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.

A Greek-managed bulker grounded in the Suez Canal but was refloated quickly, after three tugboats rushed to assist, Leth Agencies reported. The ship was the 76,500-dwt Glory (built 2005), according to the agent. “M/V GLORY grounded while joining Southbound convoy near to Alaqantarah,” Leth Agencies said in a tweet at 0614 GMT on Monday. “Suez Canal Authority tugs are currently trying to refloat the vessel,” it added.

The 7,832-bhp Port Said (built 2007), the 433-gt Svitzer Suez 1 (built 2021) and the 567-gt Ali Shalabi (built 2021) managed to refloat within hours. “M/V GLORY has been refloated by the Suez Canal Authority tugs,” Leth said in a separate tweet on 0751 GMT. Ordinary convoy was expected to resume at 0900 GMT local time, with 21 southbound vessels resuming transits with only minor delays.

Executives at Target Marine, the Piraeus-based company managing the Glory, have not been immediately available for comment. The Associated Press reported that a spokesperson for the Suez Canal Authority declined to comment, saying a statement would be released. “It was not immediately clear what caused the vessel to run aground. Parts of Egypt including its northern provinces experienced a wave of bad weather Sunday,” the Associated Press said.

The Glory is a ship carrying Ukrainian grain under the United Nations-run Black Sea Grain Initiative (BSGI). According to The Joint Coordination Center of the initiative, the ship left Chornomorsk on Christmas day, loaded with 65,970 tonnes of corn, heading for China.

The grounding of Evergreen’s 20,388-teu Ever Given (built 2018) in the Suez Canal in March 2021 brought parts of world trade to a halt.

Brazil’s corn shipments since July have broken all previous monthly records, with annual exports 43.2 MMT surpassing even 2019’s bumper year 42.5 MMT. However, both the huge increase in trans-Atlantic shipments (at 21 MMT more than double those of 2021 and 6 MMT more than in 2019) together with an increasing preponderance for cargo to be carried on Kamsarmax tonnage (at 20 MMT, 46% of all shipments and 7 MMT more than in any previous year), as well as China’s first purchases of Chinese corn are the stand-out features of last year’s export season.

In the Atlantic basin Egypt has traditionally been Brazil’s main export destination and at 4 MMT shipments did increase by 0.7 MMT y-o-y, but in 2022 exports to Spain at 4.9 MMT (up 2.9 MMT +142% y-o-y) rose dramatically into top spot as Spain turned to Brazil to make up less available Ukrainian corn. Brazil’s corn exports to all of Europe, the Mediterranean and North Africa have received a boost from shortfalls from Ukraine with Portugal 1 MMT(up 0.4 MMT y-o-y), Italy 0.9 MMT (up a huge 0.8 MMT y-o-y), the Netherlands 0.9 MMT (up 0.5 MMT y-o-y) and Israel 0.6 MMT (up 0.5 MMT) the most eye-catching. Elsewhere the strong dollar and more availability of product saw Brazilian exports to Colombia up by 1.7 MMT y-o-y to 2.4 MMT and Mexico ahead by 1.3 MMT y-o-y to 1.7 MMT.

On fronthaul shipments to Brazil’s largest export market, Iran, more than doubled at 6.6 MMT whilst exports to Japan skyrocketed by more than 3 MMT y-o-y to 5 MMT. Cargo destined for Vietnam doubled y-o-y to 1.9 MMT the same figure as South Korea whilst big percentage increases were also registered to Taiwan (1.5 MMT) and Saudi Arabia (1.3 MMT). Of the 22.3 MMT corn to move east of the Cape of Good Hope, 19.6 MMT was carried by Panamax/Kamsarmax/Post Panamax though Ultramax’s increased market share to 2 MMT as shipments increased to the more draft restricted ports of Bangladesh, Jordan, and The Philippines.

As port improvements in Brazil continue to evolve, Kamsarmax’s increasingly seem to be the vessel of choice, accounting for 8 MMT of the trans-Atlantic and 12 MMT of outbound cargo movement of Brazilian corn in 2022 . In comparison to 2019, Kamsarmax’s have increased market share on outbound destinations from 39 to 54% and on transatlantic from 15 to a whopping 37% of all shipments. With China starting to buy Brazilian corn in significant quantities, around 25 shipments since November 2022, the Kamsarmax sector may well increase market share in 2023, though the shallower drafted 84-88,000 deadweight Post Panamax’s have also been gaining traction (they now account for 10% of the outbound market compared to just 3% in 2019) with some Southeast Asian countries in particular favoring these larger shipment sizes.

China’s economy, the second largest in the world, has always been in the spotlight. Recently, the country has deployed its economic work for 2023, opening a new chapter for its economic development and filling us with confidence in China’s economy in the new year.

Looking at the bigger picture, the 10 new prevention and control measures ushered in a new stage of China’s COVID-19 response. Although the pandemic has not yet come to an end, the optimized strategy will undoubtedly boost economic activity, and facilitate the flow of economic factors and commodities. Put simply, the optimized strategy has reinvigorated the economy. The roads are busier, the malls have more shoppers, and travel apps have seen an uptick in customers. The optimized COVID-19 strategy and updated economic policy have brought China’s economy into a new development stage.

In terms of specific economic measures, “expanding domestic demand” has become a top priority in achieving the goal of ensuring stable growth in 2023. Predictions for this year depict a bleak global economic outlook with sluggish external demand. In contrast with the Keynesian belief that “demand creates its own supply,” China emphasizes generating effective demand through high-quality supply, which means continuously innovating to create higher-level products. For example, despite the saturated cellphone market, the emergence of smartphones redefined cellphones, creating demand from 7 billion people for the new products. This represents the underlying logic behind China’s efforts to deepen supply-side structural reform.

According to a recent report from the World Bank, China contributed an average of 38.6% to global economic growth from 2013 to 2021, more than the G7 countries combined. Expanding domestic demand means further tapping the huge potential of China’s supersized market of 1.4 billion people. This will translate into a critical driving force to the economies of both China and the world.

In addition, developing the private sector is also a key priority. With private businesses, such as Huawei, Alibaba and ByteDance, accounting for a large proportion of China’s economy, the private sector has now become a major economic player in the country. Statistics show that in the first 11 months of 2022, the import and export volume of China’s private businesses amounted to 19.41 trillion yuan (about $2.82 trillion), or 50.6% of the country’s total. Private businesses have also demonstrated stronger vitality and resilience, especially in terms of the sustainable development of new forms of foreign trade.

Therefore, China is scaling up its support for the private sector, continuously urging equal treatment of private businesses and their state-owned counterparts, and helping micro-, small- and medium-sized enterprises to overcome difficulties posed by the pandemic. These supporting measures aim to promote the sound development of private businesses. Likewise, the thriving of private businesses will in return bolster the economy by creating more jobs, ensuring the continued growth of disposable incomes, and further expanding domestic demand and boosting consumption. As such, we are also confident about the growth of the private sector in 2023.

China’s economy has withstood multiple tests and challenges during the three years since the outbreak of the pandemic, and the year 2023 is bound to be a brand-new journey in striving for economic growth. However, with the current policies, innovation capacity and various driving forces, we are confident that China’s economy will grow steadily, continue to act as an engine for the global economy and propel further growth.

(Special thanks to Mr. Yu Miaojie, President of Liaoning University, and a member of the Economic and Trade Policy Advisory Committee of the Ministry of Commerce)

Liner shipping will make just 5% of 2022’s mega profits, and up to 25% of the massive container orderbook will likely be postponed. These are the headline predictions in a unique survey carried by Splash today looking at how the container sector navigates its way out of its greatest ever boom. Both Drewry’s World Container Index and the Shanghai Containerized Freight Index (SCFI) have halted their plunges at the cusp of the new year, however, experts are warning carriers will need to brace for some very challenging conditions in the coming months. “Carriers are starting the year with a weak hand, and I expect they would turn in losses before the year is over,” said Hua Joo Tan, the founder of Asian consultancy Linerlytica.

More bullish is John McCown, whose Blue Alpha Capital quarterly liner profit reports have become essential reading during box shipping’s record earnings run since 2020. McCown anticipates that the carriers will be profitable in 2023 with a net income to revenue margin in double digits but with aggregate quarterly profit levels below the Q4 level recorded in 2022. More aggressive capacity management will be a central factor as lines doggedly avoid red ink this year, McCown suggested. “There are certainly a lot of moving parts and we’re at a fulcrum point right now, but my broad view is that the container shipping sector will be performing better than most think and there has been a fundamental change in sector DNA,” McCown told Splash.

UK consultants Drewry estimate liner shipping made record combined operational profits of $290bn last year, something that will slide to just $15bn in 2023, with shippers enjoying more affordable freight rates and better service reliability. “2023 will not be just about lower carrier profits,” said Philip Damas, the managing director of Drewry Supply Chain Advisors. Among the other key trends to watch, according to Drewry, are the easing of port congestion and associated operational delays around the world and the return of overcapacity in container shipping. For Peter Sand, chief analyst at freight rate platform Xeneta, 2023 looks certain to be the second year in a row of falling container volumes, and subsequently the main characteristic of the market to look out for will be the idle fleet. This includes both hot and cold lay-ups in addition to blank sailings. Making headlines this year for sure, Xeneta expects that 25% of the scheduled orderbook will be postponed, while no more than 10% is expected to be cancelled, and that would probably be options not called rather than outright and expensive cancellations. Sand reckoned carriers with heavy exposure to long-term contracts rather than spot business will remain profitable this year. Carriers with a full exposure to the spot market are already losing money and will continue to do so for many months to come, he warned.

On top of the worrying amount of new tonnage due to enter the container markers this year and next, HSBC sees downside risks to demand in 2023 as inflation bites into household savings, which the bank said this week could likely trigger another round of price competition. Scrapping is likely to ramp up over the course of the year, according to Daniel Richards, associate director at UK consultancy Maritime Strategies International (MSI). MSI expects scrapping will reach a year-end total of around 270,000 teu, before increasing even more in subsequent years. Xeneta, meanwhile, is forecasting up to 400,000 teu worth of ships will be torched this year, still some way short of the record 696,000 teu scrapped in 2016. Attention is now turning to contract rates, with TPM, the industry’s leading business event coming up shortly.

Contract rates are collapsing on most routes, based on early data seen by Drewry. “Despite a current Tic Tac Toe environment, BCOs will still not be able to play their best hands depending only on the flop. 2023’s longer term ocean freight market requires the skills of a chess grandmaster to successfully check their opponent, the ocean vendors,” advised Steve Ferreira, the CEO of New York-based shipper advisory Ocean Audit. “The pendulum has clearly swung back towards shippers,” said Richards from MSI, predicting that some shippers will simply hold off from extensive contract commitments unless the rates they are offered end up close to pre-pandemic levels. “It will likely be a frustrating contracting season where neither side feels it has gotten all it wanted, but also where worst-case scenarios were avoided,” Richards predicted.

Things to look out for

As we start the new year, we investigate some of the factors that may play a role in determining freight rates for the year ahead.

Iron ore and steel

With news of further support policies for the Chinese property market being implemented, the iron ore price in China has rebounded to $123.2/t on the Dalian Commodity Exchange, an increase of 39.7% from the lows at the start of November. While the move prices in a healthy improvement in demand from the Covid-stricken depths of 2H22, we do not expect Chinese steel production to surpass its previous peak. The mass construction spree of recent years has left the country with ample supply of housing, which is one of the largest consumers of China’s steel output, and thus initiated floor space is continuing to decline.

Last year China reiterated its goals to continue to make energy efficiency improvements in its industrial sector, including steel and other construction metals. By sticking to this policy, we would expect to see larger volumes imported this year from the Atlantic suppliers, which hold greater reserves of high-grade iron ore. As is the case with most years, iron ore flows will be affected by seasonal weather patterns, particularly in Brazil as it typically experiences heavy rainfall. In Australia, it is now cyclone season, and the Australian Bureau of Meteorology expects a likelihood of two coastal impacts from cyclones this season, suggesting disruptions are set to take place in this region soon.

China re-opening

Many welcomed the sight of China lifting Covid-19 restrictions in early December as FFA prices moved to the upside. Though China is now quickly reopening, strong economic activity will not return overnight, particularly as the country deals with the subsequent surge in cases. Opening has come in tandem with a series of stimulus announcements to aid its economy which, as we have stated before, will take time to make their intended impact. Inevitably there will be a slowdown in activity across the Chinese New Year period as there traditionally is, followed by an adjustment period of exiting zero-Covid. As a result, we look to the second half of the year for an improvement in both China’s economy and overall bulk commodity demand.

Coal headwinds

The largest story breaking in the new year has been a reported partial lifting of China’s unofficial ban of Australian coal which has been in place since 2020. It is also solely open for a handful of state-owned utilities, implying trade will not return to pre-ban levels. Australia has also found several new customers, namely in Europe since the war started, which are likely to have filled miners’ orderbooks. Further we expect Chinese domestic producers to sustain the levels of production of last year and continue to drive substitution of seaborne volumes, implying less need for expensive Australian coal. In its most recent release in November, China produced 391.3 MMT of coal, the second highest level on record. With Covid-19 restrictions being constantly removed, China’s domestic coal supply chain logistics should normalize from those in 2H22 indicating a lower need for quickly sourced seaborne product. While the reopening in China will increase the country’s energy demand, we expect the strong domestic output and less logistical disruptions to keep seaborne demand subdued.

Elsewhere, following a brief slowdown for several months, EU countries started importing large quantities of coal again in Q4. In December, EU countries imported 8.9 MMT of thermal coal, the second highest level since the war broke out. With the Russia-Ukraine war dragging on and pipeline gas flows only declining, we can expect the renewed European coal demand to continue into this year.

West Africa’s growing importance

The continued strength in Guinean bauxite trade in 2022 was one of the few trades that hit new heights last year. Bulk carriers loaded over 100 MMT of bauxite in Guinea for the first time in 2022, increasing by 15.2% YoY. This can be owed to robust aluminum production in China despite the many headwinds primary industry faced in the country throughout the year. Naturally, as the volumes have increased, so has the impact this trade has had on the dry market. Ballasters heading west have increasingly sought-after West Africa options as volumes from Brazil appeared less consistent, which has been important in keeping the market balanced on the Capesizes. Of course, we expect to see the typical slowdown in Q3 this year but the volumes during this period have continued to improve on the previous year despite the poor weather, and at 21.4 MMT, this was better than any quarterly volume achieved pre-2020. As manufacturing hubs start re-opening in China and factory operations resume, the need for aluminum will grow as it is an input in the production of a very diverse range of goods, none the least electric cars. We go into the new year with SHFE inventories on warrant at the lowest level since 2016, which we expect will need to be replenished and ultimately drive further growth in bauxite trade.

Changing weather patterns

As has been clear in recent years, traditional weather patterns have changed and have had an affect across several commodity flows within the dry market. Firstly, the recurring La Nina event caused unusually heavy rainfall in eastern Australia, which disrupted coal mines and ports in the region. July resulted in the lowest monthly coal export volume from Australia since early 2017, while Q3 amounted to just 83.8 MMT, the lowest level on record. Naturally, this also played a role in grain markets. While Australia saw heavy rainfall, the South American grain producers suffered very dry conditions. Argentinian corn and Brazilian soybeans both saw yields in the 2021-22 marketing fall to multi-year lows, which in Argentina particularly played a role in declining export volumes. While weather is naturally very unpredictable, recent years have suggested extreme weather events are occurring more frequently and are having a larger effect on dry bulk commodity flows.

Supply-side

Following another year of low ordering amid regulatory uncertainties and high prices, several questions have remained unanswered heading into the new year. Particularly on regulation, which we expect to be clarified sooner rather than later. Upon greater understanding, this should provide greater confidence in newbuild ordering. The orderbook for this year is set, which we expect to see 31 MDWT added to the fleet. We also enter 2023 following a year with the lowest level of scrapping since 2007. This is owed to a particularly strong second-hand market for older tonnage, which has since moved lower amid less interest, and thus driven more removals instead this year.

Rio Tinto has agreed the terms with its joint venture partners, including China’s Baowu, on developing infrastructure for the Guinean Simandou iron ore mine. With an estimated 8.6 BMT of reserves, it is the largest untapped deposit of high-grade iron ore in the world, with a target to come online in 2025. We foresee the potential for West African iron ore exports to increase global dry bulk tonne-mile demand equivalent by 13% in 2030 versus 2022.

The Simandou project’s production capacity stands at 175 MTPA, equivalent to c24% of Chinese imports from Australia today. Adding other projects to the mix, we estimate potential for Guinea to substitute c30% of China’s 2021 imports from Australia by 2030. The benefit for dry bulk shipping is added tonne-mile demand, as the WAF-China trade lane is 3x the distance to China from Australia. We therefore estimate added WAF tonne-mile demand to potentially surpass Brazilian demand in 2026 and may equal 70% of tonne-mile demand from Brazil and Australia combined in 2030. We note that replacing Australian iron ore volumes with Guinean adds distance to Australian exports, as seen recently with the Chinese import ban on Australian coal increasing average sailing distances 6.5% from 2019 to 2022.

This follows yesterday’s announcement that China is considering lifting the import ban on Australian coal, which we believe to be neutral for on distance effects but signals as an attempt by the Chinese government to facilitate the post-pandemic demand recovery which could imply more Chinese imports.

Like yesterday’s tanker outlook, analysts reckon 2023 will be better for dry bulk in the second half of the year once the sector’s most important player, China, has got its economy on a more solid footing. Fearnleys had this to say on capes this week: “We are looking forward to a new year, where expectations to the first part are rather low, whilst the general sentiment is rather positive to the second half of the year.”

Certainly, the year has got off to a dreadful start with the Baltic Dry Index sliding this week in dramatic fashion, buffeted by bad covid numbers out of China as well as further tales of economic woe for its real estate sector. “The decline is not a surprise as seasonal headwinds typically take shape during the first several weeks of the year,” Jefferies noted this week.

Breakwave Advisors point out that the first quarter has traditionally been the softest quarter of the year with inclement weather in both the Pacific and Atlantic basins usually affecting loading operations, and as a result, shipping demand. Nevertheless, the tight fleet fundamentals suggest it will not take much to stop the rot. Like tankers, the dry bulk orderbook is at decades-low numbers.

“Given the robustness in our demand and supply forecasts for this year, with requirements for bulk carriers increasing by about 3% year-on-year and supply relatively less, we cannot escape the thought that market expectations are overly subdued,” a recent report from brokers Lorentzen & Co claimed.

Analysts at HSBC argue that China’s reopening and supportive policies on the property industry could likely benefit major bulk demand such as iron ore while minor bulk trades could see headwinds from a slowing global economy. With China coming back, Breakwave Advisors reckons the dry bulk market will return to its traditional supply/demand levers this year post-pandemic. “As effective fleet supply growth for the next few years looks marginal, demand will be the main determinant of spot freight rates with China returning back to the driver’s seat as the dominant force of bulk imports and thus shipping demand,” the American company noted in a recent update.

The Baltic Dry Index (BDI) declined on Wednesday for the fifth consecutive business day after reportedly posting its worst one-day plummet in almost 40 years. The BDI, which serves as a market barometer for dry bulk shipping, slipped 5.9% on Wednesday to 1,176 points after dropping 17.5% on Tuesday to 1,250 points from 1,515 points on 23 December. The Baltic Exchange did not report new rate data from 24 December to 2 January in observance of the Christmas and New Year holidays. Reuters reported on Tuesday that the one-day tumble to 1,250 points was the largest one-day drop that the BDI has experienced since 1984.

One broker summed up why he thinks the index has done so poorly in recent days, having fallen by nearly a third from 1,723 points recorded on 21 December. “China, China, China,” Giuseppe Rosano, founder of UK broking house Alibra Shipping, told TradeWinds. “I cannot see anything getting better until several weeks after Chinese New Year.”

The Baltic Exchange’s dry bulk rates have fallen steadily since 21 December as China tries to revive its struggling real estate sector, deals with surging Covid-19 cases, and shuts down manufacturing for the week-long Chinese New Year starting on 22 January.

In that time, the exchange’s Capesize 5TC of spot-rate averages across five key routes has slid 46% to 12,575 per day on Wednesday, while the Panamax 5TC has cascaded 13.8% to $12,400 per day. The Supramax 10TC has slipped 17.3% over this period to $10,037 per day on Wednesday, while the Handysize 7TC declined 13.3% to $10,671 per day.

The BDI’s one-day drop on Tuesday does not accurately reflect shipping rates’ steady decline over the past 10 days because the index was inactive during this time, said John Kartsonas, founder of Breakwave Advisors, an asset management firm that runs a dry bulk exchange-traded fund. “For 10 days there has been no Index, but rates have been steadily softening,” he told TradeWinds. “It is January, and the broader expectation is for softer rates. Nothing surprising here.”

But early January “has been quite constructive for dry bulk” in the past because cargo owners usually rush to fix ships once the holidays end, he said. “Now, the surprising factor would be a counter seasonal rally,” he said. “Whether this translates to a surprising pop in rates is yet to be seen, but I would not expect anything but a short-term pop if that happens.”