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Shipping

Out of the doldrums

June was another good month for bulk shipping, with both freight rates and second hand vessel values continuing to rise.

evolution capesize graphs(Source : BanqueThaler; Bloomberg)

A 5-year old Panamax vessel is currently ca. 20% more expensive than at the end of 2017 (now costing USD 23 million on average). And the price of a 5-year old Capesize has increased ca. 15% over the same period (now costing USD 35 million on average).

This translated into higher stock prices for bulk shippers in general, although some companies were engaged in financial transactions that negatively impacted their stock price, e.g. Starbulk whose major shareholder Oaktree sold USD 65 million worth of shares in a private transaction, 7% below the market price.

The bulker fleet continued to grow in June, albeit at a very moderate pace. 8 new (post)Panamax ships and 3 Capesizes hit the water, while demolition orders on older ships were almost non-existent. Year-to-date, the bulker fleet has grown some 1.5 %, due to the delivery of ships ordered in 2016. Solid global economic growth enabled easy absorption of this extra available capacity.

The newbuild order book also increased a little in June, to ca. 10% of the existing fleet. This is not a problem at this stage, considering that scrapping will increase considerably from 2020 onwards, when the new IMO sulphur emission rules come into force. Much higher fuel prices (low-sulphur fuel being significantly more expensive that the currently used heavy fuel) will make older, high consumption, vessels uncompetitive, while other vessels will opt for slow steaming so as to reduce their fuel consumption. A shortage of available transport capacity will result.

Fears of the possible consequences of the recently introduced “Trump” import taxes on steel and aluminium are keeping the stock prices of the listed bulker companies low relative to their net asset value (some are still trading at a discount of 30% or more).

Retaliatory measures by China and Europe are underway and could in due course lead to a full-blown trade war between the world’s major economic blocks. Such a scenario would, at first sight, be very negative for shipping. On the other hand, it could have an important impact on distances travelled (e.g. soybeans shipped to China from Latin America rather than from the US, more Australia iron ore sent to the US instead of China, etc.).

All told, and assuming newbuild orders remain under control, bulk shipping still seems headed for a couple of good years.

Update : July 2018