Diesel cargoes are shifting dynamics for the product tanker market in the Asia-Pacific region

In Hellenic Shipping News 31/10/2016

Tidal changes are emerging in the product tanker trades in the Asia-Pacific region as refineries in China have been steadily increasing their crude oil intake in recent years, aided in part by the granting of import licenses to teapot refiners and the creation of the “China Petroleum Purchase Federation of Independent Refiners”. In its latest weekly report, shipbroker Gibson said that “data for January to August 2016 shows that refinery crude throughput has increased by approximately 600,000 b/d over the same period in 2015 (source: JODI). These developments are not only impacting on the crude tanker market but also changing the dynamics of the Asia-Pacific refined products market”.

According to Gibson, “traditionally China has been seen as one of the main regional importers of diesel; however, the market has seen a fundamental change with the country recently becoming a net exporter of diesel and increasingly an exporter of gasoline. Chinese internal product demand has changed drastically over recent years as the economy has attempted to gradually shift away from heavy manufacturing and laboring to commercial services, resulting in softer diesel demand used mainly in heavy industries, whilst demand for gasoline and jet fuel has remained strong. Reforms to the refining sector allowing independent teapot refineries to compete against larger state-owed refineries has increased competition to sell internally and has resulted in refineries looking abroad to place barrels”.

The shipbroker said that “it is important to note that in general most Chinese refineries are geared up to maximize diesel production. In order to meet internal demand for gasoline and jet fuel, diesel production will naturally increase, resulting in a surplus supply and more barrels for export. However, with more refineries running at high levels, supply of all products will improve, with increasing export volumes. When looking at the export figures so far this year, the impact of changes to China’s product demand paints an interesting picture. Diesel exports for Jan-Sept 2016 on average are closer to 180,000 b/d higher than 2015 levels, with gasoline exports also faring well with an increase of roughly 80,000 b/d. September proved to be a record month for exports of diesel. Most intriguingly, however, diesel and gasoline imports have increased throughout 2016 despite the large export volumes”, said Gibson.

What has this meant for shipping? Gibson says that “sadly the increase in Chinese exports has not resulted in any significant upturn in rates. With the majority of barrels being sold to traders, it would appear most have been heading south into Singapore, with further exports required to really push freight rates higher. What has emerged though is a growing base trade of barrels out of China, which has not just provided an incremental stream of cargoes but also offered owners additional opportunities to achieve higher than 50% utilization during the voyage”, the shipbroker noted.

It concluded by noting that “the Chinese economy is facing significant challenges moving forward, and the refining sector is not immune to these challenges. Along with other major industries such as steel and coal struggling with over-capacity, data suggests that Chinese refining capacity stands at around 14 million b/d, with an estimated 3 million b/d in excess capacity at current intake levels. It would appear that the government is beginning to crack down on any grey areas of taxation in gasoline production and sales, which could hit smaller refiners already hampered by higher logistical costs when exporting. Despite this, slowing industrial output and struggling internal demand will most likely lead to refiners being left with few options but to look further afield to place product. This should result in sustained export demand from Chinese refineries and a steady flow of cargoes for product tanker owners at least in the short term”.

Meanwhile, in the crude tanker market this week, Gibson said that “VLCC Charterers initially concentrated upon the more accommodating older units to successfully drag the market down to ws 50 to the East. Once that had been achieved, sights swung onto more reticent modern vessels that, after token resistance, also moved lower and into the high ws 50’s with runs to the West easing to the ws 35 level. By the week’s end however, a little more interest circulated and Owners dug in to defend the bottom markers with some hopes for increased momentum into next week. Suezmaxes made a slow start, but from midweek became noticeably busier to allow Owners to drive rates up towards ws 75 to the East and close to ws 40 to the West though short hauls to India are likely to be temporarily compromised by the Diwali Holiday. Aframaxes failed to build upon last week’s platform and ended upon the defensive at 80,000 by ws 95 to Singapore with lower levels threatening for next week”, the shipbroker concluded.

Nikos Roussanoglou, Hellenic Shipping News Worldwide

How Does Shipping’s Accumulator Look Now?

In International Shipping News 31/10/2016

Eight years ago, the onset of the financial crisis following the demise of Lehman Brothers heralded a generally highly challenging time for many of the shipping markets, which today remain under severe pressure. But even within the relatively short period of history since then, different sectors have fared better or worse at various points along the way. This week’s Analysis examines the cumulative impact…

What Was The Best Bet?

So how would a vessel delivered into the eye of the financial storm in late 2008 have fared? The Graph of the Week compares the performance of three standard vessel types. It shows the monthly development of cumulative earnings after OPEX from October 2008 onwards for a Capesize bulkcarrier, an Aframax tanker and a 2,750 TEU containership.

A Capesize trading at average spot earnings would have generated around $37m in total, benefitting from market spikes in 2009-10 and 2013. But with Capesize spot earnings hovering near OPEX in recent times, the cumulative earnings have not increased much since mid-2014. For a hypothetical vessel delivered in October 2008 (and ordered at the average 2006 newbuild price of $63m) those earnings would equate to close to 60% of the contract price (note that if the vessel was sold today, this would result in a net loss of c. $8m, taking into account the earnings after OPEX, newbuild cost and sales income but not finance costs).

Totting Up Tanker Takings

By contrast, Aframax tanker earnings hovered close to OPEX for several years after the downturn, with far fewer spikes than in the bulker sector. However, the 2014-15 rally in the tanker market allowed the Aframax to start playing catch-up, and cumulative Aframax earnings between October 2008 and September 2016 reached around $31m. This represents around 50% of the value of a newbuild delivered in 2008 (with a newbuild price at the 2006 average of $63m), not too far from the ratio for the Capesize.

Bad News For Box Backers

Containerships haven’t really seen similar spikes, with the charter market largely rooted at depressed bottom of the cycle levels since 2008, battling with a huge surplus created by falling consumer demand and box trade in the immediate aftermath of the crash. With earnings close to operating costs for much of the period, a 2,750 TEU unit generated cumulative earnings after OPEX of just $6m from October 2008, around 10% of the average newbuild price in 2006 ($50m). The timecharter nature of the boxship business would also have potentially reduced owners’ upside when improved rates were on offer, and there was an ongoing chunk of capacity idle too.

The Stakes Are Still High

So, despite persisting challenging conditions overall, some of the shipping markets have seen significant ups and downs since 2008. Though boxships have seen limited income, interestingly similarly priced tanker and bulker newbuilds delivered heading into the downturn might have offered roughly comparable accumulated returns on the outlay. With conditions currently weak across most sectors, owners today would surely love to see any form of accumulation again.

Source: Clarksons

Transas Marine: The role of Improved Connectivity in the rollout of Smart Shipping and the Human Factor

In International Shipping News 31/10/2016

Frank J Coles, Transas CEO UAE Maritime Leaders Seminar Dubai, October 2016 As we discuss the oncoming advent of smart shipping, we seem to concentrate on the technologies and possibilities to our operations.

There is one key factor that is crucial for all of this to occur. The connectivity. It is it obvious that we assume that connectivity has improved to make this possible? Today I will consider what has improved and what is left to be done. If the connectivity has improved this should logically improve the life of the seafarer, and therefore I want to also examine the human factor in smart shipping but more importantly the human factor when considering connectivity and operations. From my perspective, when considering connectivity, it is hard to see a fundamental technological improvement.

Indeed, in one area things have become critical. There is one area though where things are better and are only going to get better. Price. It used to be that in a simple way, you could have two out of the three choices of good, fast and cheap service. If you wanted a good service that was fast, it would not be cheap. In the same vein, if you wanted a fast and cheap service it would not be very good quality. Or a cheap and good service would not be very fast. This has changed because of the increased competition and increased capacity in the industry.

With Inmarsat getting into the VSAT market and the large FSS operators determined to break into maritime, prices are under pressure. Also, the large distributors like Marlink and Speed cast are determined to present a diverse choice of providers for the user. This will also lead to more choice and more competition.

The recent Euroconsult report on HTS capacity showed that there is forecast to be 3 times more capacity by 2020 than is available currently. In 2020 there is going to be 3000Gbps available, up from less than 700Gbps today. Demand is not set to grow to more than 1000Gbps. Despite some suggestions that this capacity is not focused on maritime, much of it is, and maritime does not demand as much capacity anyway.

Ship owners also know only too well about the demand and supply curve and more importantly the impact of over supply. Only this time the ship-owners will get to enjoy the situation. However, despite the price pressure is going to improve matters we have some way to go before shipping gets to enjoy the same prices as other transport areas. Currently, shipping owners and crew pay significantly more than aviation.

A customer on an Emirates flight is paying $2 per 1GB. This is pay as you go based on actual usage. Yet maritime users are paying anywhere from 40 times more to 5 times more, provided they commit to paying anywhere from $3200 to $1500 per month. This assumes an average of 40GB for the month. So with more satellites to come and additional capacity and a clear opportunity for price reductions for maritime, smart shipping and owners are going to benefit. If the pricing is good useds for improved connectivity, the risk of cyber security breaches is not good useds. The threat of cyber issues suggests, in fact, we do not have improved connectivity. We have increased connectivity, but there is more at risk.

The operator or human represents the largest threat. By nature, humans are gullible and prepared to take risks, we can be lazy or tired, and that’s when mistakes will be made. Something we hear about all to often when we think about the crew on board ship. The “cyber missile” that presents itself as being most threatening is the “thumb drive.” Putting the thumb drive into an active USB port represents a significant risk. Nothing really used here, but the essence of cybersecurity is smart information technology system, process and procedures.

We have standardisation and regulatory controls for the ships systems, and this needs to include connectivity. We should not allow such a wide open risk to exist. Everything on the ship is connected to its position, even more so with the discussion about smart operations. The position of the ship is also important to communications; the antenna uses positional data to find the right satellite. I don’t want to dwell on GPS, but I do want to discuss AIS. Automatic Identification System. When I think of AIS in terms of cyber security, I think of Attack, Infiltrate and Spoof.

Our industry has seemed to have a complete blind spot to AIS. This is a system that has regulatory controls for its design, the IMO and IEC require compliance for its design and manufacture. However, this is only good insofar as it was designed to be used. It is easy to hack; it is open to spoofing, open to hijacking and open to service disruption. This anti-collision device and identification device is a window into world maritime trade.

There is a plethora of services being offered on the back of AIS data, and while this seems great, the inherent cyber weakness provides the potential for large economic and environmental damage to arise. It is quite possible to move a ship, hide a ship, add buoys or objects and create false tracks of ships. What if you spoofed a ship showing it staying on track while all the while it had been hijacked, or driven onto the rocks? Having mentioned AIS, I would like to refer to the ships navigation system and look at the ECDIS. The architecture of a connected ECDIS requires a VPN, two firewalls and user authentications to ensure the security of the ECDIS and the multi-functional displays on the bridge.

The cyber security is well established. It is controlled through regulation, compliance and strict certification on a global industrial basis by the IMO and IEC. All manufacturers have to comply with the same standards. The costs of compliance for making equipment changes or connection changes are over $100,000 per incident. Just changing the router or connection box in the connected ECDIS requires a used certification process. The connectivity of the smart ship is not subject to this type of industry compliance and control. There is no standard for the teleport, the satellite, the antenna and the communications rack on board. There are international maritime standards for GMDSS or AIS, but for the smart shipping, connection nothing exists.

This means the cyber security risk is left to each satellite operator, each service provider and each hardware provider. If we are to have an accepted level of cyber security for the connected ship and the smart ship and even move to a remotely operated ship, this will have to change. So the move towards the remote or unmanned and smart ships will require the fidelity of the connection, the robustness of the positional data and compliant equipment to IMO/IEC standards yet to be put in place. We are not there yet and not even close. GMDSS equipment and service has to comply with an IMO/IEC regulatory compliance, but this does not exist for the various VSAT services or FBB or FX or Iridium equipment, teleports or associated hubs and routers. It is crucial that for smart shipping we need standardised, regulated equipment across the board.

We cannot afford to have weak links in this chain; all components should be subject to regulatory compliance. And now to the human factor. This could present a topic all of its own and indeed a complete seminar. We speak of unmanned ships at the same time as the industry continues with paper charts and paper log books. This even while they have electronic charts and electronic log books on board but not accepted or required within the company.

The human on board is loaded with more and more regulations, administrative tasks, technology all with little clarity on how this is supposed to help the human to operate with the technology. We add technology without lightening the load of the tasks. We add technology without considering how it impacts those that must use it. This is at the core of the reluctance to adopt the technology into the decision-making process.

Smart shipping needs to involve removing the drudgery from the bridge and engine room, passing this to the shore and allowing the human to focus on the key critical issues. However, when this happens, we will then have to be careful to ensure training is enhanced and focused. Otherwise when an incident occurs the human will not be able to react appropriately. Turning the human into a technology game watcher, will result in boredom and then mistakes and then environmental and other incidents. Improved connectivity will allow for better off-duty conditions for the crew on a ship, but that worries some that the crew won’t sleep or rest. They think the crew will simply watch movies and play on the web all the time.

My thoughts are, while you treat people like children they will continue to act like children. In summary, better, faster, cheaper communications are available. Aviation has it, so shipping needs to demand it, but first, they need to understand the use of it. They need to appreciate the benefits and value of it. Even then cyber security needs to address at a regulatory and industry-wide level. Without this, we have simply moved the barrier from price to security. All of this is requires an attitude change, a mind set and approach to modern day transportation. It requires an understanding of the technology benefits but crucially the interface between man and machine.

Source: Transas Marine

GC Rieber Shipping chooses NAVTOR for fleet-wide total navigation solution

In International Shipping News 31/10/2016

Specialist ship owner, operator and manager GC Rieber has signed a fleet-wide agreement with NAVTOR for a total vessel navigation solution, spanning both paper and digital deliveries. NAVTOR, a global leader in e-navigation technology and services, will now install products throughout GC Rieber’s portfolio of advanced seismic and offshore ships, enhancing overall fleet efficiency, safety and cost control.

The agreement is far reaching in scope. It covers the delivery of all digital and paper charts and publications, provided on a Pay As You Sail (PAYS) basis, alongside products and services including weather and route optimisation services, navigational management solution NavTracker, and the installation of NavBox units. These, one of NAVTOR’s latest innovations, connect with ECDIS and automatically download the latest navigational data without navigators having to check for updates.

“We have a long-standing objective of simplifying tasks for navigators and enhancing efficiency for owners and operators,” comments NAVTOR CEO Tor Svanes. “This is encapsulated by our latest agreement with GC Rieber Shipping.

“By offering them a single concept across their entire fleet we can ensure time and cost savings – with a seamless distribution of charts and publications and minimal administration. This dramatically cuts workloads, ensures regulatory compliance and safety, and gives land-based teams a complete overview of chart usage, management and expenditure. By choosing PAYS, the team only pay for the charts they actually use, while all are available for planning purposes.”

He continues: “Here we can see the potential of e-navigation realised – connecting all vessels, navigators and management teams on one platform for optimal routes, operations and overall business efficiency. In the shipping climate of today, and tomorrow, it makes perfect sense.”

GC Rieber operates a fleet of nine vessels – including some of the industry’s most advanced seismic ships – with installation of all NAVTOR’s products and services expected by the end of 2016.

Geir Rasmussen, Marine Superintendent at the Bergen-based business, said of the decision to use NAVTOR as a single navigational vendor: “As a shipowner and operator we are focused on maximising both efficiency and the quality of our operations – something that all our customers and stakeholders benefit from. The NAVTOR solution fits perfectly within that framework, uniting all vessels with a single solution that pays real dividends.

“NAVTOR is established, stable and high quality in its deliverables, so we feel confident consolidating all our navigation needs with them. What’s more the team is innovative – constantly striving for new solutions and the means to deliver added value. This continual process of improvement is important to us and we look forward to benefiting from, and contributing to, their further e-navigation developments.”

NAVTOR, which has opened new offices in Japan and Singapore over the course of the last year, launched its ENC service to the market in 2012. Since that time it has built a global customer base and recorded a series of market firsts, launching the world’s first type approved Pay As You Sail ENC service, the first digital chart table (NavStation) and, recently, a new software module to automate and digitise the mandatory process of vessel passage planning.

Source: NAVTOR

BW LPG takes delivery of BW Malacca

In International Shipping News 31/10/2016

BW LPG Limited (“BW LPG”, the “Company”, OSE ticker code: “BWLPG”) has today taken delivery of BW Malacca, the second of four Very Large Gas Carriers (VLGCs) in its newbuilding program from Daewoo Shipbuilding and Marine Engineering (DSME). With the BW Malacca, BW LPG owns and operates a fleet of 43 vessels, comprising 38 VLGCs and five owned LGCs. In addition, BW LPG has four VLGC newbuildings under construction.

Source: BW LPG

Asia flows boost shipping rates, displace US crude imports

In International Shipping News 31/10/2016

Robust Asian demand for West African crude is fuelling a world-wide surge in shipping rates for the largest oil tankers that is being felt from Houston to Singapore. Chartering rates for Suezmaxes and very large crude carriers (VLCCs) have recovered rapidly in recent weeks after plunging to their lowest in more than year this summer.

The spike in rates comes as Asian refiners return to the market after a seasonal turnaround period, and as several key streams of West African crude are finally loading for export after supplies were constrained because of pipeline disruptions in Nigeria. The higher rates, which imply fewer imports into the United States, could support benchmark oil prices in coming weeks.

Increased demand from Asia for this crude has tied up ships and barrels that might have otherwise moved to the United States. The higher prices are leaving brokers and traders scrambling to secure vessels, particularly for common routes from West Africa to the US East Coast or Western Europe. Chinese loadings of West African crude are set to average 1.1 million barrels per day in October, the highest since April.

The interest in Suezmaxes comes at a time when two key West African crudes, Nigeria’s Qua Iboe and Forcados, return to the global market after a months-long force majeure. Rebels hit a sub-sea pipeline operated by SPDC, an affiliate of Royal Dutch Shell, in February, forcing the company to stop exports of the Forcados stream of oil. Exxon stopped exporting Qua Iboe in July after a leak on the line feeding oil to the export terminal. On Tuesday, Reuters tracking data showed that the first cargo since July of Qua Iboe loaded at a local terminal.

“Nigerian loadings are now scheduled to reach some 1.9 million barrels per day next month. The pick-up has had a clear effect on freight markets,” JBC Energy said in note last week. Nigeria exported some 1.4 million bpd in September. Transporting oil on larger vessels is more cost effective, especially for longer voyages. In September, Suezmax volumes rose by nearly 60 percent from August, according to one ship broker, pushing the rates for the popular West Africa-to-United Kingdom route up to 110 percent of the World Scale, a shipping rate benchmark. In August, that route was as low as 35 percent, another broker said. That rate has since leveled off this past week but remains elevated. The spot rate for a Suezmax from the US Gulf to Japan or South Korea is around $3.5 million, brokers say, more than double the rate for the same route two months ago.

Source: Reuters

Indonesia to resume some coal shipments to Philippines amid piracy concerns

In Freight News 31/10/2016

Indonesia will resume some shipments of coal to the Philippines, a government official said on Sunday, after a months-long halt due to concerns about piracy in seas between the two archipelagos.

Indonesia earlier this year slapped a moratorium on coal shipments to its neighbour after a string of hijackings by militants based in the southern Philippines, in which several Indonesian sailors were taken hostage.

Only ships with a capacity of over 500 tonnes will be allowed to resume sailing while smaller vessels and tugboats are still banned.

“For safety and security reasons … all ships must sail in the recommended corridors and avoid conflict areas or waters (around) the southern Philippines and east Malaysia,” Transportation Ministry official Tonny Budiono said.

In a statement, Budiono added that the decision to resume some shipments had been taken because the moratorium had been deemed to be “damaging Indonesian interests”.

Indonesia supplies 70 percent of the Philippines’ coal imports but stopped shipments over concerns that piracy in the Sulu Sea area could reach levels previously seen in Somalia.

Several Indonesian sailors were taken hostage earlier this year by suspected members of militant group Abu Sayyaf, a group known for piracy and kidnappings.

Many of the Indonesians have since been released but the group is still holding other foreign nationals for ransom.

In June, Abu Sayyaf beheaded a Canadian national after a ransom deadline passed.

Indonesia, the Philippines and Malaysia have agreed to undertake coordinated patrols in the Sulu Sea, but these have yet to begin.

Source: Reuters (Reporting by Agustinus Beo Da Costa; writing by Kanupriya Kapoor; editing by Mark Heinrich)