ΓΔ: 1422.35 0.34% Τζίρος: 108.90 εκ. € Τελ. ενημέρωση: 17:25:03 ΣΤΟΙΧΕΙΑ ΑΓΟΡΑΣ
Φωτο: Shutterstock

Opinion: Forecasting trends for shipping in 2020

The new year could be surprising enough and would bring about more profound changes for the industry, while the primary pre-occupation in the industry remains on only the tonnage supply and demand picture.

With 2019 behind us, 2020 is coming sharply to focus; it’s not just the new emissions regulations (shortened to IMO2020) and the drop-dead deadline on the first day of the new year, but also several more factors affecting the shipping industry that have been acting mostly as undercurrents and have not surfaced in a big way yet. The new year could be surprising enough and would bring about more profound changes for the industry, while the primary pre-occupation in the industry remains (misleadingly, some may say) on only the tonnage supply and demand picture.

By way of a quick reminder, 2019, all in all, has been an OK year for the shipping industry. Dry bulk vessels and containerships have seen cash-flow positive freight rates in 2019, on average, covering vessels’ daily operating expenses and most of the financing cost. Expectations were for a much higher market for these two asset classes this time last year, but in real life, average freight rates were well below expectations – but still cash flow positive overall.

For the offshore market (for PSVs, OSVs, AHTS, drillships, semi-submersibles, etc), it has seen an improving year in 2019, but again, expectations were so low for the offshore industry for 2019, that any change had to be, more or less, for the positive. The tanker market (primarily for crude tankers) has been the star of the year, as, after a lousy first-half of 2019, the tanker freight market made headlines and effectively settled at multi-year highs.

Expectations for the tanker market were high for 2019 (especially for product tankers) on the back of uncertainty of IMO2020 implementation, but the real catalyst turned out to be un-predictability of the Trump administration. As an overarching theme over these four asset classes in shipping (dry bulk, containerships, offshore, tankers) is that fundamentals overall remain un-inspiring, demolition has slowed down and the newbuilding orderbook has been stronger than fundamentals would imply. Slowly, the nature of the shipping industry is getting ever more “institutionalized” with tighter regulations, higher operational standards, higher financing costs, higher barriers to enter the industry and with the modern shipowner deprived of any “buccaneer” captain characteristics reminiscent of the early days of the industry and the opening of new markets.

In 2020, several of the trends lurking underwater for the industry in the last few years would become more visible and would shape the industry towards certain direction, towards “institutionalization” as mentioned earlier, mostly in terms of financing, regulatory environment and trade patterns.

Capital for the shipping industry has been getting much more selective, and this trend is expected to continue in 2020; with the public capital markets closed for the foreseeable future, shipping financing depends ever more on own capital and capital from the private markets, including shipping banks; a small number of shipowners, who due to a confluence of factors keep accessing capital inexpensively, while a great deal of the market has to depend on private investors and alternative capital funds (with relatively high cost of financing); alternatively, use of long-term charters with end-users or leveraging their corporate balance sheets to engage in leasing structures with financiers from APAC.

Large shipowners that “check the boxes” do not seem to lack access to as much capital as they need (again, at extremely competitive terms at a time when the term ‘negative interest rates’ has become part of the lexicon of the average European consumer), while everyone else seems to have to pay more to access capital. There is a proliferation of shipping funds that logically could drive competition for providing cheaper financing to shipowners, but unlike shipping banks, these funds have very pre-determined (and high burden of returns) for their limited partners, that it’s hard seeing these funds entering into a ‘race to the bottom’ trying to earn business at the expense of lowering interest rates. When new factors are considered for shipping finance (ESG considerations primary among them, with ESG standing for Environmental, Social and Governance criteria), one should expect that shipping finance to become even more selective and demanding, which would indirectly push for bigger fleets, charters with end-users, operational excellence, all as part to the trend toward “institutionalization” of the industry.

Besides the financial market, there has been a similarly oriented trend by charterers opting for larger and better capitalized shipowners for both their term- and spot- charter requirements; while after the financial crisis charterers started becoming more selective with their shipowners out of financial concerns (wouldn’t want jeopardizing having their cargo getting stuck on a vessel under arrest due to outstanding payments such as mortgages and trade bills), at present charterers are concerned primarily with regulatory compliance, and their own overhead and compliance risk; in an ever tightening regulatory market (and a barely adequate freight market), keeping up with regulations becomes costly and it requires big fleets (25 vessels or more) to spread the overhead per vessel to acceptable levels; shipowners with a handful of ships are much more exposed to the viscidness of the freight market and with a higher management and compliance cost per vessel.

The behavior of the charterers, out of concern for their own interests, reflects on as pressure on shipowners to build bigger fleets (which partially drives consolidation) but also reflects on to third-part vessel management as a new trend in the market (small shipowners could still benefit from the shipping market if they have a competitive operating cost, which could be accomplished by hiring third-party vessel managers that can spread around the benefits of doing business based on economies of scale).

2019 has been full of political risk and uncertainty, which had great impact on the state of the freight market for shipping. While the tanker market saw a net positive impact in the form of higher freight rates, the remaining market segments have not been as lucky; trade growth has been lukewarm on the back of tariffs, trade disputes and anti-globalization, but also uncertainty in terms of delayed decision making, delayed investment and commitment; as companies delayed investment and commitment to contracts, shipping (and transport) have suffered. Despite talks of a reasonable chance for a trade agreement between China and the USA, 2020 likely will not be an easy year for trade, despite the high hopes.

Trade disputes between China and the US would appear, after two years of “trade discussions”, are cultural and driven by fundamental existential concerns rather than by superficial, transactional financial concerns. And, in 2019, it has become very clear that the world is moving away from an environment of institutionalized solutions to trade disputes (i.e. as per USA strategy the World Trade Organization (WTO) is now formally toothless without even quorum to hear trade disputes); trade disputes will now tend to be addressed by bilateral resolution (and a shift where stronger parties have right over weaker parties). It’s hard to see how such trends can be beneficial to trade and shipping, which likely will result in a weaker overall freight market, ceteris paribus. On the other hand, one cannot ignore that the element of higher uncertainty incorporated into the new regime of trade and diplomacy could lead to much higher volatility, including big spikes in the freight market. Coincidentally, it’s ironic that while shipping is riding a wave of “institutionalization” at a time when the world is working toward destabilizing worldly institutions and a trend toward “de-institutionalization”.

Still there many unknowns for shipping in the coming year, and volatility is to be expected in this highly volatile industry anyway. But for now, it would appear that market trends visible for the last few years are now taking hold and have started shaping the market for years to come.

The new shape of the industry, just like the shape of the water around a ship’s hull, can be as diverse and interesting to analyze! And, profit from it!

Basil Karatzas is the Founder and CEO of Karatzas Marine Advisors, a shipping finance and shipbrokerage firm based in New York. Basil is an Accredited Senior Appraiser and Fellow of the Institute of Chartered Shipbrokers. More info on Basil and the firm can be found at www.karatzas.com

Google news logo Ακολουθήστε το Business Daily στο Google news

RELATED ARTICLES