Platts key container freight rates hit record highs. Blank sailings supported industry through demand collapse. Capacity management appears here to stay, but risks remain.
Sep 11, 2020
In 2017, a fragmented container shipping sector, fortuitously began to consolidate. This culminated in the creation of three key alliances encompassing more than 80% of the market. Heavyweights APM-Maersk and Mediterranean Shipping Company, or MSC, joined forces as part of the 2M pact. CMA CGM, Cosco and Evergreen formed Ocean Alliance, while another set of players including Hapag Lloyd, ONE and Yang Ming created THE alliance.
When the pandemic started to hit global trade in March, these alliances were able to move quickly and decisively to reduce overcapacity and prevent a sharp drop in freight rates. Collectively, they have voided, or “blanked,” more than 400 sailings this year — removing 10% of nominal twenty-foot equivalent units (TEU) capacity from active service.
Proof of success can be seen in robust freight rates, which have defied the economic gloom. For example, the key North Asia-to-West Coast North America trans-Pacific route has remained robust, with the Platts Container Rate for that route actually rising $450 from Jan. 3 to $2,050/FEU on June 3. FEU, or forty-foot equivalent unit, measures double TEUs.
Moreover, the revolution in capacity management has set carriers up for a bumper year. With demand slowly returning, freight rates have spiked higher and the alliances are already activating ships at rest. This also comes at a time when global oil demand is low, resulting in much cheaper bunker fuel costs for carriers than at the start of the year, when the IMO 2020 regulation came into force, allowing carriers to maximize their profits at scales that would have been unthinkable in January.
On the pivotal transpacific route — defined by trade between the US and China — freight rates have hit their highest levels year-to-date and have outstripped 2019 prices significantly.
Platts Container Rate 13 – covering North Asia to West Coast North America — hit $3,650/FEU on Sept. 1, an all-time high for this trade lane and up 136% ($2,100/FEU) compared with Sept. 2, 2019. This comes on the back of General Rate Increases into September, as shippers scramble to refill significantly depleted warehouses ahead of China’s Golden Week, it appears that any hope that cargo owners had of seeing freight rates begin to slide towards the end of summer have bolted, with carriers keen to slam the stable door behind them. This comes on the back of a demand hike, with time-sensitive goods such as personal protective equipment and home working equipment taking center stage, with the shippers of these products still willing to pay up to move their goods as soon as possible.
Freed from the shackles of void sailings, carriers are even employing sweeper vessels to pick up cargoes left on the quayside by container vessels unable to load more freight, according to industry sources.
Shanghai — the world’s largest container handling port — saw monthly container volumes touch an all-time high in July. The port handled 3.9 million TEUs, container shipments in July, up 1.2% year on year and 8.3% month on month, data from China’s Ministry of Transport showed.
Earnings season has also underscored the success of shippers prioritizing returns over market share. Maersk’s profits trebled between April-June at a time when COVID-19 was at its peak first wave.
However, shipping alliances cannot afford to be complacent. If a second-wave of COVID-19 spreads, or political turmoil between the US and China threatens global trade again, the carriers will need to show the same unity that has paid off so far this year.
The container industry is also haunted by a build-up in the size of the shipping fleet over the past decade. With the global economy unlikely to return to full health any time soon, the container industry is likely to have to co-operate closely on strategies to deal with overcapacity for the next decade.
According to shipping body BIMCO, demand outgrew the fleet in only three of the past 10 years, giving a much higher supply capacity growth than demand. The TEU capacity of the fleet grew by 75.6%, whereas demand measured in volumes was up just 46.1%. This imbalance left the container shipping market in a worse condition at the end of the decade than at the start.
The container industry’s success this year in such testing conditions should give it the confidence and conviction to tackle its overcapacity issues. The pandemic has proved there is strength in numbers for shipping lines dealing with a volatile market.
Nov 26, 2020
2020 was set to be the most challenging year yet for the world of shipping an bunkering, however when the dates were set, no one anticipated it would take place at the same time as a pandemic. The coronavirus pandemic and the subsequent oil price collapse is set to weigh on the global marine fuel industry for the foreseeable future, which could contract by at least 10% year on year, according to industry experts.
At a critical time for our sector, join us for this virtual event to better understand how the bunker players and ship owners are adapting in this time of great uncertainty, how can both sectors weather the storm?
Mediterranean Bunker Fuel Virtual Conference Topic Areas:
• Gain insight on the bunker market as it endures the impact of COVID-19
• What next for the oil markets?
• How will shipping evolve, and what future do scrubbers have?
• Quality and compatibility in a 0.50% sulphur world
• The rise of credit issues – what are the long term impacts from the pandemic?
• What next for bunker markets with IMO 2030 & 2050?
• Bunker suppliers
• Ship owner/operators
• Bunker traders, brokers and analysts
• Regulators and government officials
• Private banks, investment banks and financial advisors
• Risk managers, product controllers and finance managers
Sep 08, 2020
S&P Global Platts dry bulk market experts Shriram Sivaramakrishnan, Carina Li, and Isaac Eio examine how the Capesize, Panamax and Supramax markets have fared in this pandemic-stricken trading environment, and what’s in store for shipowners and freight rates in the coming months.
Our latest featured post, Steadying the Ship, looks at how the tanker sector is navigating the twin challenges in 2020: coronavirus and decarbonization.
Don’t miss a beat, with the latest news, videos and podcasts on our rapidly changing industry.EXPLORE INSIGHTS
2020 global marine fuel demand drop likely to be 7%-17%. More focus on counterparty risks, transparency required. IMO 2020 transition way better than initial expectations.
Sep 16, 2020
“Forecasts we’ve heard from our members [for 2020 bunker demand] range from minus 7% to minus 17% … What we’ve seen is that demand is gravitating towards safe havens,” Einemo said during the S&P Global Platts 36th Asia Pacific Petroleum Virtual Conference, or APPEC, on Sept. 16.
Demand for bunkers was initially resilient in major ports, but it has been variable elsewhere, she said, adding that most markets saw a sharp drop in bunker fuel sales volumes in June, with some even witnessing as high as 30%-40% year-on-year fall that month.
Still, demand has been quite resilient in ports where, from the buyer’s perspective, the quality is most guaranteed and where the suppliers are or have been providing the best quality service, she said, noting that an example was Singapore, where bunker sales have remained strong.
Singapore bunker fuel sales from January to August was in fact up 5.3% when compared to the same period last year, latest data from the Maritime and Port Authority of Singapore showed.
“Singapore has been among the least affected compared with other global markets because of its wide offering of products,” she said, adding it is among the few ports globally that continues to offer high sulfur bunker fuel.
The city-port also has an effective bunker licensing system, making it a preferred port because buyers are assured of the quality and quantity while its mandatory mass flow metering system has “helped to clean up the [bunker fuel] industry a lot”, she said.
The coronavirus, or COVID-19, pandemic has resulted in overall demand destruction for oil that has enabled more fuel blending components to go into the marine fuel pool, thereby reducing the price of 0.5% sulfur marine fuels, Einemo said, adding that the “Hi5 [HSFO -0.5% sulfur price] spread has been unexpectedly low.”
In January, the price differential between HSFO and VLSFO averaged $298.90/mt as the market was transitioning to LSFO. The price differential has since narrowed to an average of $62.73/mt in August, Platts data showed.
Scrubber installations have also been postponed or canceled for various reasons such as delays at yards, freight market considerations, saving capital expenditure in an already difficult environment as well as the Hi5 spread, she said.
Access to capital and counterparty risks are key considerations in this environment.
“It might become more challenging [for bunker players] because now there is less risk appetite,” Einemo said.
This comes as some banks have already tightened credit for oil traders after the Hin Leong collapse while others have put in place mechanisms for heightened scrutiny before offering credit.
The current market environment also might lead to further consolidation through mergers and acquisitions as well as industry attrition, Einemo said.
More transparency is also required. “From the buyer’s side, they need to provide suppliers with access to financial records which makes them [suppliers] confident in dealing with those buyers. And of course, from the suppliers’ side, [they need] to be open about the quality chain, supply chain and to give a good service,” she added.
“It’s safe to say that the transition to the IMO 2020 rule has been better than expected,” Einemo said.
“Compliance actually appears to have been good and that’s despite COVID-19 getting much in the way of policing [the rule],” she said.
The IMO 2020 rule heralded a drastic change as it forced the shipping industry to switch to cleaner 0.5% sulfur marine fuels, with VLSFO emerging as the chief marine fuel choice.
Prior to the rule, there was a lot of skepticism around VLSFO blends as it was thought they would be much more variable in nature than HSFO blends and would increase operational problems and quality claims, Einemo said.
“What we’ve heard is that they [VLFOs] burn better, they are cleaner and overall as long as you don’t have compatibility issues on your ship and are not unfortunate enough to get one of the fuels with sediments or unstable trends, they have been very good fuels,” she said.
The next big challenge is the IMO greenhouse gas, or GHG, emissions cut targets but the bunker market is resilient and the IMO 2020 transition has proved that “changes can happen when needed”, she added.
Can the shipping markets recover from the coronavirus chaos?
Jul 17, 2020
With the seaborne sector responsible for 90% of global trade, a tentative recovery from the pandemic has brought changing fortunes for seafarers. Tanker markets have seen freight rates plunge after an end to the recent floating storage boom, while rates in the container markets have stayed firm thanks to capacity management. Dry bulk is now turning a corner and the LNG sector is looking for a lifeline. This report looks to dive into what these changing patterns mean for each industry.
Aug 19, 2020
Gasoline volumes from Northern Europe to West Africa are expected to continue to grow, and new hedging tools may be needed for medium range clean tankers in the West of Suez market. Platts Shipping Editors Sam Eckett, George Griffiths, and Chris To discuss emerging benchmark opportunities into West Africa, while probing the unprecedented state of trans-Pacific container rates.
Oct 15, 2020
Please join us at this annual forum to get vital updates and latest analysis surrounding not only shipping, but also agriculture, metals and coal. We will share insights about these markets and the impacts to them in the midst of ongoing challenging economic situations from the COVID-19 pandemic, trade wars and IMO2020.
Due to the ongoing COVID-19 pandemic, we will be moving this forum to an online version this year.
This virtual forum will focus on:
– Platts Cape T4, KMAX 9 indexes: Reflecting dry bulk trade flow realities
– Grains and Oilseeds Spot Market Update
– Iron Ore: A closer look at iron ore market supply fundamentals amid multi-year high for prices
– Met Coal: Spot prices hit multi-year low, what is next for the seaborne met coal market?
– Thermal Coal: Influence of China, India on Coal Prices
– Dry Bulk Freight: IMO, COVID-19: What new challenges are on the horizon for the Dry Bulk Freight market for the rest of 2020 and beyond?
– Our analysts will decipher the market impact of recent times, summarize the insights and offer their views. They will also address any questions that you may have online.
Sep 18, 2020
With European and US grains seasons coinciding in Q4, spot tonnage typically gets hard to come by as ships in the Black Sea and North Atlantic carry grains cargoes into the Pacific. With demand for ships high and supply low, freight rates are usually pushed up to yearly zeniths.
This year though, the ongoing (and sometimes volatile) trade tensions between China and the US and a below-expected wheat harvest in Europe and Southern Russia, means market talk is whether Atlantic dry bulk markets can expect their usual yearly payday in the run up to 2021.
In the Supramax markets, Q4 is typically strongest on the US Gulf Coast and in the Black Sea. Wheat, corn, and soybean cargoes underpin demand for the smaller-deadweight ships, and charterers seek out the most fuel-efficient vessels for these long-duration exports.
Ultramaxes –- the 60,000-66,000 dwt modern, economical design -– are preferred wherever possible as rising global prices of IMO-compliant 0.5% sulfur marine fuel (VLSFO) make fuel consumption critical to traders’ arbitrage calculations.
From the Black Sea and the EU, 50,000-55,000 mt wheat cargoes to Southeast Asia or the Far East are typically common throughout Q3 and Q4. However, lower-than-anticipated EU yields and increased demand for the larger Panamaxes and Kamsarmaxes in the Black Sea have meant Supramax grains inquiry for Q3 has been well below the market’s expectations.
According to S&P Global Platts Analytics, Russia is set to become the world’s largest wheat exporter this season as difficult weather conditions marred wheat crop prospects in the EU, most notably in France and the UK.
Time charter earnings for a 57,000 dwt Dolphin-type Supramax in the Black Sea have trailed Q3 2019 by an average of 12.5% through Q3. However, as demand continues to weaken across Europe, there could be a slower Q4 for the Supramax/Ultramax sector.
Looking further ahead, dry weather in southern Russia was expected to facilitate planting of winter grains for the 2021 crop, Platts Analytics grains analyst Victoria Sinitsyna said.
“Weather forecast models indicate some sporadic rains in Southern and North Caucasus Districts in the first week of September, but on average precipitation is likely to remain below normal at least until mid-September,” Sinitsyna said.
Despite the trade tensions, US-sourced agricultural products have continued to flow steadily from West to East. So far in the 2020-21 marketing season -– that began June 1 -– China’s total commitments for US wheat have remained ahead of both Mexico and Japan, traditionally large buyers of US wheat.
China’s commitments reached 1.47 million mt for 2020-21, inching to a five-year high, according to a Platts analysis of USDA data. Similarly, US soybeans inspected for export in the week ended Sept. 10 were 1.284 million mt, an 8% drop from the previous week, but 92% above the same week in 2019.
That is good news for Supramax and Ultramax vessels off the US Gulf Coast. In 2019, the New Orleans-to-Kashima, Japan, 50,000 mt grains route fell dramatically from Sept. 20 through to Nov. 5 — $53/mt to just $38.50/mt -– as the political-economical rhetoric between the US and China escalated.
But with grains exports appearing to return to pre-COVID, pre-tariff levels, Q4 2020 is looking healthier for the US Gulf Coast dry bulk markets.
Sep 21, 2020
North American bunkers pricing ended the week on a generally bullish kick following several days of support from a stronger energy complex, with stagnant demand fundamentals doing little to mitigate rising values.
In the futures and upstream markets, ICE Brent prompt-month futures contract rose $3.57/b, or 9.02% last week to $43.14/b, while the Gulf Coast 0.5%S barge market gained $13.50/mt, or 4.67%, to $302.75/mt.
Participants in USGC markets will keep an eye on logistics following talk of congestion in Houston and New Orleans late last week in the wake of Hurricane Sally impacting the latter, with Tropical Storm Beta now bearing down on the region.
Spot 0.5%S retail pricing in Houston climbed to $315/mt ex-wharf Sept. 18, up $5 (1.6%) week on week, while MGO value rose to $350/mt ex-wharf on a gain of $30 (9.4%) over the same period.
In the Northeast, spot pricing in Montreal has been talked as more competitive with New York and Philadelphia, both of which have dealing with limited liquidity on weak demand in recent weeks.
The New York market saw spot pricing for 0.5%S rise to $329/mt ex-wharf, up $15 (4.8%) on the week, while Montreal’s 0.5%S assessment climbed to $385/mt for a gain of $17 (4.6%) week on week.
MGO spot pricing in New York moved $14 (4.2%) higher on the week to $349/mt ex-wharf, and Montreal registered a gain of $18 (4.8%) over the same period to close at $395/mt ex-wharf Sept. 18.
On the West Coast, fundamentals in Vancouver are expected to receive some support from the grain industry on seasonal improvements in demand, although pressure from the lack of consumption via cruise ships continues to be felt.
The ex-wharf spot price of 0.5%S in Vancouver rose to $317/mt to close last week, up $31 (10.8%) from Sept. 11, while MGO value moved up $7 (1.9%) to $377/mt ex-wharf over the same period.
Pricing in some key Latin American ports is entering the week strengthened by gains in energy complex markers the region follows traditionally for guidance. However, low demand is still pressing some ports.
Panama’s 0.5%S market is experiencing tight availability both in Balboa, on the Pacific Coast, and Cristobal, on the Atlantic, leading to higher resupply costs, according to a market source. The pattern is expected to last at least until October, the source said. Panama’s 0.5%S rose last week $16/mt (5.11%) to $329/mt.
In Argentina, 0.5%S increased $19/mt (5.46%) to $367/mt in Buenos Aires port, aided by an increased demand seen throughout September, according to a market source.
Marine fuel 0.5%S strongest advance was seen in Santos, which rose $24/mt (7.84%) last week, assessed Friday at $330/mt. State-led Petrobras said it will slash exploration and production investments by as much as 37.5% over the next five years amid expectations of reduced global demand and lower oil prices. However, the company said it will keep revitalization efforts at several major heavy oil fields in the Campos Basin. Output of heavy sweet crudes, with 0.5% or less sulfur, has been the basis for Brazil’s increasing exports of IMO-compliant bunker fuels to Asia.
In Peru, demand picked up sharply last week with expectations of a continued trend, according to market participants. The 0.5%S market rose $2/mt (0.52%) to $385/mt.
Stagnant-to-lower demand has been pressuring prices in Colombia, where 0.5%S was assessed Friday at $365/mt, unchanged from the beginning of the week.
The marine gasoil segment moved only slightly, up or down 1% or 2% in most of the ports, with the exception of Balboa, where the fuel saw a 3.26% increase, or $12/mt.
According to Panama’s Maritime Authority, bunker sales in the country rose for second consecutive month in August, after a steep fall in June, with high sulfur IFO 380 fuel showing the strongest increase, of 41% month on month. VLSFO comprised 72.46% of sales in Balboa, IFO 380 represented 16.02% and MGO, 11.52%.