Ports & terminals vs shipping lines: do investors favour the latter?
With hindsight, it can easily be illustrated that even though macro-economic hindrances originate from different sources, they all tend to challenge (in one form or the other) the established rules. By now, we all must have read a lot about the pandemic and its related effects and should be comfortable classifying FY20 as one of the strangest years in human history. Even though consumer confidence took a beating, economic stimulus and altered buying patterns kept the ball rolling. The shipping industry, which forms the kernel of international trade, too witnessed a year of unforeseen volatility. In this update, we look at two closely allied sectors – container shipping, and container ports & terminals – to see their performances through the eyes of an equity investor.
Demolition market “hotting up”
The allure of even higher offers isn’t one to be ignored by many ship owners these days, when it comes to deciding whether to scrap their older ships or not. In its latest weekly report, shipbroker said that commodity markets rallied again this week, with Iron Ore trading as high as $230 per tonne, having broken through the $200 mark for the first time ever in the last seven days. These fundamentals have enabled the Global Steel markets to soar which has meant the local steel prices in the Indian sub-continent firming and leaving the distinct possibility that we could reach the USD 600/per ldt level! This would result in a huge milestone for the market and see levels not witnessed since the post 2008 financial crash. This makes the recovery even more impressive as the World starts to unlock after what has been the biggest and worst Economic shut down in history due to the Covid-19 Pandemic, where this time last year it ground the recycling industry to a halt.
A brief rebound in global coal trade?
Recent signs point to a pickup in world seaborne coal trade during 2021. But it seems unlikely that the strengthening will fully reverse last year’s huge decline, and there appears to be limited potential for continued recovery next year. A sustained downdraft from environmental influences is predictable, implying a declining longer term trend in global trade volumes. The global coal trade rebound unfolding this year is reinforcing the impact of upturns in other dry bulk commodity movements. It is assisting the bulk carrier freight market to perform strongly. The extra support is valuable, because coal comprises over one-fifth of all seaborne dry bulk trade. Given such a large contribution, prospects for a flattening and eventual declining coal trend cast a shadow over the outlook for bulk carrier employment. World seaborne coal trade evidently fell by about 9 percent in 2020, following slow growth in the previous twelve months.
Shipping industry launch the Gulf of Guinea declaration on suppression of piracy
The attacks on merchant ships in the Gulf of Guinea by Nigerian pirates must end. So far, 99 maritime companies, organisations and flag states, including BIMCO, have signed the Gulf of Guinea Declaration on Suppression of Piracy, which was launched.
In 2020, 135 crew were kidnapped from their ships globally, with the Gulf of Guinea accounting for over 95 percent of the crew numbers kidnapped. This has happened in international waters in an area less than 20 percent of the size of the sea area dominated by Somali pirates a few years ago. The pirates launch their attacks from the Niger Delta, where they also subsequently hold their hostages.
“We hope that all parties with an interest in a safe Gulf of Guinea will sign this Declaration,” says Sadan Kaptanoglu, BIMCO president and shipowner, who has personally had a ship hijacked and crew kidnapped in the Gulf of Guinea.
Tankers: cyber security should be taken seriously after colonial pipeline attack
The cyber attack on the Colonial Pipeline has shown how serious is such a threat not only for the energy sector, but also for tanker owners, whose vessels are often carrying dangerous cargo. In its latest weekly report, shipbroker that “Friday 7th saw the unexpected closure of the 8,851km Colonial Pipeline linking US Gulf Coast (USG) PADD3 refineries with PADD 1 facilities along the Atlantic coast following a cyber-attack. With an average capacity of 2.5mbpd it supplies 45 percent of US East Coast fuel demand but suffered a ransomware attack shutting down internal computer networks. According to Bloomberg, Colonial is believed to have paid a $5m ransom in cryptocurrency. As of Wednesday 13th, operations have restarted but a full return to normal could take a week or more. This has raised serious concerns about the state of cyber defences guarding aging US energy infrastructure as well as in other countries given the increasing nature of such attacks”.
Dry bulk market: capesize segment in retreat
As the week progressed it became clear that the Capesize market wasn’t having a small retracement but was in for a more significant downturn as the 5TC dropped $6,972 week-on-week to settle at $34,542. While Friday’s sharp selloff in the Pacific on the back of West Australia to China C5 fixtures gave clear market visibility, the remainder of the market was operating on low physical activity as dark clouds from the paper market ensured sentiment was poor across the board. The C5 had a small lift on Monday but lowered -2.254 week-on-week to post at $12.173 by Friday. Out from Brazil to China, the C3 followed a similar early uptick to begin the week but quickly started to decline as charterers’ bids melted away with the declining forward curve to settle the week at $26.89. The North Atlantic could only watch the decline as activity in the region seemed virtually non-existent this week. How the market reacts next week will surely dictate whether this is a flash crash, possible buying dip, or something more severe. The Cape size major cargo, iron ore, has been on a tear this week reaching the $220-230 pmt levels which may help to underpin owners’ optimism for strong demand for their vessels in the weeks ahead.