- New appointments to Baltic Exchange Council
The Baltic Exchange is pleased to announce three new appointments to the Baltic Exchange Council (BEC), the governing body which oversees the Baltic’s strategy for membership services, social responsibility, charities and its relationship with its members, governments, regulatory bodies and the global shipping community.
Baltic Exchange members Guy Hindley (Howe Robinson), Denis Petropoulos (Braemar Shipping Services) and Andy James (China Navigation) have joined the Council. Lambros Varnavides and John Hadjipateras have stepped down from the Council, although John Hadjipateras remains on the Baltic Membership Council.
Baltic Exchange Chief Executive, Mark Jackson, said:
“I am hugely grateful for both Lambros and John’s contributions, wise counsel and their commitment to the Baltic Exchange. I’m delighted to welcome three experienced new members to the Council and am sure that they will support the continued development and growth of the Baltic Exchange.”
Members of the Baltic nominate from among themselves eight representatives on the BEC who are vetted by the incumbent BEC and approved by Baltic Member Representatives.
The Chairman of the Baltic Index Council, the Chief Executive of the Baltic Exchange and two directors of the Baltic Board are also members of the BEC. The BEC elects its Chairman and Vice Chairman from among its Member Representatives.
The Chairman of the BEC is invited to attend meetings of the Baltic Board where required.
Baltic Exchange Council 2019
Duncan Dunn- Chairman
Stefan Albertijn- ex Officio
Mark Jackson- CEO, Baltic Exchange
Haralambos J Fafalios
- Freight derivative trade volumes up in 2018
Figures compiled by the Baltic Exchange reveal that the overall volume of Forward Freight Agreement (FFA) trades increased in 2018.
Freight derivative volumes in the tanker market rose by 20% in 2018 hitting 321,962 lots, volumes in the dry market rose 1.4% to 1,196,929 lots, its strongest performance since 2008, while dry options volumes rose by 44% to 268,976 lots, finding similar levels to 2016. One lot is defined as a day’s hire of a vessel or 1000 metric tonnes of ocean transportation of cargo.
Closer analysis of the figures reveals that on the dry bulk side panamax volumes grew by 10% and now account for nearly half (48%) of all dry FFA trades. Capesize volumes were down slightly on 2017, dropping 4.5% to 481,725 lots.
Dry FFA volumes 2018
Capesize Panamax Supramax Handysize Combined No. of lots traded 481,725 571,850 141,078 2,276 1,196,929 % by sector 40% 48% 12% 0%
For dry options, panamax volumes grew by 65% to 82,987 lots, now accounting for nearly a third (31%) of all trades, with capesize volumes improving 37% to 182,575 lots to take a 68% share of the total. Supramax lots were down 3.5% (3,414 lots) on 2017 levels, accounting for the final 1% of the 2018 total.
Dry Options volumes 2018
Capesize Panamax Supramax Handysize Combined No. of lots traded 182,575 82,987 3,414 0 268,976 % by sector 68% 31% 1% 0%
Open dry interest stood at 207,891 lots on 2 January 2019, up 25% on 2 January 2018. Dry option open interest is also up with 185,724 lots open on 2 January 2019, up 57% on 2 January 2018.
For tankers, dirty trade volumes were up 53% on the previous year reaching 191,224 lots. Much of this growth took place in the final quarter of 2018 when an average of 5691 lots were traded each week. Clean volumes for the year were down 10% at 130,738 lots.
Open interest for tankers stood at 50,962 lots on 2 January 2019.
Tanker FFA volumes 2018
Clean Dirty Combined No. of lots traded 130,738 191,224 321,962 % by sector 41% 59%
- New tanker routes commencing Public Trial reporting
The Baltic Index Council (BIC) has approved moving to Public Trial reporting for five new tanker routes from Monday 7 January 2019.
The five routes had been on private trial since 22 October 2018.
TD22 – VLCC 270,000mt USG/China (Galveston O/S lightering area to Ningbo), loading 25-35 days from Index date. 3.75% total comm. [assessed in $ lumpsum]
TD23 – Suezmax 140,000mt light AG/Med (Basrah to Lavera), loading 20-30 days from Index date, 2.5% total comm.
TD24 – Aframax 100,000mt Russian Pacific/China (Kozmino to Qingdao), 10-20 days from Index date, 2.5% total comm. [Published with BITR Asia]
TD25 – Aframax 70,000mt USG/Med (Corpus to Trieste), loading 10-20 days from Index date. 2.5% total comm.
TC17 – MR 35,000mt AG/E Africa (Ras Laffan to Dar es Salaam), loading 15-25 days from Index date, 3.75% total comm.
After a suitable period of satisfactory Public Trial reporting, the Baltic Exchange will request approval from the BIC to go live on these routes.
In the meantime any feedback from members is extremely welcome – please send this to email@example.com
- Structural challenges despite cautious optimism
For the most part, sentiment in the dry bulk market of 2018 can best be characterised as ‘cautiously optimistic’. While volatile, vessel charter rates followed a broadly upward trajectory since the long-term lows of early 2016. Notably, one-year timecharter rates have been higher than timecharter-equivalent (TCE) spot rates across all benchmarks on average, reflecting expectations of further gains in spot rates in the short term. MSI, however, is less confident than this face-value analysis suggests.
Less shock and ore
The modern shipping industry is undergoing a transformative change, buffeted by enormous shifts in the political and economic landscape. For decades, the globalisation of trade and free market economics have powered trade growth, but the future is far less certain. Government policy is taking an increasing role in defining the pattern of trade, notably with regards to environmental regulations and recent US-led tariff disputes.
For dry bulk in particular, critical structural changes are on the near-term horizon for trade, principally related to China, the single most important importer of dry bulk commodities.
Since 2000, international seaborne trade in dry bulk vessels has more than doubled from 2bn tonnes to over 4.6bn tonnes in 2017. Of this incremental growth, Chinese imports account for almost two-thirds.
The principal contributor to Chinese demand growth has been iron ore. Underpinned by a massive commitment to infrastructure expansion, China’s iron ore imports mushroomed from 70m tonnes in 2000 to 1.1bn tonnes last year. MSI now expects this trade will peak within the next two years and will subsequently decline.
For dry bulk in particular, critical structural changes are on the near-term horizon for trade
This negative outlook is underpinned by flat/falling steel production in China, the near-saturation of ore imports as a proportion of ore consumption, and a sharp increase in the availability of scrap steel.
Meanwhile global coal consumption is facing significant headwinds as governments act to reduce harmful emissions, despite the economic advantages of coal-fired power stations. MSI expects coal trade will be broadly flat over the medium term.
MSI’s expectations for trade in grains and minor bulks trade is more positive. Grains trade will remain volatile but fundamentals are encouraging; increasing populations and progressively grain-intensive diets in regions with inadequate agricultural resources.
For minor bulks, including industrial minerals, there are pockets of strong growth; MSI projects a positive outlook for bauxite trade, for instance, given investment in mining capacity and logistics in West Africa and growing demand for Aluminium in China in particular.
However, the weaker outlook for iron ore trade — and in the longer-term, coal trade — will apply downwards pressure on demand for dry bulk shipping. Importantly, this pressure will come at a time when the global fleet is very young — the average age of the fleet will be around nine years old, down from a historical average since 1995 of between 12 and 13 years old. This will limit the market’s supply-side response through scrapping of vessels.
Limited supply-side response
In the shipping industry, supply-side responses to changes in demand — primarily the ordering of new tonnage in strong markets and the scrapping of tonnage in weak markets — play a significant role in determining market balances. This dynamic has historically promoted a self-dampening cycle for freight rates.
One major exception in the dry bulk market was between 2004 and 2008, when China’s dry bulk imports accelerated; inadequate shipbuilding capacity limited the supply of new ships that could be built and freight rates soared. But in today’s market, excess shipbuilding capacity as a result of this boom means future cycles will not last long and rates will not reach as high, for the next decade at least.
But in a weak market, freight rates are not the only determinant of scrapping. A major driver is the age of vessels – ships younger than 15 years are more likely to be laid up in weak markets than scrapped; this latent supply will provide an instant — and sustained — constraint on freight rate-increases.
Overall, contrary to general consensus, MSI believes we are now close to a peak in dry bulk vessel charter rates. Importantly for cargo shippers, however, this will not necessarily translate to lower dollars per tonne freight rates.
One important policy change on the horizon will place significant upwards pressure on $/tonne freight rates: new fuel regulations imposed by the International Maritime Organization (IMO) starting in 2020. From January 1, 2020, vessels will be forced to either install mechanical systems called ‘scrubbers’ to extract sulphur oxides from the exhaust, or switch from consuming standard 3.5% sulphur content bunker fuel in their engines to 0.5% low-sulphur fuel.
Both solutions come at a cost: scrubbers cost in the region of $1–4m to install while low-sulphur fuel bunker in Rotterdam currently costs $774/tonne, compared with $515/tonne for standard 3.5% bunker fuel.
The financial implications of IMO 2020 regulations are stark. Consider the modern Panamax bulker benchmark vessel used by the Baltic Exchange in its calculation of the Baltic Panamax Index. This vessel consumes 32 tonnes of fuel per day: at today’s prices, the fuel bill would be an additional $8,300/day burning low-sulphur marine gasoil than standard 380cst heavy fuel oil when laden. This compares with the current TCE spot rate for the vessel of $12,000/day.
The uptake of scrubbers has been low – though it has increased in recent months as shipowners bet on falling prices for high sulphur fuel oil after 2020 which they can burn using a scrubber. Anecdotally, waiting lists to fit scrubbers are long, up to 18 months for one leading manufacturer: accordingly, MSI estimates up to a maximum 15% of dry bulk vessels will have fitted scrubbers by January 1, 2020. It is clear that a large majority will be using low-sulphur fuel.
What does all this mean for shipping costs? This is a complex question to answer but one which MSI’s proprietary market models are designed to tackle, and have been doing so for over 30 years.
Our dry bulk model incorporates analysis of all dry bulk cargos and a projection of the bulker fleet and also incorporates the dynamics of the shipbuilding market which, in itself, is driven by sectors including those other than dry bulk.
The supply/demand fundamentals and a range of operating/capital cost drivers and fleet efficiency factors determine the charter hire rate for a vessel; in addition to vessel charter rates, fuel costs and other voyage factors (including ballasting) determine $/tonne freight rates.
As is clear from the above, fuel prices will be key. Figure 2 shows MSI’s $/tonne freight forecast on an indicative route, coal shipments from Bolivar to Rotterdam, under a number of low-sulphur fuel oil price premium scenarios over MSI’s Base Case for heavy fuel oil, of between 25% and 100%. Clearly, while we believe $/day dry bulk vessel charter rates are near a peak, $/tonne freight rates still have significant room to increase as shipowners look to pass on the higher long-term cost of fuel.
Will Fray is senior analyst at Maritime Strategies International (MSI), a Baltic Exchange member which provides independent market forecasting and business advisory services for shipping, offshore and allied industries. Contact him at firstname.lastname@example.org or by calling +44 (207) 940 0075.
The Baltic Exchange will hold its next Freight Derivatives & Shipping Risk Management course in London on March 11 and 12. More information can be found here.
- Baltic ICS January lectures
The Baltic Exchange and Institute of Chartered Shipbrokers (ICS) will be presenting the third in the series of lectures on 30 January in Singapore, Shanghai, Athens and London.
Intended to support and develop brokers and operations professionals, the series will examine topical issues facing those working in chartering and operations roles, offering advice on best practice in critical situations and insight into the changing patterns affecting the shipping sector.
The third lecture will focus on economic cycles & shipping. Join shipping thought leaders for an open discussion on freight market cycles; how have trends in cargo flows changed and what has the impact been from the vessel supply side, as a result of the evolution of the shipowner and the ever-changing ROI horizons for their investors.
Guest speakers include:
Singapore | 30 Jan | 13.00
Global Head of Shipping, Anglo American
Shanghai | 30 Jan | 13.00
CEO, Asia Maritime Pacific
Athens | 30 Jan | 18.30
Director, Ursa Shipbrokers
*In celebration of the New Year, the Athens lecture will be held on the ‘Hellas Liberty’. The seminar will be followed by the cutting of the Vasilopita.
London | 30 Jan | 13.00
Dr Martin Stopford
Non-Executive President, Clarkson Research
This event is free to Baltic and ICS member companies. Those interested must register by email to email@example.com (reference: BXICS203)
View the flyer here.
- Member update: 9 January
The following company has applied for Corporate Membership:
Company Individual Exxon Mobil Corporation
Mr X Miller Mr J Oliveri Mr J Engelhardt Mr J Boleware Mr D Grote Mr G Maugeri Mr A Denaeyer Mr M Schelfhout Mr S Torkan Mr J Parker Mr S Sistrunk Mr G Vorst Mr P Arias Mr M Bekesi Mr A Herring Mr A Miroyannis Genco Shipping & Trading Limited
Mr S L Fladberg Mr J Christensen
The following individuals have applied for membership of an existing member company:
Company Individual BACA – The Baltic Air Charter Association Mr G Offer Grieg Shipbrokers KS
Mr C R Thomson Mr E Karlsen Mr L Zhao
H Vogemann GmbH Ms A Mende The China Navigation Company Ltd Mr K Fuessel TORM A/S
Mrs I Nozawa Mrs W T Lee
Windward Shipping (London) Ltd
Mr C R G Hudson Mr J A S Philpott
Any comments should be passed to Karen Karanicholas by 16 January 2019.
- Spare a thought for seafarers this New Year
Outside of the shipping industry, it is a little-known fact that 95% of all goods arriving in the UK do so by ship, but the welfare of the crews manning these ships is often overlooked.
Every day many seafarers arrive at Tilbury Docks, the London Gateway and other ports along the River Thames. They are far from home, rarely have English as a first language and really appreciate a chance to spend time away from their ships. The London Tilbury Seafarers Centre provides a friendly place where seafarers can catch up with family and friends via the free internet, relax in comfort with music & TV entertainment, buy refreshments and souvenirs, and socialise with other crew members. The Seafarers Centre operation is managed by Queen Victoria Seamen’s Rest (The Seamen’s Mission of the Methodist Church) which is celebrating 175 years of work on the River Thames this year.
The Centre works in partnership with the charities Mission to Seafarers, the German Seaman’s Mission, the Sailors Society and the Apostleship of the Sea, together with the Tilbury port authorities. The Centre’s aim is to raise awareness of the plight of seafarers and at the same time create a welcoming environment for them to visit. Making ship visits is also an important part of the Centre’s daily work, the Chaplains offering pastoral and welfare support to those on board.
The Centre has recently undergone extensive refurbishment. Internally, an area for a shop and new Chaplains’ offices has been created. While externally, a small area of land has been donated by the Port of Tilbury and redeveloped to provide a relaxing seating area with BBQ and sports facilities, including a small basketball court and table tennis.
This Christmas, the Centre’s staff and volunteers assembled some 2000 parcels containing toiletries and a woolly hat and gloves, to distribute to visiting seafarers.
The Centre is entirely dependent on voluntary donations for its day to day running and refurbishments. The next aim is to replace its ageing minibus. If you would be interested in donating or learning more about the Centre’s work, please contact Peter Dalton.