Shipping markets running 35% above 10-year trend with fundamentals remaining strong: Clarksons

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Clarkson Research’s six-monthly outlook for the global shipping markets, Shipping Review & Outlook, has been released this week and is available in full on Clarksons’ ‘Shipping Intelligence Network’.

Summarising the review, Steve Gordon, Managing Director of Clarksons Research commented: “Shipping markets are experiencing an extended period of positive market conditions, with our cross-sector ClarkSea Index averaging $24,000/day in the first quarter, up 35% on the 10-year trend and maintaining the strong levels of 2023.

“Aside from underlying trade volume growth and a tight shipbuilding market, complexities in supply and demand continue to impact including from geo-political disruption to trade patterns and increasing emissions regulation.

“Despite mixed global economic signals, seaborne trade volumes grew by an encouraging 3% to reach 12.4bn tonnes in 2023 (Chinese trade was particularly supportive) and we project further growth of 2% to 12.6bt in 2024.

“Alongside underlying trends towards longer-haul voyages in some sectors (e.g. Atlantic oil and iron ore exports), impacts from disruption events are also amplifying the “distance kicker” to overall shipping demand. Traffic through the Red Sea (~10% of global trade) has seen sharp declines (transits down 70%), as vessels re-route (via Cape of Good Hope, extending voyage distances) and trade flows adapt.

“We estimate the diversions are today generating additional global vessel demand of 3% (equivalent to an entire year of typical trade growth), increasing to 11% for the container sector alone.

“Restrictions on transits through the Panama Canal (2.5% of global trade) due to low water levels have also impacted, with tonnage transits down a third. And the tonne-mile impacts of redistributed Russian oil and gas exports (and European imports) also continue. In our base case (for the moment factoring Red Sea disruption across the first half of the year) global tonne-mile trade grows by 3.9% this year (2023: 4.6%), continuing a trend of outpacing expansion in tonnes.

“Unlike six months ago, market conditions are strong across the major ‘volume’ sectors. Tanker markets remain tight (average earnings >$40,000/day) with support from low fleet growth and ongoing Russia-related long-haul trade flows, and with Red Sea disruption driving a product tanker market spike in Q1.

“Red Sea re-routing has, for the moment, lifted the container markets from over-supplied lows, with spot freight rates double early Dec levels and with more gradual gains in charter rates (up 37% on early Dec).

“After a soft 2023, bulkers (particularly Capesizes) are seeing a strong start to the year, amid firm cargo volumes, and a limited newbuild orderbook. LPG rates have corrected after hitting all-time highs in 2023 but remain “healthy”, while LNG rates are seasonally softer with newbuild deliveries also impacting ahead of the upcoming major wave of project start-ups.

“Offshore oil and gas markets are in a strong position, with day rates up firmly and prior market peaks now ‘in sight’. The car carrier market remains at historical highs for the moment, and cruise has seen good improvements with passenger volumes (we forecast 35m in 2024) and revenues now above pre-Covid levels.

“Supply side constraints continue in some sectors, with the orderbook moderate (~12% of fleet capacity) but uneven (e.g. LNG: 51%, bulkers 9%). We project overall fleet growth of ~3% to 2.5bn dwt in 2024 but this is again uneven (tankers <1% supply growth, containers >8%). We expect a good flow of newbuild orders to continue, with tanker interest “red hot”, gas ordering active and ongoing green fleet renewal programs by “cargo” and liner companies.

“We estimate shipyard capacity fell by ~35% in the 2010s and is now expanding only incrementally (mainly in China). Slot availability is very tight (yards have 3.5 years forward cover) and prices are up 40% since 2020. Recycling has been limited while the S&P markets have been very active: the run rate in 2024 to date is up 25% on the firm 2023 total. In both bulkers and tankers, pricing is up ~25% on start-23 and is now at a ~15 year high.

“We value the world fleet and orderbook at $1.7tn. Ship financiers have seen good deal flow, but also early repayments and increased competition.

“Shipping’s Green Transition remains in focus, with shipping accounting for 1.9% of global GHG emissions on a ‘well to wake’ basis. In extending the EU ETS to shipping in 2024, there is a price on carbon in maritime for the first time (we estimate a $6bn bill p.a. by 2026). We also estimate that last year 65% of the deep sea cargo fleet was A-C rated under CII (35% D-E). We expect impacts ahead on speed trends, EST retrofits and ‘tiering’ of markets while the upcoming MEPC meetings at IMO will set the next phase of vital regulation. Green technology uptake continues with 6% of fleet GT now alternative fuel capable (50% of orderbook), 31% fitted with ESTs, and 32% with ‘eco’ engines.

“Significant fleet renewal is expected in the coming years as the fleet ages (31% of fleet 15+ years). Understanding broader impacts from Energy Transition will also be important (e.g. reduced coal volumes, timing of “peak” seaborne oil, growth in gas and offshore wind).

“Shipping markets are today positive with strong cashflow,” Gordon concluded. “Geopolitics and global economic risks need closely monitoring, while some supply-side constraints and potential impacts from emission policies are supportive, as the industry navigates managing disruption and going green.”

 

 

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