Maritime Industry – Covid-19 Update and
Opportunities
While Covid19 pandemic has resulted in accelerated drop in
petroleum products consumption globally, pace of decline in the production was
slower. This mismatch led to excess availability of crude and petroleum
products during March and April 2020. Impact of this excessive inventory led to
a drastic drop in product price and Contango in oil market. These factors led
to sudden spurt in storage demand resulting in highest ever charter hire rates
for all categories of oil tankers. VLCC tanker spot rates went up from
US$30,000/day in March to US$200-250,000/day in April as these large vessels
were converted to floating storage.
US Energy Information Administration (EIA), in their Short
Term Energy Outlook in May 2020, have indicated that global inventory builds
will be the largest in first half on 2020. EIA estimates that inventory builds
rose at a rate of 6.6 million barrels per day (b/d) in the first quarter and
will increase by 11.5 million b/d in the second quarter because of widespread
travel limitations and sharp reductions in economic activity.
After the first half of 2020, EIA expects global liquid fuels
consumption to increase, leading to inventory draws for at least six
consecutive quarters and ultimately putting upward pressure on crude oil prices
that are currently at their lowest levels in 20 years. In the May STEO, EIA
forecasts global liquid fuels consumption will average 92.6 million b/d in
2020, down 8.1 million b/d from 2019. Even in 2021, the demand is expected to
pick up but will remain lower than the levels of 2019.
With the hope and optimism of Covid vaccine breakthrough,
crude prices have started inching forward gradually reducing the contango gap,
which is reducing the demand for storage particularly floating storage and
tankers have started losing the high spot rate advantage. VLCC current spot
rate has come down to sub US$50,000/day level. A co-relation between crude oil
prices and tanker spot rates being inversely related is emerging. All segments
of Tanker markets are returning to previous normal levels.
For example the LR2 (Long Range 2 DWT 80-160K, next smaller
size after VLCC) type of tankers, had shown a peak of US$169,829/day on 27th
April for Naptha shipment from Middle East to Japan. The rate has come down to
US$45,459/day on 19 May. BIMCO expects that the tanker rates are likely to
remain low for the rest of the year 2020, due to lower underlying demand. This
drop of over US$120,000/day in earning level shows the extent of volatility in
the tanker shipping markets.
Dry bulk ships are also operating at earning levels below
their direct operating costs, however the owners prefer to continue operating
the ships even at direct operating loss, rather than laying up the vessels due
to higher costs of restarting operations from laid up vessels. Cape size bulk
carriers continue to show weak market condition. The Baltic Capesize Index
(BCI) is “162” against “1545” one year ago. This translates to a daily charter
rate of US$4,000 to 4,500; a level substantially lower than the operating
costs. Major capsize routes Brazil/China and Australia/China were facing a
number of challenges which are worsened by the Covid pandemic.
Container
Shipping
While Covid pandemic has destroyed the level of market demand
leading to an estimated drop of 10-12% of container volumes, the last four
years (2015-19) have seen a massive level of new ship deliveries (213 ships)
especially the ULCV types (Ultra Large Container Vessels 0f 20,000 TEUs+
capacity). Additionally, between the year 2020 to 2022, 76 new ULCVs are
entering the market as per the order book. The market is likely to continue to
struggle to absorb this level of supply in ship tonnage with a falling demand.
Since the early impact of pandemic, a number of carriers and alliances
operating main trade lanes have started resorting to blanked sailings. Some of
the blanked sailing announcements were made by the carriers at the last moment
making it very difficult for the shippers to plan their logistics. Three major
alliances 2M, The Ocean and The Alliance have resorted to hundreds of blanked
sailings in addition to taking longer sea routes to avoid canal transit and
payment of canal dues. BIMCO shows blanked sailings on the fronthaul trade out
of Asia towards Europe last week are estimated to have reached 28% of total
trade lane capacity. The latest data from Alphaliner shows the inactive
containership fleet has surged to a new record of 524 units equivalent to 2.65m
teu as at 11 May, surpassing the previous high of 2.46m teu at the beginning of
March this year. The inactive fleet currently accounts for 11.3% of the total
containership fleet capacity
Hapag-Lloyd chief executive Rolf Habben Jansen released a
personal message to customers “We hope you can understand and accept that, even
though we are doing our best to meet your needs, there may still be times when
we are unable to provide our services at the normal speed and when delays might
be encountered,” he said. He further stated that, so far, the crisis “had only
limited impact” on the business. Mr Habben Jansen, however, said he expected
impact from the consumer lockdowns in Europe and the US to begin to affect
bookings from May, as new manufacturing orders were halted. After these blanked
sailings, The Alliance (Hapag Lloyd, ONE, Yang Ming and HMM) is reinserting two
sailings on Trans-pacific and four sailings on Asia-Mediterranean routes. This
would suggest that some carriers feel that the demand curve has bottomed out.
For the coming weeks, to end-July, carriers are expecting higher cargo volumes
on the front-haul, despite the seasonally lower nature of May to July, the new
BIMCO report suggested. So far most of the carriers have shown strong Q1
results due to strong freight rates resulting from blanked sailings.
Down the line whether demand picks up from July or it
stabilizes or goes down resulting in more blanked sailings is a matter of
speculation.
Stock markets in the USA have recently shown improved levels
in dry bulk shipping stocks particularly Star Bulk, Eagle Bulk, Scorpio
Bulkers; however in tanker shipping, the price levels have marginally declined.
A number of tanker ship owners are more optimistic about their future performance
from July 2020. Euronav, a Belgian tanker ship owner operating a fleet of 46
VLCCs and 25 Suezmax tankers; expects to continue good performance even without
the demand for oil storage. In an interview the CEO of Euronav, said “Shipping
is always the forgotten kid, we are responsible for transporting 90% of trade
and nobody pays attention,” he said, adding the importance of shipping staff to
be treated as key workers and being allowed to travel within certain rules and
regulations.
“It is a difficult time for people working in the industry. A
lot of people are allowed to travel because their work is critical, shipping is
critical for the world. It is a very complex exercise, but my instinct tells me
that if the public at large was aware of what we are going through and our
crews then suddenly the politicians would move a little bit faster than they
are doing right now,”
Ports
Slow down in shipping is also adversely impacting performance
of ports. ICRA has estimated a decline of 21% in cargo volumes at Indian Major
Ports during April 2020. They feel that container volume would decline by
12-15% while general cargo would decline by 5-8%. In order to help tide over
the financial constraints faced by the port operators, the Government has
proposed a number of supportive actions in the form of Suspension of Minimum
guaranteed obligations during the lockdown period, deferment of revenue
share/royalty for three months, reduction in lease rates to the extent of
decline in volumes. While these measures are expected to render temporary
relief to the ppp operators; the real challenges lie in revival of business,
rebuilding cargo volumes, offering incentive to customers. The most innovative
operators would perform better than the others.
Opportunities
Recently, Port of Rotterdam has demonstrated a way to create
new opportunities. Following is quoted from the Port of Rotterdam
“More
Fruit Coming To Rotterdam In Reefer Ships Due To COVID-19
Twice as many reefer ships with conventional cargo are
currently arriving at the Rotterdam Fruit Wharf in the Merwehaven. The measures
taken in response to COVID-19 mean shipping companies have been unable to put
enough reefer containers in the loading ports of South Africa. Consequently,
these conventional reefer ships – with containers on deck and pallets in the
hold – have become considerably more popular.
36 refrigerated containers – also called reefers – and 2,482
pallets full of South African fruit (including grapefruit, oranges, pears and
lemons) were transshipped from the Crown Garnet at Rotterdam Fruit Wharf on 17
and 18 May. The ship belongs to the Reefer Alliance, a joint venture created by
Seatrade and Baltic Shipping that operates a service between the South African
ports of Durban, Port Elizabeth and Cape Town. From these loading ports, these
ships transport citrus fruit in containers both on deck and below deck to
Rotterdam and St. Petersburg.
Cold
stores on the waterfront
“This kind of ship usually
arrives in Rotterdam once every two weeks and the number of pallets it has in
the hold is considerably less. This one is already the second in a series of
four arrivals that have taken place in May. Owing to the shortage of 40 TEU
reefers, demand for this service is much higher than usual,” says Commercial
Manager Peter van de Laar. He believes Rotterdam could easily cope with even
more conventional reefer ships. “We used to handle three of this kind of ship a
week. Currently, almost all fruit is transported in reefer containers. We are
the only terminal in Rotterdam that is still properly equipped to receive
conventional reefer ships. No one else has a cold store right on the waterfront
like we do.”
Photo: Ries van Wendel de Joode
On the quay of Rotterdam Fruit Wharf in the Merwehaven, the
pallets of fruit are unloaded from the reefers on the ship directly into one of
the cold stores. Once the containers have been unloaded from the deck, work can
immediately start on unloading the pallets of fruit in the ship’s holds. All
the fruit passes directly from the quay into the cold store to keep the cold
chain as closed as possible.
Besides providing this special conventional service,
Rotterdam Fruit Wharf also receives daily shipments of fruit containers from
the regular Rotterdam container terminals. These containers are unloaded into
one of the cold stores, where the fruit is kept at the correct temperature
until it makes its way to a destination in Europe and perhaps even beyond.
Rotterdam
Fruit Wharf
Rotterdam Fruit Warf
is celebrating its tenth anniversary this year. While a lot of fruit
disappeared to the south, the company has remained loyal to the north bank of
the port of Rotterdam. Rotterdam Fruit Wharf is part of the SEA-invest Group
and has terminals in Antwerp, Zeebrugge, Rotterdam and Hamburg, and cold
storage warehouses in Cape Town and Durban.”
Source: Port Of Rotterdam
Source: Port Of Rotterdam
Compiled by
Mukesh Parikh
Ahmedabad, May 24, 2020
References of web links
https://www.hellenicshippingnews.com/more-fruit-coming-to-rotterdam-in-reefer-ships-due-to-covid-19/
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