The trend in shipping cycles across various vessel types is upending expectations about their total valuations against each other. Dry bulk asset values have surged over the past two years following a period of soft returns which encouraged scrapping while ton mile demand continued to climb. Hire rates are surging, which is encouraging investment in dry bulk carriers. The dry bulk fleet is now worth more than the combined value of the tanker fleet, leapfrogging container ships as well.
The below chart shows the total valuation of each major shipping segment and how it has varied each year from 2015 to the present. The value of the tanker fleet has slipped by almost USD 50 billion dollars from 2015 to the present, while bulkers have appreciated by a net USD 56 billion.
Scheduled deliveries in 2018
The overall orderbook for bulk carrier fleet stands at 6.2% in terms of vessel numbers (640 on order) and 7.6% in terms of tonnage (61.2m dwt on order). Net fleet growth of just 2.0% is forecast during 2017.
The average cape is getting bigger and the orderbook comprises vessels that are each around 64,000 dwt heavier than the current average-size cape. The orderbook-to-fleet ratio is also much higher proportionally than for other vessel segments – it stands at 7.5% by number of vessels and 9.9% in terms of tonnage (117 ships under construction, around 30.6m dwt in total). Two-thirds of these capesize vessels will be delivered this year and next.
There are many large vessels on order, comprising super-capes (each 240,000-399,999 dwt; 15 vessels) and Valemaxes (400,000 dwt each; 32 vessels) under construction, most of which will arrive before 2019.
The panamax orderbook shows more modest growth of around 6.0% in terms of vessels and tonnage (124 ships on order, 10.1m dwt total). Most are kamsarmaxes.
The orderbook for smaller bulkers is very slim. Only eight new handymaxes are being built, all scheduled to hit the water by the end of 2018 – which is fleet growth of about 1.0%. Similarly, only 52 supramaxes are on order, the majority of which will arrive within the next two years, which will swell the live fleet by just 2.4%.
If last year is anything to go by, then not all of that tonnage is scheduled to be delivered. Demolition, cancellations and postponements will continue to slow the rate of fleet growth in 2018, but the fairly positive market in 2017 disincentivised owners from scrapping more vessels than absolutely necessary.
One thing that could lend support to markets is the enforcement of new environmental regulations this year, such as the ballast water management convention and the 2020 global sulphur cap. The market has already seen owners opting to scrap older vessels, rather than stump up the money that would be needed to achieve compliance (which can be much more than the vessel itself is worth). This will continue, for a time at least.
The downside is that it could hit second-hand asset prices by further reducing the average scrapping age of the fleet and therefore the cash-flow period of vessels. In theory. Low second-hand prices also tend to discourage new ordering, which would be an added benefit.
China and Commodity Markets
Fiscal stimuli were introduced in China in 2016, which boosted demand for dry bulk cargoes but these stimuli were a result of domestic political strategy. Chinese import demand for iron ore and coal have been strong during 2017 in order to fuel infrastructural and economic growth. Analysts forecast that this could come to an end, possibly within the next year or so.
President Xi is expected to bring in radical economic reforms to rationalise China’s banking, real estate market, state-owned enterprises and industrial sector. Once these reforms get under way, China’s economy will finally make the long-mooted transition to being consumer and service-driven, rather than industrial and production-led, which will mark the end of the country’s glorious (for shipping) era of infrastructural build-out.
Fleet growth is low, as is the orderbook – especially for smaller vessels like supras and handymaxes, which look like a safer bet for the 2018 market.
Tankers appear to be in the middle of a down cycle, which has depressed the valuation of the tonnage on the water and the outstanding orderbook to second place. Although the top three vessel segments have shuffled places, gas carriers and small dry ships held onto more historic trends. Overall the value of total freight carrying assets fell by about USD 43bn from the end of 2015.
(Reference: Vessels Value, Alibra Shipping Limited)
Sea News Feature, March 14