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Intermodal Weekly Report

05 Ιουλίου 2020.

ploiacontainpanamMarket insight

By Vassilis Vassiliou

Ship-repair Broker

It was beginning of 2020 – close to 6 months from now – when we first experienced the huge impact of the COVID 19 outbreak on Ship Repair sector.  At that time, in February 2020, COVID existed only in China, where almost all ship repair activities were frozen, just a few days after the first announcement from the Chinese government that the CNY will be postponed till 10th of February. From that day till today, the sector has been challenged in many ways, with different locations being affected every time and in various extents.

The virus spread flow, when was causing a lock-down in one region, the same time was overfilling with massive bookings for ship repairs these regions which were still able to offer such services. Initially, when China was isolated, both Singapore and Arabian Gulf faced a massive demand for drydock slots, which was much greater than what they were able to accommodate. A few weeks later, European and Turkish shipyards seized operations and China has slowly resumed its activities. Nowadays, while China has almost fully recovered from the shortage of the manpower, Singapore and Arabian Gulf are underperforming.

Owners throughout this period have left with fewer options for drydocking their fleet while at the same time must overcome some commonly found difficulties as described below. Due to the travel restrictions, worldwide, Owners do have the only option to attend remotely their ship drydocking. Repairs are being carried out with local superintendents, which are not familiar with Company’s operating norms, while control on the projects is slack with decision making very slow. In addition, by having only a few options from yards under operation, Owners have to eventually select a yard which is usually heavily loaded and, in some cases, do not match ideally to the project in terms of cost, quality or location.  A major problem during this time is the uncertainty of the situation during the planning phase. While for many projects, yard’s selection process is correct, when the vessel is arriving to the yard, the criteria may change, and new challenges need to be overcome. Last, source of local service engineers and unnecessary delays in delivery of spare parts are also a common problem to handle. An example describing the extent of the later one, in China, since oversees UTM engineers cannot travel; there is a severe shortage on local UTM companies forcing the competition against the ship Owners.

The greatest challenge is for specialized non-conventional vessels, being repaired in certain areas, where during certain lockdowns, Owners are left with no other options for carrying out their repairs.

Important to mention that COVID outbreak which has resulted to a severe drop in oil prices, has also narrow the price spread between high and low Sulphur heavy fuel oil. This has brought all future scrubber retrofit projects under a big question mark.

While considering the above, leaving ahead the second half of the year which will hopefully coincide with the time when the world will get the virus under control, it is expected to have another wave of ship repairs to fill again most of the yards. This peak is going to be extremely high considering the massive postponements on the repairs during the last 6 months.

 

Chartering (Wet:Soft-/ Dry:Firm+)

 

The impressive jump in Capesize rates offered the dry bulk market another great boost last week, with average earnings for the rest of the sizes displaying softer performance. The BDI today (30/06/2020) closed at 1799 points, up by 5 points compared to Monday’s (29/06/2020) levels and increased by 182 points when compared to previous Tuesday’s closing (23/06/2020). The crude carriers market remains in search of a clear direction with dampened demand being unable to offer breather on rates. The BDTI today (30/06/2020) closed at 462, decreased by 11 points and the BCTI at 396, a decrease of 16 points compared to previous Tuesday’s (23/06/2020) levels.   

 

Sale & Purchase (Wet: Stable-/ Dry:Firm+)

 

SnP activity in the Dry bulk sector remains significantly healthy with owners displaying interest across all sizes, while the low volumes of Tanker secondhand deals align with the very weak sentiment in the segment. In the tanker sector we had the sale of the “SEAMULLET” (32,238dwt-blt ‘01, Germany), which was sold to U.A.E based buyers, for an undisclosed price. On the dry bulker side sector we had the sale of the “NEW STAGE” (176,877dwt-blt ‘08, Japan), which was sold to Greek buyers, for a price in the region of $16.3m.

 

Newbuilding (Wet: Stable-/Dry: Stable-)

 

With just two orders surfacing last week, it is difficult to write about the newbuilding market without sounding pessimistic while even when some orders pop up, these hardly signal a positive reversal in the shipbuilding front. The late softening of the freight market in the Tanker sector have definitely put a break on owners appetite contemplating placing an order at the moment while the recent rally on the dry bulk earnings could be a reminder to owners that bulkers could be a  lucrative investment at “the right time”. However, we do not expect ordering activity in the Dry market to be immediate, as some insecurity and uncertainty remains from last quarter, even if the market has recovered to some extent. As a result, the more or less expected loss of ordering interest among tanker owners, coupled with the newbuilding prices that are quoted below the year average of the past two years, will create an additional burden to the shipbuilding industry that is struggling since the beginning of the year.  In terms of recently reported deals, Danish owner, Norden, placed an order for four firm Ultramax vessels (61,000 dwt) at NACKS, in China for a price in the region of $23.0m each and delivery set in 2022.          

 

Demolition (Wet:Stable-/ Dry: Stable-)

 

Not much has changed in the Demolition front during the prior week, with supply of vessels kept growing despite the very low scrap prices in the Indian subcontinent the extent of which has been causing more and more worries to market participants. Both Bangladesh and Pakistan destinations monopolize the market for non-green tonnage demo candidates with Container vessels holding the lion’s share; in the meantime fears of potential lockdown restrictions in India coupled with a further weakening of its local currency have led demo prices hovering below $300/ltd in the region. At the same time, Turkish market seems unable to benefit from the drop in Indian subcontinent completion bids, as local steel prices are discouraging cash buyers at the moment, with further declines in scrap prices being noted this past week. Average prices in the different markets this week for tankers ranged between $180-305/ldt and those for dry bulk units between $170-290/ldt.

 

Wet Chartering

 

The crude carrier’s activity witnessed another uninspiring week, with market remained in search of clear directions, while declines were once again noted in most routes across the board. At the time of writing, optimism for a positive reversal during the next month’s remain low, with most views tend to converge that a market turnaround is most likely to happen during the last quarter of the year. The overall sentiment has also negatively affected period activity while Brent oil price pointed also north, moving close to $39 per barrel.

The VLCC vessels underperformed the rest of the sizes, with a very quiet Middle East activity setting the negative tone while dampened demand for fresh tonnage in the Atlantic pushed WS rates to even lower levels.

It was an overall quiet activity for Suezmax market, with a number of prompt tonnage in both Middle East and West Africa denying improvement on rates in the regions, while Aframax rates managed to display some resistance; however with T/C earnings hovering below OPEX levels in most of the routes optimism is reserved for the time being. 

 

Dry Chartering

 

The Dry Bulk market continued to gain ground for another week, on the back of firming Capesize rates, which brought the BDI above 1,700 points level. At the same time, the sentiment for the rest of the sizes improved to a lesser extent while on the period front, activity increased further, with owners seeking to take advantage of the improved rates offered by the charterers. It is worth mentioning that at the end of the last week of June last year, the BDI stood at 1354 points, the BCI at 2488 points while the rest of the sizes stood slightly higher than the current levels. The million dollar question is whether this positive reversal will set the new standards for the freight market, which is something that will be easier to answer in the next couple of  weeks, but we would certainly feel more optimism if the BDI upward performance was based to all different sizes rather than Capes alone.

The Capesize market noted another big improvement on the back of increased tonnage requirements out of both the Atlantic and Pacific region with average earnings now posted very close to $30,000/day. Period interest was present too, with owners managing to fetch good numbers for long contracts agreements.

Momentum for the Panamax vessels also continued to improve, mainly driven by increased demand out of the Continent, while in the East, things moved slower amidst Chinese holidays during the last week.

Rates for geared sizes managed to close off positively, with the former finding support in ECSA region for both transatlantic and fronthaul trips, while fresh business out of both basins offered better rates across all voyages for the smaller sizes.

 

Analyst:

Yiannis Parganas