Performance Report 2007
| Letter to investors and partners | Shipping |
Market Report Shipping
Shipping Markets Continue to FlourishBy Dr Thomas Pawlik, professor in the Section Maritime Trade of the Economics Department of the UAS KielOverall Economic Development PositiveAccording to information from the International Monetary Fund (IMF), global growth in 2007 increased by 4.9%; for the fourth year in succession, it was higher than the long-term trend and came close to the level of the previous year (2006: 5.0%). The problems on the US financial markets triggered by the sub-prime crisis kept economic growth in the USA down to only 2.2% (2006: 2.9%); the IMF predicts substantially lower growth rates for the USA in the years 2008 and 2009 (0.5% and 0.6%, respectively).In the highly developed industrialised countries, the aggregate economic growth during the reporting period came to 2.7% (2006: 3.0%) according to figures from the IMF, but could decline in the following years to 1.3%. The significance of the USA as the "engine of the world economy", although it remains great, has been diminished in recent years; the IMF speaks in this case of a transformation into a multipolar structure of the global economy. Growth in the threshold and developing countries in 2007 totalled 7.9% (2006: 7.8%); the Asian threshold countries once again produced a growth value of almost ten percent (9.7%). China's growth rate of 11.4% once again exceeded the value of the previous year (11.1%). The structural transformation of world trade is especially positive for shipping; about one-third is now related to threshold and developing countries. More than half of the worldwide rise in import volumes since the year 2000 can be attributed to these countries. Moreover, the threshold and developing countries now carry on a large amount of trade with one another, a fact which is made especially clear by the intraregional trade in Asia. Two-digit growth rates in the import of goods to the threshold and developing countries are once again predicted for 2008 and 2009, but a slight drop in growth is expected when worldwide imports and exports of goods are considered overall. According to Clarkson Research Services, the entire freighter fleet of the world at the turn of the year 2007/2008 came to 50,218 ships with a total load capacity of about one billion tdw. The largest segments were the dry bulk carriers with about 392 million tdw, oil tankers with about 370 million tdw and container ships with 144 million tdw. Continued Growth in Container TransportsStrong growth in container shipping continued in 2007 as well. While 117 million TEU were transported over the world's oceans in 2006, the transport volume in 2007 rose by yet another ten percent to 129 million TEU. As in the previous year, the Asian exports were the most important source of worldwide container transports. In the meantime, the line services from Asia to Europe have gained significantly in importance in comparison with trans-Pacific transports.At the beginning of 2008, the growth rate for the Asia-Europe transports during the year was expected to reach 20%. But the actual growth rate during the first half of 2008 did not exceed 10% and fell below expectations. The market in Asia-North America transports is expected to stagnate in 2008. The continuing weakness of the dollar has led to a slight decline in the westbound transport volume and a strong increase in the eastbound volume. Total container transhipments (worldwide 464 million TEU, including multiple transhipment and empty containers) in 2007 broke down into 26% for Chinese ports, 28% for other Asian ports, 19% for European ports and 9% for North American ports. Many of the European and Asian container ports reported two-digit growth rates in container transhipments for the reporting year 2007. Transhipments in the port of Hamburg, for example, came to 9.8 million TEU, 10% higher than in the previous year. The corresponding growth figure in Shanghai was 20% (26.11 million TEU), while the container transhipments in Singapore grew by 13% to 27.94 million TEU. In contrast, container ports in the USA recorded only moderate growth rates (e.g., New York/New Jersey, +5% to 5.4 million TEU); some of them, such as Los Angeles and Charleston, even found themselves facing a decline in transhipments. Over the course of 2007, the financial market problems in the USA led to concerns that China's foreign trade might suffer as an important driver in the container liner trade. But since the share of the USA in Chinese exports has declined substantially in recent years and the demand for Chinese exports in other regions of the world has grown, these fears were not realised. There was an increase in rates over the contracts concluded in 2006 in almost all of the segments on the charter market. For example, a decline in comparison with the previous year was found in only three feeder ship categories of the Hamburg Index, which records charter rates for ten representative container ship types. Rate increases were noted in the remaining seven size classes, even though rates still fell short of the extraordinarily high level of 2005. According to information from Clarkson Research Services, the average daily rates for short-term time charter contracts (6 to 12 months) for ships with a size of about 3,500 TEU in 2007 rose by 13% in comparison with the previous year. At the end of 2007, the market rate for this type of ship was US-$33,000 per day; in June 2008, it was US-$29,500 per day. In the segment of 2,700 TEU, a comparison of the yearly average of 2007 with that of 2006 revealed an increase of 16%. At the end of 2007, the market rate for this type of ship was US-$30,000 per day; in June 2008, it was US-$23,000 per day. The decline in demand over the short term makes itself especially noticeable in these two segments. In the 1,700 TEU segment, a comparison of the yearly average for 2007 with that of 2006 showed a slight decline of three percent which was caused by the low average rates in the first quarter. At the end of 2007, the market rate for this type of ship was US-$17,500 per day; in June 2008, it was US-$17,000 per day. Despite the strong growth of the fleet in absolute figures and the current weakening in the container segment, there will not necessarily be any adverse consequences for the charter market in the long term. The reason behind this is found in the dynamic component of the total capacity. A large part of the current growth in capacity is related to very large container ships which are intended for use in transports between Asia and Europe. Since the transport distances are longer than those found in trans-Pacific or Atlantic service, there is a correspondingly higher requirement for capacity ("tonne-mile effect"). For example, an additional TEU in demand for the route Far East/Europe ties up 1.6 times the ship capacity required for a trans-Pacific transport. Additional tonnage is absorbed by the lengthening of the voyage times pursuant to the reduction in the travelling speeds which has become an important option for shipping companies as a consequence of the sharp rise in bunker costs. The lengthening of voyage times is compensated by the employment of additional ships. At this time, nine instead of eight ships are used on a typical Far East/Europe service. The performance indicator for the so-called container intensity, defined as TEU per 1,000 inhabitants (import and export, excluding activities related strictly to transhipment), in Europe and North America ranges between 101 and 120, according to information from the United Nations. Other regions show a significantly lower container intensity; in India, for example, it came to less than 2 TEU per 1,000 inhabitants in 2005, the most recent year for which figures are available. This discrepancy clearly shows that there is still an extraordinarily high potential for growth in the sector of containerisation. Development of time charter rates (6-12 months) for container and multi-purpose ships 1998 – 2008, 1998 = 100
Demand for Multipurpose Ships Remains HighIn 2007, multipurpose ships again benefited from their great flexibility of use; according to Clarkson Research Services, the average charter rates for a ship of 17,000 tdw rose over the course of the year from US-$11,750 per day at the beginning of January to US-$20,000 per day at the end of the year. A number of larger ships from the multipurpose fleet were transferred from container shipping to the market for minor bulks, e.g., for the transport of steel products. The ongoing expansion of industry and infrastructures in the threshold countries with rapidly growing economies also caused the demand for project consignments to grow further. The largely positive developments in container shipment, especially in transports between Asia and Europe, also affected the utilisation conditions for multipurpose ships. For one, some of the liner shipping companies operating on routes to Asia decided not to take heavy cargo loads on board container ships so that they would have adequate capacity for the return transport of empty containers to Asia; for another, the "containerisation pressure" for types of cargos (not yet) shipped in containers was relieved due to the high use of ship capacities in the container sector. Both of these developments increased the loading potential for multipurpose ships. Moreover, the smaller multipurpose ships are still in demand in their function as feeder ships.End-of-Year Boom on the Tanker MarketThe International Energy Agency (IEA) estimates the worldwide demand for oil in 2007 to be an average of 85.9 million barrels a day (mb/d) and expects an increase to 88.0 mb/d in 2008. The aggregate demand for seaborne oil transports derived from these figures came to 334.7 million tdw in 2007 (+3.1% in comparison with 2006), according to information from Clarkson Research Services. On the other side of the ledger, there was an aggregate tanker capacity of 350.2 million tdw (+4.9% in comparison with the previous year) as an average for the year. The end of 2007 saw an extraordinary rise in rates on the spot market for all crude oil tanker segments. Even in September 2007, the average charter rates for VLCC had reached their low point for the year at about US- $25,600 a day. In the following month, there was only a minor rise in this low level, but in November it rose by 110% in comparison with the previous month, then in December by another 245% to an average daily charter rate of about US- $195,000. In the Suezmax segment, the average rate at the end of year (about US-$99,500 a day) was more than five times the lowest rate of the year from September (about US- $18,000 a day). Contracts for ships in the Aframax size were concluded in December for an average of about US-$64,000 a day, while in August the maximum possible average daily rates were only about US-$17,300. Panamax crude oil tankers were also able to realise higher spot charter rates in December; in this case, the average daily rate of about US-$43,700 was more than twice as high as in August (US-$20,700).However, consideration of 2007 as a whole shows that all of the tanker size classes suffered a decline in average rate levels in comparison with the previous year. Still, it must be considered that 2006 was the third-best year for tanker shipping in the past decade, exceeded only by 2004 and 2005. In January 2007, the price for a barrel of Brent crude came to US- $53.65, substantially lower than the average over the year in 2006 (US-$65.17). In December 2007, the price for a barrel of 17 König & Cie. Annual Report 2007 Markets 2007 | Shipping Brent crude had risen to US-$96.56, and in March 2008 it broke the barrier of US-$100. The record high of US-$146.34 was reached in July 2008, followed by a slight decline to less than US-$130. In 2007, the demand for oil remained substantially below the expectations of oil producers, above all because the winter of 2006/2007 was a mild one. The OPEC cartel then decided to reduce its production quota from February 2007 on. Since the resulting loss of deliveries could not be compensated directly by production in non-OPEC producing areas, there were significant increases in the price of crude oil during the further course of the year, a situation exacerbated by speculative elements. Refinery operators responded by reducing their inventories so that the demand for seaborne oil transports and subsequently the level of the charter rates stayed at a comparatively low level. The remarkable turnaround on the tanker market in December of the year is attributed in particular to two factors: one was the increased deliveries of comparatively inexpensive Saudi crude oil, and the other was the general market insecurity as a consequence if the accident of the single-hull tanker "Hebei Spirit" off the Korean coast in November. The "Hebei Spirit" accident focused the interest of the tanker market on the topic of the single-hull tankers, which had already been planned for decommissioning earlier than the dates foreseen in the IMO phase-out programme. It must now be assumed that the utilisation of these ships will stop over large parts of Asia as well before 2010. Both Korea and the Philippines have announced that they will be taking such steps, and some charterers declared immediately after the accident of the "Hebei Spirit" that they would not be utilising single-hull tankers any longer. As of the end of 2007, about 23% (based on load capacity) of all tankers had still not been equipped with a double hull. The removal of these single-hull tankers from the tanker fleet, which is foreseeable in the near future, by scrapping or conversion to dry bulk carriers or special carriers will have positive effects. It will affect the balance between the demand for seaborne oil transports and the available tanker capacities. According to Clarkson Research Services, the tanker fleet in December 2007 included a total of 4,536 ships with 384.1 million tdw. In terms of the load capacity, 10% of the ships were older than ten years; in terms of the number of ships 19% are of this age. The shipyards' order books contain 2,019 tankers with a total load capacity of 158 million tdw, 41% of the existing fleet, which was reduced by 8.9 million tdw (scrapping and conversions) over the course of 2007. Orders for new tankers declined by about 48% in comparison with the previous year, falling back from 84.5 million tdw to 43.6 million tdw. Dry Bulk Carrier Shipping on the RiseThe demand for seaborne transport of dry bulk goods rose once again during the reporting period. Steel production increased by about 16% in comparison with the previous year in China alone; iron ore imports to China went up by 56.8 million tonnes (+17.4%). Most assessments expect the strong growth of the steel industry to continue for a number of years, driven forward by China's continuing industrialisation. In the meantime, China has become a net exporter of steel so that the dry bulk goods shipping profits from this development in two ways: Capesize ships are needed for the import of iron ore and coking coal, while Handymax ships are required for the export of steel products.An interesting development has arisen from the decision by the Indian government to levy an export duty on iron ore as a way of supporting the raw material supply for the country's own steel industry. This step strengthens the position of the two main exporters of iron ore, Australia and Brazil, and increases the demand for transport on the basis of tonne miles correspondingly. A positive tonne-mile effect has also been determined in the minor bulk sector as a consequence of the geographically broad distribution of labour; in addition, the demand for smaller bulk ships has been reinforced by coal transports along the Chinese coast. Capacity problems in a number of ports have also meant that ship space remains tied up over a longer period of time, a situation which also has a positive effect on the demand for ships for dry bulk goods. The export of coal from the major supply countries rose by more than 5% in 2007. Coal is in demand for the generation of electrical power, especially in the up and coming countries of Asia. According to information from BP, coal consumption in 2007 rose by a total of 4.5%; the largest consumer is China, which has a 41.3% share of worldwide consumption. Growth rates were merely moderate (+2.1% for the major supply countries) in seaborne grain trade; this was caused by the large decline in grain exports from Australia of more than 50% owing to weather conditions there. Charter rates of more than US-$180,000 a day were agreed on the spot market for ships of the Capesize size segment in November 2007; Clark Research Services reported an average value of about US-$107,000 for one-year time charter contracts in 2007, a figure which is more than twice that of the previous year (about US-$45,250). Similar increases in revenues were also realised by the other size segments of dry bulk good carriers. In total, the fleet of dry bulk goods carriers grew by 6.5% in 2007 and comprised 6,670 ships with a total load capacity of 398 million tdw as of the end of the year. Shipyards Stay BusyThe boom in the construction of new ships continued in 2007. New shipyard capacities are still being added all around the world, especially in the leading shipbuilding country Korea and in China. In many cases, orders for new ships have been received for the new capacities even before they are ready for operation. Some market observers doubt that all of the ordered ships can actually be delivered by the shipyards on the scheduled dates They believe it is possible that some of the orders will be cancelled as a consequence of the tightening of terms and conditions for financing ships. According to information from the German Shipbuilding and Ocean Industries Association and Clarkson Research Services, 2,689 ships (2006: 2,412) with a total load capacity of 78.7 million tdw (2006: 75.04 million tdw) were completed worldwide in 2007. Based on load capacity, the majority of the deliveries were for tankers (31.3 million tdw), dry bulk goods carriers (24.4 million tdw) and full container ships (16.6 million tdw). At the turn of the year 2007/2008, the order books of the shipyards contained 8,563 ships (496.1 million tdw), corresponding to 46.2% in terms of total load capacity and to 17% in terms of the number of ships of the active freighter ship fleet. These figures make it clear that orders are being placed above all for very large ships so that they can be utilised meaningfully to achieve cost advantages (economies of scale). As can be seen in the adjacent table, for example, almost half of the orders for container ships (on a TEU basis) of about 3.2 million TEU are related to units with a nominal capacity of at least 8,000 TEU. The situation is similar for the dry bulk goods carriers, where the orders for the largest category, the Capesize ships (load capacity >100,000 tdw), make up 86.7% of the relevant active fleet.Average time charter rates (12 months) for selected bulk carriers and tankers
Source: Clarksons Research Services
Ship Construction Prices Rise FurtherThe rising prices for new ship construction which have been noted some years now continued in 2007 as well. Many shipyards are capable of building a number of ship types so that a high demand for ship types in a specific segment and the related high use of shipyard capacity can also have price effects on other segments. This even affects those partial shipping markets where the demand for new ships is actually low. The overall index for ship construction prices (base year 1980 = 100) reported regularly by Clarkson Research Services rose by 16 points from 168 to 184 over the course of the reporting period. The average new price for a VLCC tanker came to US- $146 million in 2007; the previous year, it had been only US- $129 million. According to information from HSBC Shipping Services, the new ship price in the dry bulk goods carrier segment for a 170,000-tdw Capesize ship doubled between 2003 and 2007, going from US-$48 million to US-$97 million. There were also price increases for the container ships; in 2007, a new Panamax ship at a price averaging US-$80 million was about 13% more expensive than in the previous year. One of the reasons for the high new ship prices is the continued high demand for new ships; but another cause is that the shipyards in many countries are confronted with disadvantageous currency exchange rates and the sharp rise in the prices for raw materials and steel, and they strive to take the increased factor prices into account when calculating the ship construction prices. Whether this will also be possible in the future depends decisively on the competitive effects of the current expansions in shipbuilding capacities in the middle and long term. If demand should drop, the German Shipbuilding and Ocean Industries Association believes that there will be large overcapacities, resulting in cut-throat competition with the corresponding reactions in terms of prices.ConclusionMany economic research institutes are of the opinion that there will be a temporary slowdown in worldwide economic growth in the current year 2008 and on into 2009. The major reasons for this prediction are the insecurity factors owing to the weakened financial markets which go hand in hand with above-average increases in prices on the raw material and agricultural markets. However, in view of the growing significance of the threshold and developing countries in world trade, the economic slowdown in the developed industrialised countries need not necessarily develop into a global problem. While it is true that the theory of the "decoupling" of the world economy promulgated by some economists is not shared by the majority of the market observers, the up and coming countries of Asia, in particular China and India, will continue to offer a high potential for growth, even in the long term. Considering the intermeshing of worldwide trade and the cost advantages resulting from the international division of labour, opportunities for the transport of goods by sea will remain good in the future as well.
Source: Clarksons Research ServicesVossloch, July 2008 Prof. Dr. Thomas PawlikDr Thomas Pawlik, marine merchant and commercial merchant, was born in 1960; he has been a professor at the UAS Kiel since 1996, where he is responsible for the course of studies in maritime trade which he has deve - loped himself. He is active in this sector as a researcher, consultant and publicist. Pawlik is the spokesman for the academic work circle Sea Transport of the German Association of Transport Scientists and member of the International Association of Maritime Economists (IAME) and of the Maritime Forum Kiel and the Nautical Association Kiel. |
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Quellen für die Ausführungen1) BP: Statistical Review of World Energy, 20082) Clarksons Research Services: various issues of Container Intelligence Monthly, Oil & Tanker Trades Outlook and Shipping Market Outlook, Spring 2008 3) Fairplay, various issues 4) HSBC Shipping: Global Shipping Markets Review 2008 5) International Energy Agency (IEA), Oil Market Report, Paris 6) International Monetary Fund, World Economic Outlook, New York, April 2008 7) Lloyd’s List, various issues 8) UNESCAP: Container Traffic Forecast. 2007 Update 9) German Shipbuilding and Ocean Industries Association: Annual Report 2007 |
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