By Timos Papadimitriou
If there is one word that can describe the current shipping environment then that this word is most probably “volatility.” The sentiment changes in the blink of an eye. Regulations, tariffs, sanctions, you name it, all play their part. For some, volatility provides opportunities and possibilities to speculate and invest. For others volatility only prolongs the uncertainty and adds to the fatigue. Either way this is the current reality and there are no signs that things will change and become more predictable.
It is widely accepted that shorter cycles are here to stay. Orderbooks and scraping do play a role but sentiment and trade agreements are in the driver's seat. In an industry that is 100% capital intensive to begin with, now more than ever the need for quick reflexes is imperative.
Shorter cycles that span anywhere from 6 to 18 months mean that the opportunity to make money for shipowners is heavily dependent on the price they paid to acquire or build the asset. With that being said the term “asset play” gains a different meaning. The ability to be able to sell or buy an asset when opportunity arises will be very important to the survival let alone the prosperity of a shipping company. Asset play will become more complex and more structured. An early sign of this is last year's import regulations that China implemented that very quickly created a sub-market segregating Tier I and Tier II ships within each size segment.
Don't get me wrong, the way a company operates or charters their assets will still always be the main source of income and will stay at the core of the business model separating the good from the very successful, but the ability to let go of an asset or the capacity to buy an asset due to an opportunity, will give a significant edge to anyone that can do it.
In a market environment that financing remains scarce, expensive and for many still not easily accessible all of the above is easier said than done. But you can’t or at least you should not ignore where things are heading.
More than ever before, this industry is being led by people that know shipping or at least are willing to have a long presence in shipping. The outlanders that entered - or invaded for some - the previous years have either switched focus or have taken the back seat after years of failing to predict the market, realizing that liquidity is not easily achieved when all things go south.
All in all, as long as newbuilding ordering is rational and mostly driven by need of new tonnage and reasonable speculation, over-supply will stay in check, adjust and eventually cease to exist and in my humble opinion shorter cycles will play a role to that. For a shipping company this will make the need for increased SnP activity vital. We are moving towards an industry that will be even faster paced going forward, with new possibilities to be explored and new boundaries, technological and operational to be pushed. With the BDI currently at very low levels it is only logical that we cannot see the forest for the trees, but the forest is there and it is full of opportunities.
Chartering (Wet: Soft- / Dry: Soft- )
The first signs of stability finally appeared in the dry bulk market in the past couple of days, with on-going holidays in China and disappointing Capesize performance still weighing down on the recovery progress though. The BDI today (12/02/2019) closed at 598 points, up by 3 points compared to Monday’s (11/02/2019) levels and decreased by 31 points when compared to previous Tuesday’s closing (05/02/2019). Weaker demand from the East set the negative tone in key trading regions and passed more control over to charterers in the crude carriers market last week. The BDTI today (12/02/2019) closed at 790, decreased by 16 points and the BCTI at 624, a decrease of 12 points compared to previous Tuesday’s (05/02/2019) levels.
Sale & Purchase (Wet: Stable+ / Dry: Soft-)
Despite the decreasing earnings in both sectors, tanker vessels remain more popular compared to dry bulk sale candidates, with interest for modern clean trading vessels evidently surpassing that for crude carriers. In the tanker sector we had the sale of the “VL SAKURA” (298,641dwt-blt ‘01, Japan), which was sold to Thai owner, Nathalin, for a price in the region of $24.0m. On the dry bulker side sector sector we had the sale of the “ADVENTURE I” (62,472dwt-blt ‘17, Japan), which was sold to Greek buyers, for a price in the region of $24.5m.
Newbuilding (Wet: Stable+ / Dry: Stable-)
With the weekly number of orders surfacing once again below the average of the past twelve months, it seems that February will most probably see softer contracting activity compared to last month, while despite the weaker trend it seems that appetite for both dry bulk and tanker vessels is there. In the case of tankers and specifically VLCCs one could say that this appetite is actually increasing. Last week another two firm orders placed at NACKS in China by different Japanese owners for a total of 3 units were reported, with further details on these orders remaining so far unknown. In terms of recently reported deals, Japanese owner, Lino Kaiun, placed an order for two firm and VLCC tankers (312,000 dwt) at NACKS, in China for an undisclosed price and delivery set in 2020.
Demolition (Wet: Firm+ / Dry: Firm+)
The demolition market has seen an unexpectedly good week with the stability prevailing in the Indian subcontinent since the end of last month finally translating into firmer prices as well. The sales that took place during the past days show a bullish attitude from cash buyers in the region. Aside from the stable appetite displayed by Bangladesh, the fact that India is no longer sitting on the sidelines but actively competing for tonnage instead, is another positive sign, with most expecting Pakistan to also get back in the game sooner rather than later. At the same time, bids from Turkey have been also moving up, with average prices offered by cash buyers in the country now back at end of December levels and everyone expecting that this recent upward correction will resume as scrap steel prices in the country continue to recover the ground lost at the end of 2018. Average prices in the different markets this week for tankers ranged between $260-440/ldt and those for dry bulk units between $270-430/ldt.
Please click here to open Intermodal's Weekly Market Report for the week 6,2019