Moody’s: Global transportation industry outlook largely steady in 2017; shipping challenged by oversupply

In International Shipping News 14/12/2016

Airline profitability will weaken slightly in the year ahead, Moody’s Investors Service says in its 2017 outlook for the global transportation industry. Aircraft lessors’ margins will weaken amid stiff competition, while shipping companies will continue to be challenged by an oversupply of vessels. North American railroad operators will see prices rise as freight volumes stabilize.

Moody’s outlook for the global airline industry is stable. Operating margin is expected to come in at around 9.5%, while operating profit will decline by about 11%. US airlines will see a 20% contraction in operating profit due mainly to increased labor costs, while Latin American carriers will see an 80% expansion on the back of improving economic activity and capacity discipline. Passenger demand will grow about 5.2%, trailing capacity expansion by about half a percentage point.

“Growth in passenger demand will remain slow overall, due to lackluster global economic growth, geopolitical uncertainties and the threat of terrorism,” said Moody’s analyst Jonathan Root. “But increasing demand in developing markets, supported by rising disposable incomes and loosening regulations, will act as an offset.”

Developing markets will also continue to lead capacity expansion, spurred by the still-low cost of fuel, the rising number of low-cost carriers and deliveries of new aircraft that need to be placed in service.

And with growth in global passenger demand slowing to about 5% over the long term, aircraft leasing companies run the risk of excess capacity in certain models of aircraft, Moody’s says. Meanwhile, leasers’ net finance margins will weaken moderately as a result of strong competition from new entrants. Market liquidity is, however, adequate for funding aircraft acquisitions, used aircraft sales and debt refinancing.

Moody’s outlook for the global shipping industry in 2017 is negative, reflecting continued oversupply and a 7%-10% decline in EBITDA. Dry bulk freight rates will remain low due to subdued demand, though deferred vessel deliveries, cancellations and scrapping will help curb net capacity growth.

Meanwhile, Moody’s 2017 outlook for North American Railroads is stable, with revenue expected to grow between 0% and 2.5%. And after a steep decline this year, freight volumes should stabilize near current levels, with core pricing rising between 2% and 2.5% as a result. Coal shipments will bounce back from the recent plunge, though natural gas prices and the weather pose risks. Grain shipments should continue to show strong growth, while robust consumer spending could spur growth in intermodal.

Railroad operators have demonstrated the ability to adapt to changing demand conditions, Moody’s says. Operating margins remained largely intact when freight demand deteriorated, while in the coming year shareholder returns will demonstrate companies’ willingness to manage elevated leverage.

Source: Moody’s

Liberia says flag states must be proactive in difficult market conditions

In International Shipping News 14/12/2016

The Liberian Registry says that, in today’s challenging shipping markets, flag states must be proactive in the best interests of shipowners, operators and managers, rather than simply fulfilling their traditional role as certification bodies.

Alfonso Castillero, Vice-President of the Liberian Registry, told a recent Liberian Port State Control seminar in Tokyo, “In the current difficult market conditions, flag states can no longer afford to regard themselves as mere factories for issuing registration certificates. It is necessary to evolve and to embrace new challenges. Shipping registers need to combine quality and innovation with tradition, experience, reputation and flexibility.”

Mr Castillero was speaking at a Port State Control (PSC) seminar organised by the Liberian Registry. The objective of the seminar, which was attended by representatives of the Australian Maritime Safety Agency (AMSA), was to promote among clients of the Liberian Registry a clear understanding of the Port State Control process in Australia, so that owners, operators, and managers can achieve full compliance with – and facilitate efficient inspections under – Australia’s PSC regime.

Benson Peretti, Managing Director of the Liberian Registry’s Singapore office, outlined for the seminar the Liberian Registry’s PSC results for the year to date, showing a major reduction in detentions in China, Australia, and the United States, thanks in large part to the free compliance assistance programmes being implemented by Liberia to help owners ensure full compliance, and reduce the incidence of PSC detentions worldwide.

Takeshi Okamoto, General Manager of LISCR Japan, meanwhile, explained how and why the Liberian Registry is leading the global campaign to seek an extension to the implementation date for the Ballast Water Management Convention.

The seminar was attended by over one hundred industry professionals, including Liberian flag clients and potential clients looking to switch flags or register new vessels under the Liberian flag. The mood of the seminar was summed up by the chief executive of one leading Japanese shipowner who emphasised, “We must comply with all international regulations, and that is why we need a flag that will always stand beside us.”

Source: The Liberian Registry

Is global shipping in the doldrums?

In International Shipping News 14/12/2016

Unease surrounding the fate of the global shipping industry has skyrocketed after the recent collapse of South Korean company Hanjin Shipping, the seventh-largest shipping line in the world. Maritime transport carries 90% of the world’s goods and is vital for global trade and economic prosperity, yet there are many signs pointing to the industry’s looming decline.

As an island nation, Australia relies on shipping to import and export nearly all goods and products. Any downswing in the global shipping environment will cause a hike in living costs.

The Global Shippers Forum, a trade association for shippers, warns that less competition between lines will increase shipping rates. This could drive up the price of imported goods on our shelves and make our exports less competitive in the global market.

Not only are there concerns about the impact of the demise of Hanjin, but there are rumours that more shipping companies are in trouble. Ratings agency Fitch is expecting more defaults among shipping lines, with very few assets easily convertible to cash and limited access to bank funding.

The Australian shipping industry has suffered a similar, albeit much smaller blow with the demise of Great Southern Shipping, a Chinese-owned company which only recently started up a new service between Australia and China. Due to a legal dispute, one of its ships carrying valuable cargo destined for Australia is idling in waters off the Australian east coast, with no prospect of docking any time soon. Importers and freight forwarders are furious about the delay in receiving their cargo.

A number of factors have led to uncertainty in the industry. A slowing of world GDP growth has resulted in less containerised goods being transported around the globe, causing an oversupply of ships and downward pressure on freight rates.

In Australia, container growth has slowed from a healthy 7% per annum before the global financial crisis to a more modest 1 to 2% per annum in recent years, reflecting trends around the world. In an effort to minimise costs, shipping lines are building larger and more efficient container ships, aggravating the oversupply issue.

Fighting back against slowing growth

One response to the slowing of global growth and oversupply of ships has been to combine shipping companies. For example, Hamburg Süd, a large German shipping company established 140 years ago, has just been sold to Maersk Line, the largest shipping line in the world.

Faced with reduced margins, the industry has looked into introducing worker automation to reduce labour costs. Driverless trains already haul hundreds of thousands of tonnes of iron ore from Pilbara mines to port. Fully or semi-automated container terminals, where driverless equipment loads containers onto vessels, are becoming more common. Australian terminals are leading the world in the introduction of automated technology.

Rolls-Royce Marine, in conjunction with a number of Northern European universities, is researching unmanned ships, which will move around the globe monitored from central control rooms. Japanese shipping company Mitsui OSK is forming a “Smart Shipping Office”, which will develop technologies for safer ship operation, with the ultimate goal of autonomous sailing.

What about Australia?

Australia relies heavily on ships to export resources around the globe. Port Hedland in WA ships out more than 1 million tonnes of iron ore each day. Newcastle is home to the largest coal export port in the world.

Most consumer goods in Australia are imported from overseas. The consolidation of shipping lines means less competition in the market and the threat of increased prices for our exporters and importers.

A recently released report suggests a revamp of our national shipping policy and, more urgently, our coastal trading policy. Current federal government shipping policy is inadequate.

If the government fails to act, there will be further deterioration and more job losses in the shrinking Australian shipping industry. The government needs to provide the right regulatory framework and subsidies, as it does for road and rail transport, for Australian ships to be competitive.

The recent earthquake in New Zealand, which caused major road and rail blockages on the South Island, required ships to transport supplies. Potential extreme weather events in Australia, such as flooding, mean we need the same capabilities here.

Australia is an island nation. A viable shipping industry will provide both sea-going careers and shore-based jobs and is vital for our economic prosperity.

Countries around the world are implementing policies to protect their supply chains and shipping industries. China has become a prime example, protecting its global supply chains by reinvigorating the old “Silk Road” overland route and establishing a maritime equivalent.

The US, another major global player, also plans to establish more protectionist trade policies. President-elect Donald Trump has declared he will renegotiate trade agreements and review US coastal shipping policies.

Given our heavy reliance on shipping, Australia needs to follow in these countries’ footsteps and act now to ensure foreign shipping interests do not hold us to ransom.

Source: The Conversation

Hyundai Merchant says to target 5 pct share in global shipping market

In International Shipping News 14/12/2016

Hyundai Merchant Marine Co., a major shipping line in South Korea, said that it targets a 5 percent share in the global shipping market by 2021 while striving to improve its profitability.

The company traded 2.03 percent higher to 7,050 won on the Seoul bourse as of 1:40 p.m., rebounding from the previous session’s 6 percent drop, after it agreed to a “limited partnership” with the world’s largest shipping alliance.

On Sunday, Hyundai Merchant, South Korea’s No. 1 shipping line, said it has agreed to share vessel space with 2M, whose members include A.P. Moeller-Maersk A/S and Mediterranean Shipping Co., and Hyundai Merchant will also purchase space on the two companies’ ships, a strategic relationship that falls short of a full membership.

Hyundai Merchant said the strategic partnership with 2M is subject to regulatory approval and will begin services on April 1. Hyundai Merchant added it may become an official member of the 2M alliance after three years, should its business results improve.

Hyundai Merchant said it will target the U.S.-Asia route, while seeking to purchase container terminals and not aggressively seeking to expand its fleet. The shipping line said it aims to garner a ratio of 5 percent operating margin and target a 5 percent market share by 2021.

“The business partnership is expected to help Hyundai Merchant trim costs and secure improved competitiveness,” it said.

Hyundai Merchant CEO and President Yoo Chang-keun said in a news conference, “Over the next two to three years, we’ll focus on competitiveness improvement rather than external expansion. In other words, it’s enhancing basic fundamentals to emerge as the final winner in this fierce global competition.”

Since May, Hyundai Merchant has been seeking to become a member of 2M, one of the prerequisites set by its creditors to avert court receivership.

In April, its creditors, led by the state-run Korea Development Bank, approved the shipper’s restructuring plan in return for the company meeting three key conditions — a debt recast, a charter rate cut and inclusion in a global shipping alliance.

In July, Hyundai Merchant signed a memorandum of understanding with the world’s largest shipping alliance. The 2M Alliance currently handles 28 percent of the global sea container cargo.

The membership in a global alliance is crucial for the shipper to take on bigger rivals amid a glut in capacity, which has led to a drop in freight rates.

Hyundai Merchant Marine, currently under a creditor-led restructuring scheme, is seeking to take over key assets from Hanjin Shipping Co., which has been under receivership since September.

A consortium led by Hyundai Merchant is highly likely to be chosen as the preferred bidder for Hanjin Shipping Co.’s U.S. port terminal as a mid-sized local shipping firm has withdrawn its bid to buy a stake in one of the troubled shipper’s lucrative assets.

The shipping firm also said it would put more focus on operating fuel-saving and environment friendly ships as part of efforts to cut costs.

Meanwhile, its creditors plan to provide 300 billion won (US$256 million) in fresh funds to the shipping line for its asset purchases.

Source: Yonhap

Shipping companies’ sales dip as car exports fall in Q3

In International Shipping News 14/12/2016

Local and foreign shipping firms are seeing a decrease in sales in tandem with a decline in automobile exports due to a slowing global economy.

Hyundai Glovis, Hyundai Motor’s auto-shipping unit, recorded 1.53 trillion won ($1.31 billion) in sales between July and September this year, an 8.2 percent drop on-year and a 1.9 percent decline compared to the previous quarter, company data showed Tuesday.

Eukor Car Carriers Inc, a local shipping firm that handles Hyundai and Kia Motors‘ outbound shipments, also saw a drop in sales, local reports said.

Hyundai and Kia Motors own a 20 percent share in Eukor Car Carriers, while Wallenius Wilhelmsen owns the majority 80 percent share.

Wallenius Wilhelmsen, a joint venture by two shipping companies, Swedish Wallenius Lines and Norwegian Wilh Wilhelmsen, saw a $656 million profit for the third quarter, down 8 percent from the second quarter. In the same time frame, the company‘s operating profit dropped 19 percent to $62 million.

A report by Wallenius Wilhelmsen stated that labor strikes at Hyundai and Kia Motors last August led to a larger than anticipated drop in the shipment volume.

Due to the labor strikes, exports of Hyundai vehicles in August stood at 48,903 units, down 38.3 percent on-year, while Kia’s exports decreased by 23.4 percent to 56,620 units, according to company data.

For the first time in seven years, South Korea’s biggest automaker Hyundai Motors is highly unlikely to surpass the million unit mark for this year’s exports, the Korea Automobile Manufacturers Association said.

Meanwhile, the slide in automobile exports is also attributable to low oil prices, which has dealt a blow to Russia, Brazil and other developing countries, cutting the size of major auto markets by up to 40 percent, industry experts said.

The number of automobiles shipped worldwide for 2016 is expected to total 19.8 million units, down 4 percent on-year, according to global research firm Clarkson Research Services.

“Uncertainty has increased in the market following the election of Donald Trump as US president, so it looks like chances are dim for local factories to recover the exports next year,” said Moon Yong-Kwon, researcher of KTB Investment and Securities.

Source: Yonhap

Mediterranean bunker fuel prices hit 17-month highs on crude oil gains

In International Shipping News 14/12/2016

Flat prices of bunker fuel in the Mediterranean reached their highest level in 17 months Monday, following a spike in crude oil.

The price of 380 CST bunker fuel at Piraeus, Greece, was assessed at $312/mt delivered and at Istanbul, Turkey, at $325/mt on Monday, the highest levels since July 23 2015 and July 15 2015 respectively.

The price at Malta was assessed at $310/mt delivered Monday, its highest since July 15 2015.

ICE Brent settled at $55.90/b Monday, its highest since $56.19/b July 23 2015.

Crude oil pushed higher Monday after Saudi Arabia and Russia spearheaded finalization of the first global crude supply pact in 15 years.

Russia and other non-OPEC countries declared they would be willing to reduce crude oil output by 558,000 b/d collectively in the first half of 2017. This would take total OPEC and non-OPEC production cuts agreed for H1 2017 to almost 1.8 million b/d.

ICE Brent played the main role in supporting bunker prices. Bunkering demand was stable to firm at most Mediterranean ports.

There were localized bullish factors supporting values at Istanbul. Stocks have depleted after a period of suppliers at the port trying to compete with nearby ports, such as Piraeus, sources said.

Source: Platts

Middle East demand pulls up VLCC rates as demand is seen strong

In Hellenic Shipping News 13/12/2016

Demand for VLCC crude cargoes has triggered an increase in freight rates over the course of the past week, while the trend is seen higher over the next few days as well. In its latest weekly report, shipbroker Charles R. Weber said that “VLCC rates were stronger this week on relatively steady elevated demand in the Middle East market and a fresh demand gain in the West Africa market. Compounding the impact of strong demand, the earlier high availability of disadvantaged units was largely cleared out by the start of the week, taking away the discounted options which charterers had been focused on to keep rates from advancing. A total of 37 fixtures materialized in the Middle East market (‐2, w/w) and 7 materialized in the West Africa market (+1, w/w).

Meanwhile, as CR Weber pointed out “sentiment remains bullish given a very balanced forward supply/demand fundamental in the Middle East where, subject to the extent of remaining cargoes and draws on remaining vessels to service West Africa demand, the month appears to have a high potential to conclude with no surplus units. If this occurs, it would mark the first time in nine months that no surplus units remain – and only the second such occurrence since 2008. Factors which could place the end‐month surplus above this level include a deviation from what we believe is a conservative estimate of West Africa draws (four units through the remainder of the December Middle East program), given that two of this week’s West Africa demand was sourced on units ballasting from the USG – and the fact that charterers have recently reached forward to end‐December dates which could imply that remaining Middle East cargoes could be lower than our target of 134 cargoes. To date, 123 cargoes have materialized. Additionally, hidden units and potential charterer relets could expand available units. Our high case of surplus units, however, is five – which would remain the lowest surplus count since March. In either the base or high case of supply, the fundamentals are tight and rates are poised to post strong during the upcoming week”, said the shipbroker.

According to CR Weber’s report, in the Middle East, “rates to the Far East gained 10 points to conclude at ws82.5 with corresponding TCEs rising by 20% to ~$61,039/day. Rates to the USG via the Cape gained 2 points to conclude at ws43. Triangulated Westbound trade earnings rose 14% to $57,907/day. Similarly, in the Atlantic Basin market, “the West Africa market followed the Middle East with rates on the WAFR‐FEAST route adding 7.5 points to conclude at ws77.5. TCEs on the route rose by 14% to conclude at ~$57,250/day. The Caribbean market remained quiet this week but as the economics for units freeing on the USG started to favor ballasting to West Africa as opposed to the Caribbean, regional rates improved. The CBS‐SPORE route jumped $300k to a seven‐month high of $4.80m lump sum (representing the strongest weekly gain in over two months)”, said CR Weber.

Additionally, “the West Africa Suezmax market was busy this week as charterers progressed more aggressively into the December program. This tightened regional availability, leading to a rebound of regional rates, which began the week with an extending of last week’s decline. A total of 15 fixtures were reported, representing a 50% w/w gain. Contributing to the narrower supply/demand position is a sustaining of elevated Suezmax demand in the Middle East market, which has reduced ballasts into the West Africa market, and recent Aframax rate strength in European markets where Suezmaxes can compete. Rates on the WAFR‐UKC route gained 5 points from last week’s closing assessment to ws92.5, having dipped earlier during the week to a low of ws70. Remaining cargo volumes from the West Africa market appear limited given both high VLCC and Suezmax coverage to‐date while availability for late‐ December dates appears slightly looser than earlier date ranges; this could imply that further rate upside is limited, though the timing of inquiry for remaining December cargoes and progression into early January dates will likely guide the upcoming week’s rate direction”, concluded CR Weber.

Nikos Roussanoglou, Hellenic Shipping News Worldwide