Half full or half empty
There are indications that the shipping industry is starting to emerge, however tenuously, from the doldrums of the last six years, but signals are mixed.
Moore Stephens reported in June that shipping confidence has risen to its highest point since 2010. Indeed, there are disturbing signs of a new wave of speculative ordering of new tonnage, propelled by bargain-basement prices from shipyards desperate to fill slots and a reported influx of capital from private equity sources. A primary driver for the surge of orders is the improvements in fuel efficiency of new ship designs over older ships.
On the other hand, in the same month, Moody’s Investor Service issued a negative report for shipping, predicting continued depressed freight rates for at least the next 18 months due to persistent overtonnage in most segments. Moody’s estimates that aggregate industry Earnings Before Income Tax, Depreciation and Amortization (EBITDA) for publicly held shipping companies will decline by 5-10 percent this year.
The fall into receivership of STX Pan Ocean, South Korea’s largest bulk ship operator, is a sign of the times. It’s not likely to be the last. Several other shipowners are said to be insolvent and teetering on the verge of bankruptcy. Interestingly, there are reports that certain German banks are offering high-interest “payday loans” against the scrap value of older vessels as a last resort for distressed shipowners who have exhausted their working capital and are unable to obtain financing to continue operations.
The delivery of the first Maersk giant Triple E 18,000-teu containership, coupled with rumors that other container lines are designing even larger ships, into a market already overcrowded with too many ships chasing too few cargoes, may be a big gamble that will pay off enormously in terms of market share, but will certainly not help ease the persistent overtonnage.
So whether you see the shipping glass as half full or half empty, one thing is certain. Shipowners must reduce the cost of operating ships to survive in a business environment characterized by anemic shipping demand, persistent overtonnage, low freight rates, rising fuel costs, tight credit from marine bankers and high costs of environmental compliance to meet new regulations.
The first place to start is with fuel, which accounts for 40-50 percent of a vessel’s operating costs. As the Emission Control Areas (ECA) continue to expand, that percentage is likely to rise even higher due to the higher cost of low-sulfur fuels. As a result, there is growing interest in the potential of LNG as an alternative marine fuel. So far, there are fewer than 50 ships running on LNG, but the number is expected to grow, given the significant price differential between LNG and low-sulfur diesel. A recent DnV study projects 1,000 LNG-fueled ships to be in service by 2020. This of course assumes a worldwide LNG bunkering infrastructure, which at present does not exist. To be sure, there is plenty of activity in this area, especially in the Baltic and Great Lakes, where routes are fixed and relatively short, but there is a long way to go before LNG fuel will be readily available at seaports worldwide, along with adequate facilities to store the fuel and bunker ships.
In these unsettled times for shipowners, the 2013 SHIPPINGInsight Fleet Optimization Conference will convene in Stamford, Conn., Oct. 23-24. This will be the second annual conference, which is devoted to examining the challenges, solutions and best practices for reducing operating costs and improving ship efficiency. The agenda includes a solid list of moderators and speakers, including senior executives from 15 major shipowner companies. Given the intense industry focus on the potential benefits of converting to LNG, a dedicated LNG workshop is being added to the Fleet Optimization Conference this year. It will take place immediately following the main conference, and is open to all registered delegates. The workshop will take the form of a less formal round-table discussion including shipowners, classification societies, regulatory bodies, engine manufacturers, bunkering companies and other industry experts to take a deeper look into the issues, challenges, solutions and best practices for LNG propulsion. It will be led by Greg Trauthwein, editor of this Maritime Reporter and chairman of the Fleet Optimization Conference.
You can view the full agenda and register online at www.shippinginsight.com.
Note: This is a condensed version of an article that appeared in the August issue of Maritime Reporter, authored by the conference co-directors Frank Soccoli and Jim Rhodes.