Here’s a nice chart from Icap’s Global Shipping Analytics team demonstrating the current cash-burn the Very Large Crude Carrier (VLCC) market is experiencing:
Here’s an eye-opening chart if ever there was one (H/T Sean Corrigan at Diapason):
Let’s start with four graphs from Nomura. Click to enlarge.
Negative bond yields, negative repo rates, and now… negative freight rates. At least route-specific ones.
A glut of ships has driven prices to ship dry commodities to their lowest level in 25 years, raising fears of fresh crisis for an industry vital to global trade, the FT reports. The key indicator of earnings for vessels carrying iron ore, coal and other bulk commodities – the Baltic Dry index – fell on Wednesday to its lowest level since August 1986, extending a streak of consecutive daily falls from December 12 that seen the barometer fall 65 per cent. The index is widely followed outside the industry as a gauge of global trade. However, analysts said the latest slide in prices reflected mainly the impact of a surge in deliveries of ships ordered in the shipping boom before the 2008 financial crisis, which has outpaced still-growing demand to move goods. The declines – which have seen average charter rates for Capesize ships, the largest kind, fall from $32,889 a day on December 12 to $5,327 on Wednesday – also reflect the impact of temporary factors, including the early Chinese New Year holiday and poor weather in Australia and Brazil. Earnings for most vessels on the short-term spot market are now well below operating cost levels, raising concerns about the finances of many ship operators, particularly those with high numbers of vessels leased from other owners at relatively high prices. Read more
A glut of ships has driven prices to ship dry commodities to their lowest level in 25 years, raising fears of fresh crisis for an industry vital to global trade, the FT reports. The key indicator of earnings for vessels carrying iron ore, coal and other bulk commodities – the Baltic Dry Index – fell on Wednesday to its lowest level since August 1986, extending a streak of consecutive daily falls from December 12 that seen the barometer fall 65 per cent. The index is widely followed outside the industry as a gauge of global trade. However, analysts said the latest slide in prices reflected mainly the impact of a surge in deliveries of ships ordered in the shipping boom before the 2008 financial crisis, which has outpaced still-growing demand to move goods. Read more
Beijing has effectively barred mega iron ore ships owned by Brazilian miner Vale, reports Reuters, stepping up protection of the domestic shipping industry and control over imports of the key steelmaking ingredient. China’s Ministry of Transport on Tuesday, citing a downturn in the shipping industry, banned giant dry bulk vessels and oil tankers with immediate effect. It did not specifically mention Vale in the new regulation, which affects all large vessels including the fleet of 400,000 deadweight tonne vessels called Valemaxes. The world shipping industry on Tuesday was struggling to digest the implications of the move, says the FT. Rob Lomas, secretary-general of Intercargo, the international dry bulk shipowners’ association, said his organisation was trying to find out what the rules meant. If it covered all vessels with a capacity greater than 250,000 deadweight tonnes, more than 100 vessels would be affected. Read more
Should you be worried about the Baltic Dry Index’s recent sharp selloff? Or should you be more worried about developments in China?
We bring this up because there is apparently somewhat of an après-Chinese New Year effect when it comes to the Baltic Dry Index. And since the Chinese New Year fell early this year, the BDI’s usual post New Year pick-me-up should be just around the corner. Read more
Carnival, the owner of the Costa Concordia which sank off the coast of Italy this weekend, has estimated it will lose at least $85m from the disaster, the FT says. London shares in Carnival, which is also traded in New York, fell 21 per cent on Monday after the warning. The massive cruise-liner cap-sized after it hit rocks near the Italian coast, leaving at least six people dead, Reuters reports. The ship’s captain has been detained for questioning. Beyond the immediate financial costs, the fate of the Concordia will also revive the debate over the safety of the ever-growing size of modern cruise ships and the business model that underpins them, the FT adds. Read more
London shares in the owner of the Costa Concordia were down 18.5 per cent at pixel time:
Vale is looking to sell off its large iron ore carriers, the FT reports, after the second-largest mining company’s venture into the business has faced fierce opposition from Chinese shipowners and embarrassing teething problems. José Carlos Martins, Vale’s executive director for iron ore and strategy, said that the Brazilian company would sell its so-called Valemaxes, most of which have not yet been built, if it could take long-term leases on them. The multi-billion dollar plan to control shipments to China by building 35 ships with decks the size of three football fields – the biggest dry bulk carriers ever – was dreamt up by Roger Agnelli, Vale’s former headstrong chief executive, but it has faced heavy criticism since. None of the new carriers has been able to dock in China, Vale’s biggest market, because of opposition from local shipowners and technical difficulties, while a mysterious leak aboard the Vale Beijing on its maiden voyage this month has raised safety concerns. Read more
A significant order from a Chinese buyer for new crude-oil tankers has fuelled speculation that China is preparing a series of huge ship orders, reports the FT. The orders would support employment in the country’s shipbuilding industry but flood struggling shipping markets with excess capacity. China Rongsheng Heavy Industries (CRHI), China’s largest privately controlled shipbuilding group by order book size, announced on Thursday that it had received an order for 10 Suezmax crude oil tankers, plus options for a further 10, for delivery in 2013 and 2014. Suezmax tankers, the second-largest commonly-used size, carry 1m barrels of oil. Read more
John Fredriksen, the world’s highest-profile shipowner, may have to step in for the second time in three years to rescue one of his listed companies, after Frontline, the oil tanker operator, said there were “significant uncertainties linked to Frontline’s sustainability in the present form”, the FT reports. Frontline revealed the concerns about its future on Tuesday as it announced $136m third-quarter net losses, compared with a $48.4m net profit for the same period last year, on revenues down 44 per cent to $174m. The losses were largely a result of a $121m impairment charge on five of the company’s Suezmax tankers – which carry 1m barrels of oil. Three of the tankers were sold during the quarter. Shares in the company fell more than 25 per cent on the announcement. While Frontline was not in breach of its banking covenants at the end of the third quarter, the company said it was likely to need new funding in the first part of 2012 and there were “significant uncertainties” about its ability to comply with its banking covenants at the end of the present quarter. It would seek discussions with its creditors and counterparties about a possible restructuring. Read more
Uncertainty in the near-term outlook for the world economy has delayed shipping lines setting container rates for next year on routes between the U.S. and Asia, reports Bloomberg. The Transpacific Stabilization Agreement, which covers 15 container lines, usually sets guidelines for rates in October, but has determined to delay this until early next year. While shipping lines have struggled to push rates higher due to an increase in the size of the available shipping fleet, U.S. retailers have been unwilling to place new orders with manufacturers in Asia. The decline in container rates has hit companies such as Maersk, China Shipping Container Lines, and Evergreen Marine Corp, all of which have seen substantial share price declines this year. Read more
At least one leading oil tanker operator is likely to follow collapsed smaller operators into insolvency, senior figures in the industry believe, as the sector is swamped by oversupply, the FT reports. The executives were speaking amid a slump that has sent the rates paid to charter ships way below vessel operating expenses. The average short-term spot market rate to charter a very large crude carrier – the largest widely-used class – from the Gulf to Far East on Friday stood at just $1,795 per day, compared with the $29,800 that Frontline, the biggest listed tanker operator by fleet capacity, recently said such vessels needed to break even. Nasdaq-listed Omega Navigation, Netherlands-based Marco Polo Seatrade and several other small operators have already been forced into bankruptcy protection. Cyprus-based Ocean Tankers, which made a €19.6m net loss for the first half on €9.77m income, has had several of its ships arrested – held under court orders by creditors – during port calls this year. Now executives predict that far larger names are likely to follow. Moody’s last week downgraded one operator facing acute challenges – New York-listed General Maritime – to Caa3, only just above default. Read more
Senior figures in the shipping industry believe at least one leading oil tanker operator is likely to follow collapsed smaller operators into insolvency, the FT reports, as the sector is swamped by oversupply. Chief executives from Frontline, Overseas Shipholding Group, and Teekay Tankers all pointed to the risk of collapse moving to larger operators after several smaller peers, such as Omega Navigation and Marco Polo Seatrade, were forced into bankruptcy protection. The rates paid to charter ships have fallen below vessel operating expenses. The average short-term spot market rate to charter a very large crude carrier – the largest widely-used class – from the Gulf to Far East on Friday stood at just $1,795 per day, compared with the $29,800 that Frontline, the biggest listed tanker operator by fleet capacity, recently said such vessels needed to break even.
One of Greece’s most high-profile shipowners has threatened to seize ships belonging to China’s biggest shipping company, after it halted payments on high-priced charter contracts, the FT reports. George Economou told the Financial Times that Cosco’s stance over contracts struck during the 2008 shipping boom might reflect a failure to understand the importance of honouring past deals. Cosco, the world’s largest operator of “dry bulk” ships that carry iron ore, coal and other commodities, has become a major international player only in the past decade. “We’re bending over backwards, telling them, ‘Take your time to try to decide how you find the money’, ” Mr Economou said. “Failing a constructive conclusion, the only course of action is to get security for any money. The only way to do that is worldwide ship arrests [seizures].” Although he has already had one Cosco vessel put under court control and prevented from leaving port in Louisiana, he said that he wanted to resolve the standoff amicably. Cosco did not respond to a request for comment. It has previously said it is withholding some payments under a “cost-reduction programme” to maximise value for shareholders. Read more
One of Greece’s most high-profile shipowners has threatened to seize ships belonging to China’s biggest shipping company, after it halted payments on high-priced charter contracts. George Economou told the FT that Cosco’s stance over contracts struck during the 2008 shipping boom might reflect a failure to understand the importance of honouring past deals. Mr Economou said he had the industry’s greatest exposure to Cosco, which is the world’s largest operator of “dry bulk” ships that carry iron ore, coal and other commodities. Cosco did not respond to a request for comment. It has previously said it is withholding some payments under a “cost-reduction programme” to maximise value for shareholders. Three of its ships have been seized in the past two months, according to Bloomberg. Read more
The operator of the world’s largest crude oil tanker fleet has signalled it is preparing to batten down the hatches for a prolonged rough ride as ship deliveries continue to outpace demand, driving earnings down, the FT reports. Frontline gave its assessment of market conditions after publishing first-quarter results showing net income down 81 per cent to $15.5m on the same period last year, on revenue down 29 per cent to $235m. Of the net profits, $13.2m came from asset sales. The company, listed on the Oslo and New York Stock Exchanges, is closely watched because its chief executive and largest shareholder is John Fredriksen, the Norwegian-born shipowner widely regarded as his generation’s finest player of shipping markets. Earnings for most crude oil tanker sizes have been at unprofitable levels for much of the year so far, as the rapid pace of ship deliveries has outpaced growth in demand to transport oil. Read more
Monday — a dramatic day in the story of Libyan rebels’ bid to get their country’s crude to the outside world.
It is getting out one end, at least. The Equator, a Liberian-flagged tanker, is in Egyptian waters heading for Tubruq, the rebels’ oil port, for loading early on Tuesday, the FT reports. Read more
Media are starting to report on fuel shortages affecting most of the earthquake and tsunami-torn area in Japan, including the capital Tokyo.
With the area having suffered major logistic and transport infrastructure collapse, re-supplying it with much-needed fuel could prove much more difficult than anticipated. Especially given one of the most direct resupply options — external imports — could be hindered by huge damage to the region’s ports. Read more
With reports of missing ships and commercial vessels running ashore all over Japan, we thought it a good time to check in on the last known whereabouts of vessels in the region, courtesy of Vessel Tracker.
Here, for example, are the last available locations for vessels in Tokyo Bay: Read more
Icap’s shipping analysts have on Monday come up with an interesting hypothetical take on how an extended Libyan crisis might impact the shipping market.
In a nutshell, think more bearish than bullish for shipping rates. Read more
The use of shipping containers, a barometer of the global economy, has risen sharply this year, surpassing even the record levels of 2008, reports the FT. Two of the most important companies in container trade – Denmark’s AP Møller-Maersk and Dubai’s DP World – on Wednesday reported further evidence of the recovery in the trade in the boxes that carry the world’s manufactured goods. The upturn, boosted by traffic of goods to and from emerging economies, has been so strong that analysts say that it has caught many by surprise. Read more
Denmark’s AP Møller-Maersk swung sharply back into profit for the six months to June 30 as the shipping and oil conglomerate was buoyed up by surging container shipping demand and a high oil price, it announced on Wednesday. Maersk, which reported $2.52bn net profits for the half against a $540m loss for the first half last year, also issued the second upgrade of its forecast full-year profits in just over a month, saying it now expected to earn more than $4bn this year. The figures pushed Maersk’s B Shares up 3.14 per cent to DKr49,000, reports the FT. Read more
FT Alphaville, and others, watched the Baltic Dry’s recent 60 per cent tumble, which took place over a run of 35 consecutive days, with particular interest.
Some, after all, suggested that it meant the index was no longer a valid economic indicator. Other worried that it was just that. Read more
The last couple of months has seen much talk in the oil markets about the unwinding of floating storage positions.
Goldman Sachs was among those who noted that crude was increasingly being moved out of tankers on account of the changing structure of the oil future curve — which had gone from a steep contango a year ago to a near flattening just one month ago. Read more
What is Sir Stelios Haji-Ioannou up to?
We ask the question because for the second time in five months the easyJet founder has made liquid some more of his holding in the no-frills airlines. Read more
The Baltic Dry Index, a measure for the price of shipping bulk commodities, has made a wavering comeback since plunging like a stone in the fourth quarter of 2008:
The natural gas, citrus, rock-salt and distillate markets have all been affected by colder than usual winter temperatures.
And just when you thought there couldn’t possibly be any more weather-related markets stories, here’s one connected to the shipping market. Read more
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