OSLO: One of the most worrying trends that has developed recently –
which will affect shipping demand in the years to come – is the falling
trade-to-GDP ratio, according to BIMCO’s Chief Shipping Analyst Peter
Sand.
The falling ratio has been ascribed to the slowing globalisation as
well as increasing protectionist measures being implemented around the
world, spearheaded by the US.
Peter believes that the raised barriers to trade are here to stay as we
enter a new decade, with the shipping industry stuck with the
consequences.
BIMCO warned again that the worsening balance between the supply of
ships and the demand will be detrimental to shipowners’ ability to pass
on the additional costs associated with compliance of the new IMO 2020
Sulphur Cap.
“The trade war is the clearest example of these extra barriers to
trade, and although a phase 1 deal was reached in December, the most
difficult issues have yet to be addressed, and BIMCO, therefore, expects
the trade war to continue to plague shipping between the US and China
in 2020. Unfortunately, they are not the only countries engaging in
tariff wars. The EU also faces additional tariffs from the US and we see
trade tensions between Japan and South Korea,” Sand said.
As such, the effects of the worsening of the fundamental shipping
market balances this year are expected to be felt in 2020, as the
balance is not reset to zero when the calendar year changes.
As explained, this will depend on the freight rates to which extent the
additional costs are covered, which in turn depend on the market
conditions; the better the market, the easier it is to pass costs on
Dry Bulk Shipping
The biggest concern for Capesize Shipping in 2020 is the trend in
China, where iron ore imports may fall for the third year in a row. The
structural change in China’s steel production, towards using scrap steel
in favor of imported iron ore, means that Chinese demand for iron ore
can no longer be counted on to increase demand for Capesize ships, with
imports having peaked in 2017.
For the dry bulk shipping industry, there is more bad news from China.
Its soya bean imports have become an important part of the trade war
and how it is viewed, but even aside from the trade war, the outlook for
soya bean trades into China is weak. Its demand will be considerably
lower due to the largest ever culling of pigs which consume most of
China’s soya bean imports. It will take years for the Chinese pig
population to return to the same size as before the cull, and even then,
lowering the soya content in pig’s feed will have lasting consequences
on these trades.
The high fleet growth in 2019 (4.1%) will play out into 2020 when the
fleet is also expected to grow by more than demand. The cumulative
impact of these growth rates means that the gap between demand for
shipping and the supply of ships will continue to grow, putting pressure
on freight rates throughout the year.
Tanker Shipping
Crude oil tankers have certainly been in the headlines in 2019 due to
geopolitical developments and as a result freight rates reached record
levels. Going into 2020, the fundamentals remain unchanged.
This means that after the seasonal boost fades away in the first
quarter, the high freight rates in the VLCC market are likely to
disappear, as the market fundamentals have in fact worsened in 2019,
with an eight-year high fleet growth of 6.3%.
Fleet growth has also been high in the oil product tanker market, with
many owners aiming to benefit from the IMO 2020 Sulphur Cap and the
boost that BIMCO expects it will bring to the oil product tanker
shipping industry. The boost is on the back of the new trades for the
transport of compliant bunker fuels from the refineries to the bunkering
ports. While this boost will improve tanker earnings in the first 3-6
months of 2020, once the short term boost will fade away, the challenge
facing the market is that the new ships will still be around, and will
instead be fighting for cargoes in an already over-supplied market.
One of the major developments expected in 2020 is for the US to become a
net exporter of crude oil on an annual basis. The increasing proportion
of global crude oil exports coming from the US is good news for the
tanker industry, BIMCO believes, as this involves longer sailing
distances to the Far East, where the major importers are, compared to
exports from the Middle East.
Container Shipping
Imports of laden containers to the US West Coast declined in 2019, for
the first time since 2011. There has been no visible frontloading of
goods in 2019, and with further tariffs having been narrowly avoided in
December, BIMCO does not expect any frontloading boost to come in 2020.
Instead, the trade war, as it currently stands, will continue to drag
trade volumes as well as freight rates down.
Intra-Asian volumes have remained flat in 2019 compared to 2018 –
a worrying trend – as without volume growth here, volumes on the longer
haul routes out of Asia are unlikely to grow. Furthermore, global
container shipping demand grew by just 1% in the first nine months of
the year, a development that sparked a flurry of blanked sailings.
At the same time, the fleet has grown by 3.7%. The supply and demand
situation is clearly set to be way off-balance. On top of that, we will
continue to see many deliveries of ultra-large container ships, sending
relatively smaller ships onto other routes, known as cascading. These
smaller ships are not necessarily very small, however.
“Some cascaded ships have capacities over 10,000 TEU, and will enter
trades where there is no appetite for them, adding further pressure to
freight rates and bottom lines.
The trade multiplier could – in theory – return to healthier levels,
bringing good news to shipping, if protectionist measures are rolled
back and free trade is once again allowed to develop at its natural
pace. Although the trade tensions are at the moment being led by the
current US White House, they would not necessarily be turned around
should the Presidency change hands in November,” Sand concluded.
