Most maritime professionals expect cyber-attacks to disrupt ship operations in the coming years, with more than three quarters believing an incident is likely to force the closure of a strategic waterway. A survey of 801 industry professionals by class society DNV found that more than half also expect cyber incidents to cause ship collisions, groundings, and even result in physical injury or death.

Although the maritime industry has focused on improving IT security in recent decades, DNV said the security of operational technology (OT), which manages, monitors, controls, and automates physical assets such as sensors, switches, safety and navigation systems, and vessels, is a more recent and increasingly urgent risk. Three-quarters of those surveyed believe that OT security is a significantly higher priority for their organization than it was just two years ago; however, just one in three in the industry are confident that their organization’s OT cyber security is as strong as its IT security. “The maritime industry is still thinking IT in an era of connected systems and assets,” said Svante Einarsson, head of maritime cyber security advisory at DNV. “With ship systems being increasingly interconnected with the outside world, cyber-attacks on OT are likely to have a bigger impact in the future.”

According to DNV’s analysis, while the age of connection brings new threats, it also brings new opportunities. Almost all maritime professionals agreed the future of the industry relies on an increase in connected networks, and that connected technologies are helping the industry reduce emissions. “Cyber security is a growing safety risk, perhaps even “the risk for the coming decade,” warned Knut Ørbeck-Nilssen, CEO Maritime at DNV. “But crucially, it is also an enabler of innovation and decarbonization. Because as we pursue greener, safer, and more efficient global shipping, the digital transformation of the industry is deeply dependent on securing these inter-connected assets. Making it vital that we work collaboratively to strengthen our collective cyber security.”

Most maritime professionals told DNV that they believe that regulation provides the strongest motivator to unlock much-needed cyber security funding. Majority said that it will drive investment in cyber security, but only just over half are confident in the effectiveness of cyber security regulation and in their ability to meet requirements. The research further found that just 36% of maritime professionals agree that complying with cyber security regulation is straightforward and almost half (44%) say that regulatory compliance requires technical knowledge that their organization does not possess in-house. “Regulation only sets a baseline for cyber security. It doesn’t guarantee security. Rather than taking it as our goal, the maritime industry should use it as a foundation, on which to further improve and adapt to the changing threat landscape,” noted Svante Einarsson, head of maritime cyber security advisory at DNV.

The class society also noted that barely three in 10 of those asked believed that organizations are effective at sharing information and lessons learned around cyber security threats and incidents. “This lack of transparency is reflected in the belief of the majority that the maritime industry lacks standards for building an effective, repeatable approach to cyber security. Our research indicates that the industry needs to take big steps forward in openly sharing cyber security experiences – the good, the bad and the ugly – to collectively create security best practice guidance for a safer, more sustainable maritime sector,” added Einarsson.

Newbuilding prices rose by 15% on average in 2022 on the previous year with those for LNG carriers climbing by 18%, according to Clarksons Research. But the brokerage’s research arm reports that global newbuilding order volumes fell 20% in compensated gross tonnes terms on 2021’s totals. Clarkson Research said 2022 saw more complex ships contracted. LNG carrier orders dominated. The research team’s figures topped all other tallies, recording a whopping 182 LNG carriers, comprising 36% of CGT orders in 2022 worth some $39bn. Container ships followed at 350 vessels and 29% of CGT down 50% on 2021 but still the third largest on record on a TEU basis, Clarksons said. Car carriers came in at 69 vessels and 2.4% of CGT, with floating production storage and offloading units plus the wind sector also doing well, the broker detailed.

But despite improving charter markets, tanker orders plummeted 64% and bulkers 54%. Clarksons detailed that alternative fuel investment also increased accounting for a record 61% of all tonnage ordered. These factors all supported a 6% increase in value of orders to $124.3bn, the broker said. Chinese shipowners took the order crown in 2022 placing $18.4bn worth of orders, followed by Japanese owners on $15.1bn and Italians with $11bn with the trio amounting to 36% of investment. But Clarksons said Greek owners “kept their powder dry” accounting for just $8.5bn worth of contracts.

China topped the table taking 49% of orders, with South Korea on 38% and contracts for Japanese shipbuilders down by nearly 50% on present figures. Overall shipbuilding output fell by 8%, Clarksons said, listing China on 47% of the total, Korea 25%, and Japan 16% with Europe stable on 8% thanks to cruise ship deliveries. The broker detailed that there are now only 131 “large active yards” compared to 320 in 2009 and estimates that shipbuilding capacity is about 40% lower than a decade ago. Looking ahead to this year and beyond, Clarksons Research said: “Increased tanker orders seem likely for 2023, along with a continued flow of LNG.”

The broker flagged up that the orderbooks for tankers and bulkers are historically low at just 4% and 6% of their fleets. It said the container ship market is likely to be weaker although there may still be more orders, possibly for the feeder ship sector. The brokerage is also forecasting that deliveries will “tick up” by about 6% this year with container ships and LNG carrier handovers expected to account for 41% of this year’s scheduled deliveries and 58% of those in 2024. Clarksons said there will also be “increasing underlying fleet renewal requirements” as the decade develops both on the back of tougher emissions regulations and to counter the ageing fleet. But the research team highlighted that 2023 will have also have “marketing challenges” for yards. “Macro-economic risk is material and may weigh on investor sentiment, alternative fuel choices remain tricky and newbuild prices and berth availability are a hurdle for some owners,” the broker said. “Along with currency and inflation yards will need to be as agile as ever.”

LNG dual-fueled: 397 or over 50% of orders comprising 36.7m gt

Methanol-fueled: 43 or 7% of orders comprising 5m gt

LPG fueled: 17 or 1.1% of orders comprising 0.8m gt

Battery hybrid: 1.2% of orders

Ammonia ready: 10.8% of orders

LNG ready: 1.4%

Hydrogen ready: 0.1%

Source: Clarksons Research

As has also been more widely reported today, China’s December import data was released.  China imported 30.9 MMT of coal in December.  This is down month-on-month by 1.4 MMT (-4%) and is down year-on-year by less than 100,000 tons. 

Iron ore imports totaled 90.9 MMT.  This is down month-on-month by 8 MMT (-8%) but is up year-on-year by 4.8 MMT (6%). 

Soybean imports totaled 10.6 MMT.  This is up month-on-month by 3.2 MMT (43%) and is up year-on-year by 1.7 MMT (19%). 

Seasonal woes

As we start the new year, the seasonality of iron ore shipments is in full swing, and rates have started to fall. We look at some of the factors affecting the market at present.

As is widely expected most years, freight rates in the Capesize market have moved lower to start the year as seasonal factors start taking a hold of the market. As it stands, the Baltic Capesize 5TC average has declined by 35.7% YoY, printing at $11,188/day at the time of writing. In the lead up to the holiday season, the Cape fleet saw a considerable jump in supply in the East, as fewer vessels opted for the ballasting routes and instead looked to secure employment in the lower basin. According to AXS vessel tracking data, we reached the highest level of Capes in the Pacific since late-February 2022 earlier in January, as many anticipated waning demand in the Atlantic, mostly owed to weather effects and planned maintenance. In the last couple of weeks, however, more vessels have made the journey West, putting pressure on the Atlantic market which has yet to prove it has the volumes to match.

Iron ore

Iron ore prices have further moved to the upside in the past week, reaching 6-month highs at the time of writing. Much of this is based on raised expectations for China’s economy and continued efforts for property market stabilization. While a reflection of foreseen demand, the move is also an effect of supply concerns in Brazil, which is during its traditional rainy season. Chinese iron ore port inventories currently lie at 134.1 MMT falling by 14% compared to the 156 MMT in stocks at the same time last year. With prices on the rise, we can anticipate a further drawdown in port stocks, as is consistent with trends in the past. However, when more supply frees up in Brazil following the Q1 slump, prices will adjust, raising the prospects of greater re-stocking in future quarters, which should ultimately result in greater seaborne iron ore demand. At present, the Brazilian miners are now largely able to fulfill orders using their own vessels, with some reportedly even selling freight elsewhere as volumes slowdown as the weather-picture worsens. Meanwhile in Australia, higher prices do create the incentive for miners to push out more volume in the near-term as to take advantage of the favorable margins. While more vessels have ballasted to the Atlantic in recent weeks, there is still a lot of tonnage opting for the Pacific West Aussie routes which will put a ceiling on returns for this trade in the short-term, with the majority of fluctuations bunker price related. One contributing factor to this ample supply in both basins is an absence of Indian coal demand, largely a Cape trade in 2022, as cooler temperatures reduce air conditioning needs.

Australian coal

As we briefly touched on in last week’s Big Picture, a handful of Chinese state-owned companies were granted permission to import Australian coal. It has since been reported that this has been opened to more firms, though this is yet to be officially confirmed. While Capes accounted for 61% of Australia’s coal shipments to China in 2019 before the ban, overall Capesize coal liftings in Australia have continued to decline for several years despite securing new customers, some of which are further away than China. China has also turned to new sources of coal, massively ramping up domestic production and securing a trade deal with Indonesia. In 2022, Australian coal loaded onto Capes totaled 250 MMT, marking the lowest annual total in over 5 years. Including all vessel sizes, at 528 MMT, this has fallen from 634 MMT in 2019. As such, the overall declines in Australian coal exports accompanied by slowing Chinese seaborne coal demand provide limited scope for growth on the Capes despite the ban being lifted. In the event of volumes being substituted away from Indonesia to Australia, this would provide better demand for the bigger ships at the expense of the Supramaxes which predominantly do the Indo-China coal routes.

Atlantic demand slow to start Q1

In Brazil, which accounts for the majority of Capesize demand in the Atlantic basin, shipments declined by 28% YoY in December to 31 MMT and is set for further declines in January. Excluding Brazil, shipments out of the other four major Cape demand sources in the Atlantic declined by 22% YoY. In the meantime, the ballasters list has grown in the past two weeks, on the back of weak C5 returns, totaling 19.6 MDWT in Capesize tonnage heading past Singapore rising from 13.7 MDWT in the 14 days before that. This coupled with fewer volumes has naturally left the basin oversupplied, hence the decline in freight rates in the past week. Shipments from Colombia and the USA did remain in growth territory in December as European countries continued their coal-buying spree, despite milder temperatures. In December, Capes discharged 8.9 MMT of coal in Europe, the highest level since May. With colder weather expected in Europe across the next several weeks, these trades should continue to perform, along with solid bauxite volumes which declined annually off a very high base in December last year. We anticipate the strength in these trades to remain going forward and thus bodes well for the demand picture in the Atlantic once the volumes improve out of Brazil in Q2 as they historically have done.

Tucked away out of the spotlight in the Irish city of Cork, Tony Gurnee’s Ardmore Shipping isn’t the biggest or flashiest of public shipowners. But investors did make its stock shipping’s best performer of 2022 in a year that was dominated, at last, by a resurgence of the tanker market and its publicly listed companies. As a Streetwise review in tandem with US investment bank Jefferies shows, tankers won the year, particularly in the clean product sector. Ardmore just edged out product tanker giant Scorpio Tankers for the top rung, gaining 326% to Scorpio’s 320% on the year. Emanuele Lauro-led Scorpio had led the tables for most of the year. “When you look at the tankers’ performance, it’s similar to container ships the year before,” said Jefferies lead shipping analyst Omar Nokta. “I think 2022 was all about the excitement over the new tanker dynamics. People had been bullish about tankers coming into 2021, but the recovery took a lot longer than they’d anticipated. There was a substantial move up, albeit in some cases from anemic levels.”

Tanker owners overall gained an average of 131% on the year. But there was a pecking order within the group. The two pure product owners under Jefferies’ coverage gained an average 323%. Owners of fleets split between crude and clean tonnage climbed an average 156%, while pure crude operators rose by 79%. “The product companies were in a tougher spot financially entering the year,” Nokta said. “Crude owners had a bit more financial ammunition and balance-sheet strength, while product companies were in a lower place.” But especially after Vladimir Putin’s invasion of Ukraine in February, clean owners were better positioned across the board to take advantage of market disruption, leading rates to follow. Investors also recognized that tight refining capacity was a major catalyst. “Crude took a few more months for the market to get going,” Nokta said.

Streetwise asked Jefferies to look at raw share performance and returns with shareholder dividends factored in. While the payouts did not make a big difference in tankers, yet they played a significant role in outcomes for dry bulk owners, most of which had initiated substantial returns in their banner 2021 recovery year. To this point, only two of the six dry bulk owners under Jefferies’ coverage, Eagle Bulk Shipping (9.8%) and Diana Shipping (0.26%), showed raw gains in share price. But throw dividends into the mix and five of the six lodged gains: Eagle 27%, Diana 23%, Golden Ocean Group 18.7%, Star Bulk 13.5%, and Genco Shipping & Trading 13.1%. Only Greek owner Safe Bulkers lost ground, dropping 22.8% in share price and 17.5% with dividends considered. “When you think about it, dry bulk wasn’t all that bad,” Nokta said. “Many people view 2022 as a disappointment, especially in the second half. But the money is a bit stickier than we’ve seen over the last 10 years. The stocks performed much better than they would have historically.” Investor interest in the sector is much stronger than only five years ago, when “it was really hard to convince people to look at dry bulk”. An inflection point came in early 2021 when prospective shareholders began to understand that an investment in dry owners was not necessarily synonymous with a bet on China. That year’s strong market, based on the global economy, even with China stalled, opened eyes to a “decoupling” of the two, Nokta said.

It should be of little surprise that the year’s losers were container ship owners, which essentially had printed money for the previous two years. No shipping stock fared worse than Zim, with a 71% drop, followed by Danaos, down 29%, and Global Ship Lease, down 27%. “It wasn’t a good year, but if you did a 730-day look at containers, it would still look amazing,” Nokta said. Strong balance sheets from the high times provide confidence that the downturn is survivable, even with contract renegotiations by liner companies probably looming, he said. “Still, it’s all about cost controls and preserving liquidity. We’re no longer in a good container ship market, it’s a bad one.”

2023 forecast

So, with 2022 in the books, where would his money be going in 2023? Dry bulk is the top pick. Even if the sector’s turning point involved decoupling the stocks from a China play, it is a potential recoupling that could be a strong catalyst here. “I am positive for the year. The ingredients are there for a nice recovery, and it could be more sustained than in the past,” Nokta said. “Dry bulk looks exciting. We think the Chinese economy opening [following Covid shutdowns] will have a positive impact. It doesn’t take much, and China has largely been absent from the growth side of things in recent years. “China’s return to the iron ore market will have a huge impact on capesize demand and easing relations with Australia will also be a plus.”

The analyst sees a “solid” year in store for product and crude tankers. While he agrees that the “easy money” already has been made on tankers, “there’s quite a bit of room to grow” in the next 12 months. One perhaps overlooked element has been tanker companies’ diligence in improving their balance sheets. This in turn should lead to larger dividends and more investor rewards. “These balance sheets are completely undone in a good way,” Nokta said, noting that the group had an average 50% leverage heading into 2022 that has shrunk to around 20% today. “That’s a game-changer in free cash available. Investors are in a good situation. The sector still looks strong, and the dividends are set to be quite a bit bigger than we’ve seen in the past.”

Star Bulk Carriers expects the supramax bulker spot market to pick up after the Chinese New Year after seasonal factors pushed rates to their lowest level in more than two years. The New York-listed bulker owner’s forecast came on the same day that spot rates on the Baltic Exchange’s Supramax 7TC route basket slipped to $8,831 per day, marking the first time it has fallen below $9,000 per day since July 2020. “Indeed, the supramax market is extremely weak,” deputy chief investment officer Constantinos Simantiras said on Tuesday during an online question-and-answer session hosted by Capital Link. “It’s the weakest sector in dry bulk industry right now and especially in the Pacific. In the Atlantic the market is slightly better.”

He said that supramaxes and other geared bulkers are typically “extremely seasonal” during the first quarter, especially in February. “We do believe that there will be a recovery after the Chinese New Year,” he said. “Especially on the smaller sizes, the demand starts to go through its seasonal downturn, which begins around November and bottoms out by February this year.” Demand for the smaller bulkers should improve after the week-long Chinese New Year holiday ends at the end of January and the Latin American grain season takes place from March to the end of May, he said. “We do expect the smaller sizes to recover first over the next two months,” he said.

The future market for supramaxes shows similar expectations over the next several months. February contracts stood at about $9,500 per day on Tuesday, while forward freight agreements for March came in at $11,300 per day. Meanwhile, Simantiras said the capesize sector is expected to outperform the smaller bulkers during the second half of 2023 because China has announced a significant stimulus to support the real estate market. “This is something that we expect to have a stronger effect as we approach the second half of 2023,” Simantiras said. “It’s worth noting, though, that since November Chinese imports have experienced a major rebound and we are definitely at the early stages of the demand recovery.” In mid-2021, China experienced a “major slowdown” in steel manufacturing because of its ailing real-estate sector, but the country has postponed a cap on steel-industry emissions from 2025 to 2030, Simantiras said. “This provides a significant upside over the next years and a very strong demand case for the dry bulk industry,” he said.

Data released today shows that 1.4 billion yuan in new loans were issued in China in December.  This has marked a month-on-month increase of 190 billion yuan (16%) and a year-on-year increase of 270 billion yuan (24%). 

As we discussed in previous work, October saw new loans fall to the lowest level in five years, and it is significant that November and December have seen dramatic increases in lending.

John Fredriksen’s pursuit of Euronav is over. The Norwegian tanker magnate’s tanker firm, Frontline, on Monday announced it will no longer seek a combination with Euronav, ending one of the most high-profile shipping merger sagas in history. Fredriksen had been building up his stake in Antwerp-based Euronav for 15 months and found himself in confrontation with the Saverys family for control of the Belgian tanker giant. Both boards of Frontline and Euronav had approved a combination last summer, but a full merger proved impossible as the Saverys’ built up a large enough stake to block the deal.

Lars Barstad, CEO of Frontline, said:  “We regret that we could not complete the merger as envisaged in July 2022, as that would have created the by far largest publicly listed tanker company. At the same time, both companies have independently very large fleets of crude oil and product tankers and are already enjoying economies of scale as evidenced by our respective recent financial reports. Frontline will with its efficient operations continue to capture value as this cycle unfolds and remain focused on maximizing dividend capacity per share.”

With Fredriksen now walking away from the deal, there is a potentially awkward reckoning for the current top management at Euronav, all of whom strongly backed the merger. The Saverys family have outlined their vision for Euronav, which involves getting the tanker company far more involved in alternative forms of energy. Euronav responded this morning to the Frontline announcement, saying it will examine the letter, and that it “reserves all rights and actions. Regardless of the combination taking place, the supportive and sustainable fundamental factors of the tanker markets have started to deliver (during Q3 and Q4 2022) what Euronav and most sector commentators believe will be a prolonged upcycle. Such favorable conditions coupled to Euronav’s strong balance sheet, best-in-class operating system with the most developed sustainability platform in the sector positions our company well for the future,” Euronav maintained.

Omar Nokta, an equities analyst with Jefferies, suggested Euronav shares will likely see some near-term pressure as the market processes what’s next for the company. Frontline shares are poised for a “major rally” and re-valuation, Nokta predicted. Euronav’s share price dropped dramatically by 19% in early trading today in Brussels while Frontline’s shares were halted in Oslo.

An unprecedented lack of new vessels on order is set to propel shipping shares to new heights this year, according to Clarksons Securities. Stock prices in the sector worldwide increased by 29% on average in 2022, the investment bank calculated. This greatly outperformed the broader equity market, with the S&P 500 index down 18% last year. “This demonstrates that when fundamentals are aligned, shipping shares may be expected to perform well,” analysts led by Frode Morkedal said.

Clarksons Securities argues that strong commodity prices are often required for shipping equities to thrive. But the analysts added: “What makes us so optimistic about the future is the unprecedented low orderbook in the crude, product and chemical tanker sectors, as well as dry bulk carriers.” The investment bank believes fleet growth will stagnate in 2024 and 2025, aided by increased scrapping and slow steaming to meet new carbon regulations. “With ships possibly in short supply from next year, even a minor increase in demand might ignite shipping markets and equities,” Morkedal and his team said. “As a result, 2024 and 2025 might be really great years, and because equities often price in the outlook ahead of time, we expect 2023 to be another stellar year for shipping equities,” they added.

Despite likely recession in many countries this year, the energy crisis and China’s return to growth should keep cargo demand healthy, helped substantially by increasingly longer trading routes, Clarksons Securities is forecasting. “It is unusual in history for the supply side to appear so convincing before a recession begins. This, in our perspective, makes risk/reward quite appealing,” the analysts said. The report cites a pearl of wisdom from an unnamed shipowner, who once said demand is virtually impossible to predict, so the only factors worth considering are vessel prices and the orderbook. “This is why Greek and other savvy shipping investors are now buying ships because they believe the price of secondhand vessels is too low in comparison to newbuilds, and the low orderbook indicates that prices are most likely to climb in the future,” Clarksons Securities said.

In 2022, crude, product, and chemical tankers were among the best-performing sectors. But their share values remain low at between 80% and 85% of net asset value, the company calculated. Dry bulk is expected to outperform this year as China resumes growth, strengthening demand for resources such as iron ore and coal, the analysts believe. Car carriers and container ships, however, are more dependent on end-user demand in the West and consequently face challenges as a result of the recession, increased fleet growth, and persistent port congestion that might still normalize, they said.

China’s reopening to the world over the weekend is seeing considerably more jet fuel about to be consumed in the world’s most populous nation, while for crew managers there’s relief that the country has made crew changes far easier for the first time in nearly three years. As part of its dismantling of its zero-covid policy Beijing has allowed travel in and out of the country with transport officials also revealing over the weekend that crew leaving or joining ships in China will no longer need to quarantine. Seafarers coming from overseas must now only take a covid test 48 hours prior to the departure of their last port of call before entering the People’s Republic.

Scenes of packed airports and family members meeting each other after years apart have been plastered across multiple media channels in the 36 hours since China lifted its travel restrictions, with a host of airlines stating they will now ramp the volume of flights in and out of the country regardless of the soaring rates of covid infections being experienced across the republic.

Chinese oil demand fell last year for the first time in 20 years. This year the International Energy Agency expects to see a rise of 800,000 barrels per day, representing nearly half of global growth in oil demand. “[T]here are some indications that the worst may be past with short-term mobility indicators in major cities improving and Chinese refineries returning to the global market,” a new report from Arctic Securities stated today.

Despite the lifting of draconian covid policies, the rates of infection ripping through the country are impacting supply chains with ports understaffed in recent weeks, and trucking availability strained, while shipyards are struggling to complete newbuild and repair work to schedule as thousands of staff call in sick.