 WORLD SHIPPING/2
Drybulk: Capesize sector firms Starting with the drybulk sector, confidence has so far not matched up to its wet counterpart. This is probably due to the high bulk carrier order book Despite this, the Capesize sector has firmed, but this has not had a knock-on effect in the smaller sizes thus far. The grain trades have so far been a let down. Two of the main players, Russia and China, have not yet put in an appearance. However, the Russians could be buying again before too long as their production has not kept up with their requirements. Last year much of Russia's imports were covered by aid cargoes in American flag hulls, thus not having an impact on the market. However. Cleaves thinks this year could be different if the U.S. takes a tougher stance over Chechnya when it comes to negotiations over future grain sales. China could benefit from joining the World Trade Organization. China's maize crop is forecast to be considerably lower this year and next thus creating the need for imports. And as already mentioned, the weather will play its part as drought conditions currently persist in India, Africa and the Middle East which spurs the movement of aid cargoes. High tanker rates are keeping the ever decreasing number of combination carriers away from the dry trades, which has also helped the larger bulk market to sustain its upward momentum.
Average Panamax earnings are running at around $10,000 per day, according to Clarksons, while handymaxes are averaging just over $9,000 daily. In 1998, the annual averages were $5,500 for Panamaxes and $6,500 for handies. The benchmark 52,000 ton heavy grains U.S. Gulf/Japan route was paying $23.25 per metric ton by the end of May, slightly up on the yearly average. Containerization Containerization is still growing. According to leading consultant Drewry, the carriage of boxed cargo is set to grow by 5.8% this year and by 7.1% in 2001.
Following the rise in freight rates and following a few years in the doldrums, the charter market is firming, especially for the larger sizes of over 750 TEU. Over the past few years, the physical size of containerships and their slot capacity have risen considerably. This has had a knock on effect on the smaller size ranges. For example, the average size of a European feeder has shot up from around 250-350 TEU to over 750 TEU. Newbuildings now tend to be at least 1,000 TEU. Nonetheless, there is still demand for the smaller units as not all of the areas served need hundreds of boxes delivered every week.
What has taken most of the commentators by surprise is the sheer number of post-panamax containerships on order in mainly Asian yards. As the Commonwealth Group rightly says this represents a "total shift in thinking." Deliveries of these giants are expected to peak next year. By then we could have even larger vessels on order than Maersk's 8,000 TEU "S" class which at present are the largest in the world. Indeed, even the Panama Canal has recognized the need for larger locks in order not to lose too much of this now passing traffic. A study is underway on the feasibility of building larger locks in the waterway. Added to the increasing size of the ships is the higher service speeds now on offer. It is almost impossible to offer a ship up for a charter with a speed of 17-18 knots, as operators are now demanding much higher speeds. In the larger size range of over 3,000 TEU, most of the newer vessels have a service speed of around 25 knots. That means that they can sail between northern Europe and say China in just over three weeks, via the Suez Canal. As the giants replace the mid-range Panamax sizes, so these will in turn displace the 1,000 TEU ships and under. We have already seen a drop in orders in the sub-500 TEU size range. Many smaller vessels building for coastal trades are designed as mini-bulkers, multipurpose cargo ships as well as container feeders, giving their owners greater flexibility to play the markets. Drewry predicts that in the short term, rates for 2,000-2,500 TEU geared ships will increase still further to around $16,000 per day. However, they will stabilize due to the number of newbuildings to be delivered shortly, especially from Polish and German Yards. Rates for first generation 1,000 TEU ships are hovering around the $7,500/day mark and there are even signs of improvement in the smaller sector 500 TEU and upwards. However, at the bottom end the situation is still very much in the doldrums. One deal worth recording concerns two of Uni-Glory's new "P" types. These 1,618 TEU ships were fixed to Great Western Steamship Corp for 12 months at $15,500 per day, which is around $500 per day higher than recent fixtures for this size. Brokers say demand is still oustripping supply.
Tankers At present, about 1.5 billion tons of crude oil is shipped by sea each year. OPEC countries announced higher production quotas earlier this year which helped put some confidence back into the market and also helped to stem the rapidly rising cost of oil. Not much is expected to change during OPEC's scheduled meeting on June 21. Again demand for crude is still outstripping supply. Also, refinery inventories needed stocking up which increased demand. Although still relatively high, oil prices have stabilized in the light of OPEC increasing production by 7.4%. Turning to what is probably the most talked about ship type ever, orders for VLCCs amount to around 20% of the fleet. This is not as horrific a scenario as some people would suggest, says Cleaves, given the average age of the fleet. Concordia's Lars Carlsson recently said he expects VLCC rates to remain at around current levels of $45,000 per day for the next two years at least. He says this would give a 10% return on newbuildings or 25-30% for older tankers. At the beginning of May, Clarkson was showing a daily average of $35,384 for 1970s, built tonnage and $47,844 for modern VLCCs. To give some idea of the direction of the market, these figures had risen to over $40,000 and $50,000 daily respectively by the end of the month. This compares with the whole of last year's average which was just $14,631 per day for the elderly units and $21,666 for the more modern counterparts. Some charterers are now fixing up to two months in advance to secure tonnage at today's rates. The only slight blip on the horizon is the high price of bunkers, but even tanker owners and operators are taking this in their stride. Remaining with the larger tankers, owners of older units are postponing the date with the scrapyard. For example, Angelicoussis has said the company will continue to operate two mid-1970s built VLCCs for the near future, while rates are over $40,000 per day for these gas guzzlers. Even some mid 1970s Suezmaxes have been sold for further trading. A few early 1990s built single skin VLCCs have found their way into Greek operators' hands on period charters for relet for up to $22,000 daily. They can earn considerably more than this on the spot market, while the operators retain a certain amount of flexibility by taking purchase options should the market sustain these high levels for any length of time. Despite the noises emanating from the regulatory bodies in the wake of Erika, the 1970s vintage VLCC fleet will remain needed for the next two to three years as crude oil liftings increase. There are still around 170 pre-Marpol VLCCs still trading. As for the single/double hull argument, out of the total VLCC fleet, 330 have single skins and 100 are fitted with double skins, while a further 80 double hull VLCCs are on order. Turning to Suezmaxes, leading operators agree that rates will remain firm this year. Newbuilding deliveries of both VLCCs and Suezmaxes are expected to halve from 60 this year to just 30 in 2001. As recently proved, secondhand sales can yield around $2 million more per ship than scrap prices. About 17% of the fleet is currently on order, while the Aframax orderbook makes up about 10% of the fleet. Once again, when taking the average age of the fleets, these percentages are not seen as problematic. Some sources say that newbuilding prices will rise by up to 10% this year, which if true, will deter all but the most aggressive speculators from ordering, unless they think the current high earnings can be maintained. Thus as Cleaves pointed out in a recent report "You have a golden picture of rising newbuilding prices which restrain ordering to manageable levels." Scrapping was widely expected to increase in the wake of the Erika disaster. However, the opposite has happened as at present owners are loath to send their ships to the breakers while earnings are far higher than daily operating costs. For example, the Knock Tankers pool of Suezmaxes averaged $17,500 per day for the first quarter of this year. By the end of May, Clarkson's daily average had reached the dizzy heights of $37,200, compared with an average daily rate of just $16,398 for the whole of last year. As for Aframaxes, Clarkson shows average earnings of $31,500 per day, compared with $13,304 for 1999. Both Suezmax tonnage and aframax tankers were buoyed by cross-Med trading where the daily average was a massive $40,500 for the larger sizes and $29,200 daily for the smaller size range. Aframaxes were also helped by an average of $30,500 per day paid for U.K./Continent to U.S. east coast trips and a hefty $47,400 daily average accrued for short North Sea shuttle U.K./Continent trips.
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