Fitch ratings: global shipping outlook worsens on lower container freight rates
Fitch Ratings has revised its outlook for shipping to deteriorating from neutral, reflecting the challenges facing Container Shipping. We forecast that Tankers and Dry Bulk will remain stable, with the former the most likely to perform well. The easing of supply chain pressures has led to the near normalisation of container freight rates, which suggests that profits in 2023 will be much weaker than they were over the last three years, when they were supersized. The main risks include the potential for a harsher recession than expected and the continuation of pandemic-related lockdowns in China that could lead to further weakness in demand and manufacturing.
Tankers changing hands left, right and center
Sanctions on Russian oil have triggered major moves in the tanker market, with Russia and its allies proceeding with mass acquisitions of older tanker tonnage, which has started to reflect in the S&P market. In its latest weekly report, shipbroker said that “on the dry bulk side, the recent mediocre momentum resumed for yet another week, with a limited number of transactions taking place. It is true, that the prevailing bearish sentiment has not helped things move onto a more stable mode, with buying appetite appearing volatile even on a w-o-w basis. Moreover, given the current market conditions, especially from the side of earnings, it is highly unlike that we will see any excessive rally in SnP activity, except if we were to experience a further negative push on the asset price front. On the tanker side, things continued on a strong pace for yet another week, given the numerous vessels changing hands.
Global container volumes fall 9.3pc y/y
From mid-2020, global container export volumes saw strong growth, and combined with increasing port congestion it caused supply chain challenges and historically high liner operator financial results which have been the norm since. In September 2022, however, container volumes dropped below volumes recorded in the same month in 2019 for the first time since mid-2020 and statistics just released by Container Trade Statistics have confirmed the trend. In October 2022, global container export volumes fell 9.3% y/y and ended 4.3% lower than in October 2019. Twenty out of twenty-eight region to region trade lanes ended with lower volumes than in October 2021 while eighteen trade lanes saw volumes lower than in October 2019.
Aligning with 1.5 degrees: managing the risks and opportunities for shipping and the companies in its value chain
Shipping’s value chain can expect continued pressure on targets and commitments until it clearly aligns with an IPCC-derived definition of the steps needed to avoid temperatures rising above 1.5C. This pressure will come both from the policy process at the IMO and from the landscape of voluntary initiatives and commitments that intensify scrutiny and expectations of transparency. At a sector level, 1.5-alignment means taking even greater steps than many had already factored in as sufficient – much of shipping’s transition away from fossil fuel use will need to have been achieved by the end of the 2030’s. Managing the risks and opportunities that this creates starts with understanding where pressure on targets comes from and what is driving these latest developments in their specification.
Shipping’s digitalization journey is well underway
Shipping’s path towards the digital era is well underway, with container ships at the forefront of this process. In its latest weekly report, shipbroker said that “shipping, although a conservative and innovation adverse industry, is currently in a transition period of digital transformation. According to a survey conducted by Wärtsilä Marine Business, two-thirds of shipping companies have started on their digital journey, as 69% of them are currently exploring digital solutions. Liner shipping companies are the frontrunners in the pathway to the digital era, in a process of optimizing cargo handling, maritime procurement and logistics, and port operations, with significant efficiency gains and at the same time enhancing efficiency, safety, and minimizing environmental impact.
Product tankers set to benefit the most from a ton-mile increase from latest round of sanctions on Russian oil
The latest round of sanctions on Russian oil is bound to offer yet more support to the product tanker market. So far, Russia’s major clients, like the EU, have reduced their imports of crude oil considerably, but this hasn’t happened to the clean market, at least not in the same pace. In its latest weekly report, shipbroker said that “the EU ban on imports of Russian crude is set to come into effect. Still, huge uncertainty remains about the impact of sanctions and the price cap itself. The cap is designed to give additional bargaining power to buyers in third countries with minimal disruptions to crude flows. However, Russia has repeatedly stated (prior to the announced cap of $60/bbl) that it will not sell its crude under these conditions and is reportedly seeking to boost the recognition of Russian maritime cargo insurance.
Dry bulk market: positive signs are starting to emerge
The Capesize market was in a ‘one step forward, two steps back’ mode this week. The average of the 5 time charter routes eventually settled at $12,598, a decline of $775 week-on-week. Despite tightness in both basins, especially for December cancelling in the north Atlantic region, limited transatlantic or fronthaul cargoes were circulated in the market. Some brokers felt it was quieter compared with the same period last year. For Brazil loading, views on the ‘next done’ largely differed due to a mixed spread. Vessels that can make mid-December dates in Brazil were paid higher, but again lacked cargo support. The relevant C3 route was priced at $19.006 to end the week.