive number of large and smaller size transactions observed. In the tanker sector, we had the sale of the “ADS PAGE” (299,164dwt-blt ‘02, Japan), which was sold to U.A.E based buyers, for a price in the region of $25.5m. On the dry bulker side sector, we had the sale of the “KURENAI” (86,041dwt-blt ‘07, Japan), which was sold to Chinese buyers, for a price in the region of low $10.2m.
Newbuilding (Wet: Soft- / Dry: Soft-)
It was another slow week in the newbuilding realm where order volumes and sentiment are projected to remain subdued for an indefinite period of time. In the wet tanker market, a few MR2 and a small tanker orders emerged this week at reduced prices (as opposed to the start of the year). With current tanker rates at near all-time lows, owners seem to be more focused on SnP activity; however, if the current tanker market downturn continues, the possibility of a future increase in tanker newbuilding orders (at discounts) cannot be ruled out. The dry bulk front was also quiet with only a couple of Ultramax orders surfacing. The sustainable freight levels observed in the dry bulk trade coupled with the substantially heightened SnP levels in the sector are mainly causing owners to stray away from hefty newbuilding investments.
Demolition (Wet: Stable+ / Dry: Stable+)
The downward activity trajectory continues in the demolition market as the main Indian subcontinent breakers are faced with an increasing lack of available scrapping tonnage. This has caused a slight w-o-w increase in demo rates. Pakistan continues to top the scrap-price market with offered average scrap rates of 370 USD/LDT. Cash buyer sentiment in Pakistan remains firm and it will be interesting to see how local breakers will react to a potential further weakening of subcontinent demo tonnage availability. Despite the formation of the local cartel which is moderating scrap prices, Bangladesh remains the second most preferred demo destination. With a potential continuing of low scrapping sentiment across the board, the cartel’s dominance will likely be put into jeopardy in the near future as their offered prices may not be able to compete with those of their subcontinent counterparts. India is still the preferred green recycling destination among equals. Nevertheless, local breakers may very well begin offering increased rates for regular scrap candidates owing to the lack of container tonnage locally coupled with the recently elevated steel prices in India (above 385 USD/T levels). On the Turkish front, an overall steady sentiment was observed with scrap prices remaining steady w-o-w.
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