Ports and Shipping Updates:
Efficiency analysis – how do your ships stand up?
Technology is expected to play a significant part in the emissions reduction transition as was highlighted by this year’s World Maritime Day theme of ‘New technologies for greener shipping’, chosen by IMO. And it’s proving to be the case for two new International Maritime Organization regulations – the Carbon Intensity Indicator (CII), which is concerned with the emissions a ship produces during operations, and Energy Efficiency Existing Ship Index (EEXI) which analyses its design. Hempel data shows that around 80 percent of global tonnage has either taken or will be required to take action – whether operational or through investment in technology – to comply with these new emissions-reduction rules. The 1 January measures will index individual ships’ efficiency levels, effectively designating some ships as suitable to trade and others as falling below the bar.
Tankers: full effect of the ban on Russian oil is to be felt from 2023 onwards
The Tanker market’s structural shift is still not complete. In its latest weekly report, the shipbroker said that “with the recently announced crude oil production output cuts from OPEC+ now ready to take effect, the markets seem set for a major bracing point. Yet prices showed a breather just before the onset of the cuts, as crude oil prices slid mainly on news of weaker-than-expected factory activity data out of China, along with wider concerns of further curtailed demand expectations as part of China’s widening COVID-19 restrictions. At the same time, there was also a slight sigh of relief from markets as Saudi Arabia and other OPEC+ countries signaled a potential willingness to increase production if the global energy crisis worsens.
Rules on ship carbon intensity and rating system enter into force
Amendments to the International Convention for the Prevention of Pollution from Ships (MARPOL) Annex VI entered into force on 1 November 2022. Developed under the framework of the Initial IMO Strategy on Reduction of GHG Emissions from Ships agreed in 2018, these technical and operational amendments require ships to improve their energy efficiency in the short term and thereby reduce their greenhouse gas emissions. From 1 January 2023, it will be mandatory for all ships to calculate their attained Energy Efficiency Existing Ship Index (EEXI) to measure their energy efficiency and to initiate the collection of data for the reporting of their annual operational carbon intensity indicator (CII) and CII rating.
Containers: continued downward trend
The Past month was, in essence, a continuation of the developments which had already been underway for several months. Rates in the spot markets continued to decline sharply, most severely in Asia to the US West Coast market where the levels are now rapidly approaching pre-pandemic levels. Asia to US East Coast is also declining, but at a slightly slower pace, and therefore the spread between the two is increasing. There are two fundamental reasons driving this development. One is the continuing congestion problems in major ports on the US East Coast which still acts to “soak up” capacity from the market. The other is the shift in demand where cargo owners continue to favor the East Coast when possible. This was originally done to avoid the West Coast congestion but is now increasingly a risk mitigation effort.
Ship owners refrain from more new building orders despite improving market sentiment
Ship owners have distanced themselves from contracting more new buildings, despite the fact that sentiment for a number of segments, like tankers, for example, is quite positive. In its latest weekly report, the shipbroker said that “the sluggish momentum noted in the newbuilding market as of late was intensified somehow during the past week, with the flow of fresh projects holding at very limited numbers. In the separate sectors and starting from that of the dry bulk, the periodical volatility in terms of volume came hardly as a surprise, given the mixed signals and deteriorated sentiment that has been surrounding this market for some time now”. The shipbroker added that “moreover, thinking about the current freight rate levels, coupled with the effective newbuilding prices, it wouldn’t be unexpected to experience a more of “wait and see” attitude on a short-term basis.
Fewer seafarers, higher inflation – where are ship operating costs heading?
Demand for seafarers is still on the rise, while the increase in supply is expected to be weaker in the future. At the same time, consumer price index growth remains elevated. Based on these driving factors, Drewry forecasts a steady increase in wages which will feed into ship operating costs. The global economy went through an amazing boom in 2021, mainly based on record levels of product consumption in the US and accommodating central bank policies. The side effects have become widely apparent since then. Supply chain bottlenecks plus consumer price inflation reaching double digits in many countries. Higher energy prices due to the sanctions following Russia’s war in Ukraine have added fuel to the fire.
Ship recycling: lack of tonnage a major issue
A lack of available tonnage has continued to hinder demolition activity across the Southeast Asia region. In its latest weekly report, the shipbroker said that “with Diwali celebrations in full swing this week, observant in the industry were taking this period to spend time with their families without the interruption of tonnage circulation. It was an especially poignant one this year with the UK announcing yet another Prime Minister (its 3rd one this year alone), with Rishi Sunak being the first Asian leader of the house of commons, making it a particularly special coincidence. It’s hoped that he will now provide some much-needed stability to the home economy and this will help support what is wildly a chaotic global state of monetary affairs. Many of the industry players have been returning home, after last week’s aforementioned Trade winds ship recycling conference, which has initially been felt was a success due to the collection of stakeholders debating and discussing the market together, after the covid pandemic.