SHIPPING MARKET REVIEW - MAY 2021 - Danish Ship ...
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SHIPPING MARKET REVIEW – MAY 2021
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Shipping Market Review – May 2021 1HEAD OF INNOVATION & RESEARCH
Christopher Rex, rex@skibskredit.dk
ANALYTICAL TEAM
Jonas Hoffmann, Senior Analyst
Sebastian Müllertz, Analyst
Pardeep Singh, Analyst
Stasia Winther, Junior Analyst
Shipping Market Review – May 2021 2TABLE OF CONTENTS
Fast forward, 4
Shipping Markets At A Glance, 13
Shipbuilding, 18
Container, 20
Dry Bulk, 27
Crude Tanker, 35
Product Tanker, 43
LPG Carriers, 50
Shipping Market Review – May 2021 3FAST FORWARD
Commercial levers for decarbonising the shipping industry
Shipping Market Review – May 2021 4VESSELS COULD BECOME A CATALYST FOR CHANGE
The commercial levers facilitating decarbonisation could outpace global regulation
A transition to carbon neutrality in large-scale fleet renewal programmes allow new services to grow which, at
the shipping industry is possible. The in place. Most seem to be waiting to some point, may disintermediate the
industry is making progress with see how the regulatory framework traditional operator that delivers
existing assets and known plays out, as well as the selection of transportation from A to B.
technologies but will at some point the zero-carbon fuel of the future.
Existing owners and operators are
need to introduce zero-carbon fuels.
THE COMPETITIVE LANDSCAPE working to transform themselves.
Hybrid-electric and hydrogen- The next generation of zero-carbon Few elements of the current industry
powered vessels could contribute vessels could be owned by entities structures are likely to remain
greatly to the short-sea shipping that benefit not only from lower untouched by the waves created by
industry reaching the next stage of costs, but also from additional the call to decarbonise.
efficiency. streams of revenue.
COMMERCIAL FORCES AT PLAY
For deep-sea shipping, the bulk of We invite you to imagine a scenario There is much discussion in the Vessels-as-a-service
emissions need to be eliminated by where vessels could be supplied to shipping industry about the need for
switching to a zero-carbon fuel. the market as-a-service. additional global regulation, brings more value per
Existing players are burdened by Over time, this could result in radical
(government) subsidies and carbon
taxes in one form or another. The
moved unit than
legacy assets that are hard to changes to revenues and margins for
upgrade to a degree where additional ship-owning companies. The entire
goal is to level the playing field to
enable the green transition to take
traditional shipping
value potential can be developed. competitive landscape could be up for
off.
review if vessels-as-a-service become
Many will simply upgrade existing
the new norm in the shipping In this report, we focus on the
vessels to extend their lifetimes while
industry. commercial forces of change that
hoping to enjoy another period of
could drive some aspects of the
higher freight rates and secondhand We see multiple pathways towards
industry’s decarbonisation efforts.
prices. vessels-as-a-service, but they all
require consolidation and scale to
The risk of stranded assets will We invite our readers to imagine
unlock the value potential of
become more apparent when new some quite fundamental changes to
transport-as-a-service (i.e. the data
vessels burning zero-carbon fuels are asset ownership and the competitive
potential from supply chain
delivered. landscape.
integration).
Few owners currently seem to have
The benefits of vessel sharing could
Shipping Market Review – May 2021 5WILL MANY PLAYERS NEED TO TRANSFORM THEMSELVES?
Resetting the destination or navigating a new route?
Many shipowners currently seem to medium-sized owners are further via lower speeds or by
be postponing major investment increasingly struggling to upgrade blending conventional fossil fuels
decisions until a clearer pathway to their digital capabilities to continue with, for example, biofuels. These
the future becomes visible. Existing bringing down costs and leverage measures are hardly long-term
vessels are being retrofitted to lower data to boost value generation. solutions, though.
their emissions and make them
Market leaders are actively seeking Fleets do not have much potential for
compliant with the upcoming new
additional revenue sources and ways additional value creation. Vessels are,
environmental regulation.
to improve operational efficiency in in general, non-standardised and
The short-term market outlook order to lower costs. Many traditional offer little scope for economies of
signals that many vessel segments owners seem to be ‘going asset light’; scale or valuable pools of data that
The fuel transition could could enjoy another cycle of higher few are exploring ways to maximise can be monetised, even by the
become an unprecedented freight rates and increasing
secondhand prices in the years to
asset monetisation. largest and most consolidated
entities. The risk of stranded assets
There is a clear trend of increased
business opportunity to come.
digital adaptation. So far, this has
will increase in the coming years.
create value significantly DECARBONISATION STRATEGIES
The call to decarbonise the industry
mostly been targeted at reducing
costs, while other industries have
We see strong value potential for
vessel owners that harvests not only
beyond freight rates and could be a game changer. For some managed to create new digital significant cost savings but also
players, switching fuels may simply business models that deliver manages to introduce additional
the asset play be an operational challenge that additional value. streams of revenue.
needs to be solved alongside the
NAVIGATING LEGACY ASSETS Vessel ownership models seem to be
issue of paying the green premium.
The number of straightforward levers approaching a fork in the road: one
For others, the fuel transition could that can be applied to existing path leads to reinvention and
become an unprecedented business vessels is limited. Only around 20- potential long-term value generation,
opportunity to create value 30% of emissions can be reduced while the other means high volatility
significantly beyond freight rates and through cost-efficiency levers such and cyclicality continuing.
the asset play. as improved vessel design, more
efficient operations and better
The shipping industry is approaching
routing.
a tipping point. Asset owning is
becoming more complex. Small and The fleet’s emissions can be reduced
Shipping Market Review – May 2021 6EMBRACING A NEW-GENERATION OPERATING MODEL
Radical simplification and new capabilities
Digitalisation has never been the end markets. Imagine that some shipowners and
game but rather a means for new investors see great value
The spark of decarbonisation could
developing new value drivers and potential in a framework where the
initiate major changes in the shipping
new business models. zero-carbon challenge is melded with
industry’s competitive landscape.
a new digital business model for
The shipping industry has yet to
Zero-carbon fuels present a classic vessel ownership.
identify and commercialise new
chicken-and-egg problem across
value drivers and new business Additional value can be created by
industries. Decarbonisation is a global
models. players that superscale and package
challenge facing all industries and
levers such as standardisation,
Experience from other industries sectors of the economy, not just
economies of scale, digitalisation and
suggests that additional value can be maritime players.
created if we reinvent the business
circularity into a redesigned ‘as-a- In a digital future,
Solving these issues represents an service’ business model for vessel
models and allow more value to be
extraordinary business opportunity to ownership. competition will no
created by opening the gates to a
broader ecosystem play that includes
be tackled within the next decade.
Large-scale asset and data longer depend solely on
not only OEMs, shipyards and fuel
producers but also the connecting
But the shipping industry typically standardisation will allow costs to be
reduced and the data extraction from
products or process
generates low profits relative to the
industries and sectors across the emissions it creates. Small and the operation of the vessels to be excellence but rather on
global supply chain. medium-sized ship owners may be
finding little room for manoeuvre.
monetised.
business models
In a digital future, competition will no The initial market effect may be
longer depend solely on products or NEW INVESTORS marginal but over a decade or more
process excellence but rather on The shipping industry may not be a could evolve into a true
business models. major attraction for investors looking gamechanger. Traditional owners
for a play on decarbonisation but could find it increasingly difficult to
The idea behind a digital business
could become so if the industry can compete.
model for vessel ownership is not
transform itself into a catalyst for
only to lower costs significantly, but
change in the industries being
also to introduce additional streams
served.
of revenue that can create value
beyond the boundaries of the freight
Shipping Market Review – May 2021 7HOW DO WE CREATE ADDITIONAL VALUE FROM DECARBONISATION?
We need growth potentials that can be scaled and monetised
The task of creating value from the NEW VALUE DRIVERS The vessel-as-a-service delivers value
zero-carbon challenge in a framework In the shipping industry, this could to shareholders not only through
of a new digital business model for become possible for first movers that freight rates but just as importantly
vessel ownership is virgin territory. can guarantee a large-scale offtake of through the price difference on the
the fuel that allows producers to price of a zero-carbon fuel.
We do not have all the answers or a
scale production beyond current
clear picture of the future, but we First movers may attain a competitive
market maturity. The case becomes
invite our readers to consider edge by offering zero-carbon vessel-
even stronger if resources are pooled
alternatives to the status quo. as-a-service to customers while also
across industries and sectors (i.e.
profiting from trading surplus zero-
Imagine that the expected price sector integration).
Consider a scenario reduction from super-scaling the
First movers may secure long-term
carbon fuel volumes to players that
have inadequate or no direct access
where some parts of the production of a zero-carbon fuel could
be turned into a value pool that
purchase agreements (ten or 15 to the fuel.
years) with producers that allow
shipping industry are directly relates to the vessel
them to buy the fuel at a significant
This strategy is clearly not risk free.
investment. Much can go wrong. But the potential
carved out by players discount to the market price.
reward could be massive.
The development within solar and
that earn their money wind energy has shown that
NEW BUSINESS MODELS
Imagine the creation of a large and
outside the freight production costs can be significantly
super-standardised fleet of vessels
reduced when production is
markets sufficiently scaled. Some studies
supplied to the market as a service
(including fuel).
suggest that production costs can
decline by as much as 60%, 70% or Recall the concept of urban mobility
even 80% over a ten-year period. services, which charge a fixed, all-
inclusive price per minute in traffic
By bundling the investment in new
(i.e. car ownership, fuel, parking,
vessels with the profit potential in
maintenance, etc.). If the mobility
offering green transportation below
provider is able to buy the energy at
market price (i.e. leveraging the
a lower cost than it charges the user,
expected reduction in production
then value is also created from the
costs of a zero-carbon fuel),
price arbitrage of the fuel.
additional value can be created.
Shipping Market Review – May 2021 8CIRCULARITY COULD BRING DOWN THE GREEN PREMIUM
It will take more than a zero-carbon fuel to decarbonise the shipping industry
Consolidated fleets of super- their used parts to the manufacturer. long-payback investments.
standardised vessels offer an In a model where standardised fleets
The asset game does not form part of
attractive business case for circular of vessels supply vessels-as-a-service
a servitisation model that aims to
maintenance, as spare parts can be at a fixed all-inclusive price per
improve the long-term efficiency of
remanufactured, reused and recycled ‘minute in traffic’, circular
the assets rather than take
multiple times to save costs (and maintenance adds value by lowering
advantage of short-term market
reduce the environmental footprint). costs.
imbalances.
This becomes particularly interesting In the future, all elements of a
The servitisation model allows
in a servitisation model, where vessel, its maintenance and its
investments with long repayment
equipment manufacturers extend demolition could be designed for
periods to be made – maybe even
their business to include the use of circularity. All materials and
stretching to the next lifetime.
their equipment instead of selling it. components could be recycled,
remanufactured and reused. REDUCED RISK OF STRANDED ASSETS
Savings are partly passed on
In this case, the data extraction from
operating the standardised fleet of Increased customer loyalty could be
The risk of stranded assets is reduced to customers to ensure that
in a servitisation model, since
vessels becomes valuable, since it
allows the equipment manufacturer
obtained through the channel of cost-
competitive carbon-neutral
equipment manufacturers are able to they turn in their used parts
to improve performance and optimise operations (cradle-to-cradle).
upgrade the performance of a vessel
as long as they do not increase the
to the manufacturer
the vessel.
REINVENTING THE BUSINESS MODEL cost of its use.
CIRCULAR VALUE CREATION This kind of change will require not
Circular maintenance is not new. only shipowners but also equipment
Many companies have experimented manufacturers to change their go-to-
with refurbishing, reusing and market model to one that sells ‘time
recycling their used products and in traffic’ rather than a product.
parts.
Many vessels are currently operated
Industry players like Renault and under a business model where the
Caterpillar have worked with these asset play guides decision making.
principles for the past 30 years. Retrofits and operational upgrades
are done if they deliver immediate
Savings are partly passed on to
cost savings without the need for
customers to ensure that they turn in
Shipping Market Review – May 2021 9CIRCULAR VALUE CREATION
Three levels of circularity
1. Maintenance (e.g. spare parts)
2. Vessel ownership (cradle-to-cradle)
3. Cargo volumes (customer loyalty)
Shipping Market Review – May 2021 10WHAT COULD CHANGES LOOK LIKE?
Shared vessel capacity
To maximise the benefits of a low-priced utility. fundamental changes to not only the
servitisation model, vessel ownership business model of vessel ownership
Players can create additional value
could be aggregated across fewer but also the competitive landscape.
even when competing with the
entities, even across ship segments.
lowest-priced alternative, because So far, we have discussed a
Vessel operation could remain the new supply and the traditional centralised ownership model whereby
fragmented but may over time vessel supply do not have the same individual operators manage and
consolidate in line with the value drivers. employ individual fleets of vessels.
application of new technologies that But could we take it even further?
Traditional players generate income
are likely to reduce margins and
through freight rates, while players Could there be a scenario where
increase competition.
operating with the new business individual operators simply book
Individual operators Circularity relates not only to the model can generate revenue from cargo transportation on vessels
vessels but can also be expanded to freight rates, trading of zero-carbon shared between many to optimise
booking cargo encompass the industries being fuels and the data exhaust from capacity utilisation and reduce their
served by the vessels. vessel operation. environmental footprint?
transportation on vessels
To illustrate the potential, consider a Traditional players may struggle to Experience from other industries (the
shared between many case where an ecosystem player compete on costs, since the new telecommunications industry, for
works to connect the global players can reduce costs via circular example) suggests that structural
construction sector with the Dry Bulk maintenance and economies of scale separation can allow more value to
industry to facilitate not only the while offering additional services be created if infrastructure sharing
transportation of virgin materials but through the advanced vessel allows massive scaling on a larger
also circular material flows. connectivity system that has been customer base.
scaled across the centralised
This type of ecosystem play could
ownership base.
become a catalyst for change not
only in the shipping industry but also The borders of industries, the role of
in the industries being served. assets and the types of competitors
are likely to change.
A PREMIUM PRODUCT AT SCALE
The vessel-as-a-service concept GREATER ADDRESSABLE MARKET
allows a premium product to be We describe here the potential
supplied to shipping markets as a introduction of some quite
Shipping Market Review – May 2021 11INFRASTRUCTURE SHARING
Transport-as-a-service: growing beyond the core
Infrastructure sharing is nothing new The aim will be to create a fully Companies in other industries are
in the shipping industry. Many integrated transport-as-a-service aggressively generating value from
segments utilise the benefits of transit system that includes a digital data.
operational pools, while the Container platform, access to the latest cargo
The vessel-as-a-service model will
industry also shares capacity through mobility offerings, incentives (e.g.
allow players to focus on data
alliances. Freight forwarders and lower costs, zero-carbon mobility,
monetisation throughout the lifecycle
trading houses provide services that transparency), and measurement tools
of vessels through recurring revenues
benefit from economies of scale by (including CO2) to ensure that all
and paid over-the-air upgrades, which
bringing together the demands of transport services are running at full
may eventually include those related
multiple customers. efficiency. The objective will be to fully
to autonomous vessel capabilities.
integrate and orchestrate all available
The main difference between past
experience and the vision described
services throughout the global supply
chain, from origin to destination.
In today’s market, the absence of an
established ecosystem often results in
Infrastructure sharing allows
here is asset owners’ ability to scale
and harvest economies of scale This will involve increasing integration
hard-to-scale island solutions between digital investments to target
(through standardisation) and to across the modes of cargo mobility
few players, which end up generating
significantly less value than they would
value creation beyond the
establish a critical asset base that and infrastructure operators and
allows major investments in new ensuring that providers can collect all
have done with a scaled solution. boundaries of the shipping
digital technologies. the data they need to establish industry
transport options that direct cargo
TRANSPORT-AS-A-SERVICE
flows toward the most efficient and
Initial investments will be aimed at
environmentally sound sourcing and
increasing operational efficiency and
travel modes.
routing (in order to lower fuel
consumption), but the focus will soon DATA DRIVES VALUE GENERATION
shift to moving into adjacent domains Experience from other industries
to establish a platform-based suggests that the service play that is
ecosystem play that orchestrates data- fuelled by the data from operating the
driven insights across supply chains to standardised asset base could become
optimize value creation and develop at least as valuable as the asset
new revenue streams. operation.
Shipping Market Review – May 2021 12SHIPPING MARKETS AT A GLANCE
Shipping Market Review – May 2021 13SHIPPING MARKETS AT A GLANCE
Market sentiment is weakening, but we see light at the end of the tunnel DS:FUNDAMENTALS
Seaborne trade volumes are suffering from the effects of the pandemic, while fleets have MARKET CYCLE POSITION – APRIL 2021
been expanding. The supply side is becoming more manageable, but the orderbook is Freight rates are well above the median, and
heavily frontloaded. Capacity equivalent to 4.2% of the fleet is scheduled to be delivered have increased by 62% in the past 6 months
during 2021, while demand is only likely to regain the lost territory. Seaborne trade
[Secondhand prices 2017:2021]
volumes are expected to grow more strongly than the fleet from 2022, which, combined
with older, less efficient vessels being scrapped, should improve freight rates and
Min Median Max
secondhand prices. The market outlook for 2023 and beyond clearly depends on future [0%] [50%] [100%]
contracting, but signs are that fleet availability will tighten, since older vessels are likely Period [2000:2021]
to slow steam or be scrapped. Secondhand prices are just above the median,
and have increased by 40% in the past 6 months
CLARKSEA INDEX AND SECONDHAND PRICES Global demand for seaborne trade contracted by 3.6% in 2020, but travel
The ClarkSea Index was anchored at around USD 15,000 per day for large parts of 2020 distances increased by 2%, absorbing some of the decline. Fleet utilisation
but surged to USD 22,000 in April 2021. Current earning levels are in the top 20% weakened during the period, since the world fleet grew by 3.1%. Vessel supply
observed since 2010. The average secondhand price dropped to its lowest level in 3.5 was slightly reduced by slower speeds (-1%), but the effect was somewhat offset
years in October 2020 but has since gained 38% and reached index 120 in April 2021. by more vessels returning from docking (+0.5%).
Secondhand prices are currently in the top 30% seen since 2000.
The improved earnings environment has freight rates and secondhand prices, while Deliveries decreased by 10% in 2020 Activity has surged during 1Q2021.
impacted the secondhand prices of older Tanker markets are struggling to exit the versus 2019, with 87 million dwt
vessels the most. doldrums. Freight rates and secondhand added to the fleet. The inflow of new The orderbook is up by 7 million dwt
vessels continued to soften during the (since January 2021) and now
prices have weakened, although we are
The risk of seaborne demand peaking is on first 2 months of 2021, when 14 represents 7.8% of the fleet.
seeing some degree of improvement. million dwt was delivered.
the rise across industries and sectors. This Seaborne trade volumes hardly
is beginning to weigh on long-term Markets for Gas Carriers are highly Scrapping intensified in 2020 with 23 increased during 2019 and shrank by
earnings expectations not only for vessels volatile. Players are struggling to absorb a million dwt scrapped (54% more than 3.6% in 2020. Longer travel distances
transporting fossil fuels but also for large supply surplus that is expected to widen in 2019). The average scrapping age absorbed some of the decline.
Container vessels, Car Carriers and further during 2021. The smaller vessels dropped by 4 months to 27.7 years
from 2019 to 2020, and was stabile in Distance-adjusted vessel demand
Offshore-related vessels. are better positioned than the larger ones. decreased for Crude and Product
the first quarter of 2021.
Tankers and Containers in 2020, while
Dry Bulk and Container vessels are Offshore-related vessels are in significant Contracting activity declined by 25% Dry Bulk, LPG and LNG managed to
currently experiencing strong growth in oversupply. in 2020. 54 million dwt was ordered, expand volumes and increase travel
compared to 72 million dwt in 2019. distances.
Shipping Market Review – May 2021 14STRONG INFLOW OF NEW VESSELS DOMINATES THE SHORT-TERM OUTLOOK
But the orderbook is rapidly emptying
The supply side is becoming more manageable, as the during 2021. This reflects the consolidation process that is The imbalance between supply and demand is raising
orderbook is shrinking quickly while few new vessels are shaping the yard industry. Many of the smaller yards are expectations for scrapping of older, less efficient vessels
being ordered. Still, the short-term outlook is for quickly running out of employment. across segments. The sooner capacity is taken out of
significant fleet expansion. service, the better the remaining vessels will fare.
Three vessel segments are maintaining extraordinarily
The orderbook represents 7.8% of the fleet, and 57% of large orderbooks: LNG, LPG and large Container vessels. Surplus vessel capacity cannot be absorbed by scrapping
the vessels on order (40% of capacity) are scheduled for These segments do not have exceptionally strong demand vessels older than 25 years alone. In 2022, economic
delivery in 2021. 85% of the current orderbook is outlooks. If demolition does not take off, these segments lifetimes could drop in segments where younger, less
scheduled for delivery before year-end 2022. could be heading for a difficult period of low income and efficient vessels are demolished to balance the market.
depreciating secondhand prices.
The world fleet is projected to take delivery of new vessels The effect is only expected to be temporary. The low
with a capacity equivalent to 4.2% of the fleet in 2021 and Seaborne trade volumes are working to regain the lost contracting activity, combined with increased demand,
2.8% in 2022. territory but are not expected to return to 2019 levels until creates potential for higher freight rates and secondhand
late 2021. Crude and Product Tankers are not expected to prices sometime after 2022. The duration of the upturn
The ten largest yard groups control more than 80% of the
recover until 2022. depends on future contracting activity.
orderbook but will deliver only 40% of their orderbook
ACTUAL AND EXPECTED DELIVERIES (MILLION DWT) FLEET RENEWAL POTENTIAL (DWT) DELIVERIES AND OUT FOR SPECIAL SURVEY (MILLION DWT)
120 6% 5 160
5%
Fleet renewal
Orderbook / Fleet (20 yr+) dwt
5%
Container
4% 4%
Liner
90 5% 4 120
3%
60 3% 3 80
1% Crude Tanker
30 2% 1 40
Bulk Carrier LPG
Product Tanker
Chemical Tanker Container Feeder
Orderbook / Fleet
0 0% 0 0
2018 2019 2020 2021 2022 2023 0% 5% 10% 15% 20% 2021 2021 2022 2022 2023 2023
Bulk Carrier Chemical Tanker Container Crude Tanker Fifth survey 25YR+ Fourth survey 20YR Third survey 15YR Deliveries
LPG Product Tanker Orderbook
Source: Clarksons, Drewry, Danish Ship Finance
Shipping Market Review – May 2021 15DEEP DIVE: ARE WE APPROACHING A PERIOD OF LOWER VESSEL AVAILABILITY?
The IMO may be supporting a market recovery by bringing forward phase 3 of the EEDI
Many of the major shipping segments are burdened by increasing their fuel efficiency and reducing speeds if The performance level will be recorded in the ship’s Ship
structural overcapacity that is somehow being absorbed competition allows it. This applies beyond the boundaries Energy Efficiency Management Plan (SEEMP).
by slow steaming. of new regulation.
A ship rated D or E for three consecutive years will have
Container, Dry Bulk, Crude and Product Tankers are slow NEW REGULATION SUPPORTS THE MARKET OUTLOOK to submit a corrective action plan, to show how the
steaming to reduce costs and curb the market effects of a The International Maritime Organization (IMO) is working required index (C or above) will be achieved.
structural supply surplus. Vessels have on average to develop and implement new regulation aimed at
reduced speeds by between 18% and 25% compared to reducing the carbon dioxide (CO2) intensity of the
their 2008 levels. shipping industry by at least 40% from 2008 levels by
2030 and lowering absolute GHG emissions to at least
There is little doubt that the call to decarbonise the
50% below 2008 levels by 2050.
shipping industry is currently reducing the short-term
appetite for ordering new vessels while supporting the In 2020, additional measures were approved to further
demolition of older, less efficient vessels in the coming reduce the industry’s carbon footprint. The new regulation
years. require ships to combine a technical and an operational
approach to reduce their carbon intensity.
A PERIOD OF SIGNIFICANT VALUE CREATION
If this trend gains momentum, it may create a foundation From 2023, the Energy Efficiency Design Index (EEDI) will
for significant value creation, if only for a period. We see be applied to all existing cargo and Cruise ships above a
potential for this developing from 2023 and lasting for a certain size, regardless of year of build, and is intended
period of maybe three to five years. as a one-off certification. This is to be known as the
Energy Efficiency Design Index for Existing Ships (EEXI).
Additional slow steaming is widely considered an
attractive short-term mechanism to further reduce the A mandatory Carbon Intensity Indicator (CII) is to be
industry’s CO2 emissions while absorbing the inflow of introduced, measuring grams of CO2 per dwt-mile.
new vessels to be delivered in 2021 and 2022. Vessels will obtain a rating from A to E every year. In
accordance with the EEDI (and EEXI), the rating
Vessel speed and fuel consumption are closely linked.
thresholds will become increasingly stringent towards
Engine load is proportional to the cube of vessel speed —
2030.
meaning that a 10% decrease in the cruise speed reduces
fuel usage by almost 30%. The CII will determine the annual reduction factor needed
to ensure continuous improvement of a vessel’s
Fuel represents by far the largest share of operational
operational carbon intensity within a specific rating level.
costs, which gives operators an intrinsic motive for
Shipping Market Review – May 2021 16DEEP DIVE (CONTINUING): THE CASE FOR ACTION IS CLEAR
Older, less efficient vessels are likely to be scrapped in the coming years
MARKET IMPACT UNCLEAR are already operating below the de facto speed limit It is for these older vessels where the regulation may well
The likely impact on the market of the implementation of implied by the required EPL. This means that the incentivise owners to look at recycling, rather than
the EEXI and the Carbon Intensity Indicator is unclear. effectiveness of technical efficiency measures like the investing in vessel upgrades.
EEXI needs to be evaluated in real-world conditions.
Early calculations suggest that only a small part of the Vessel supply could be squeezed either temporarily when
world fleet is likely to comply without any reduction in In 2021, Containers, Oil Tankers, and Bulk Carriers have vessels exit service to be retrofitted or permanently when
engine power from their designed levels. Some estimates on average been operating at between 11 knots and 14 vessels are scrapped prematurely.
suggest that half the fleet will have to make some knots, or between 38% and 50% of their maximum
LIMITED SHORT-TERM EFFECTS
energy-efficiency adjustments by installing energy- continuous rating (MCR). This is well below the engine
The upcoming regulation sends a clear signal to the
efficiency retrofits, imposing main engine power loads that would be allowable under the EEXI, which
market but could, in some segments, prove relatively
limitation, using new fuel blends with a lower carbon range from 65% to 77% of MCR. If the EEXI does not
ineffective in the first few years after implementation.
content or through early retirement. limit engine power below what ships are already
operating at, it will not result in reductions of vessels’ We could see a situation where market base measures
Main engine power limitation (EPL), a semi-permanent,
speeds or CO2 emissions. have a similar impact before the new regulation takes
overridable limit on a ship’s maximum power, is believed
effect from 2023.
to be the easiest way for older ships to meet EEXI OLDER AND LESS EFFICIENT VESSELS WILL BE IMPACTED
requirements. Dealing with average figures is never accurate. We are in There is obviously still a lot to be confirmed, with the IMO
no doubt that the IMO’s intention is for large parts of the expected to finalise and adopt the regulation at MEPC 76
For mechanically controlled engines, this would take the
fleets to be upgraded to become more efficient. Most in June this year.
form of a mechanical stop screw sealed by a wire that
younger vessels will already be in the vicinity of the
limits the amount of fuel that can enter an engine. For Still, the case for action is clear. Shipowners’ access to
required EEXI threshold. Some may be required to make
newer, electronically controlled engines, EPL would be cargo, capital and ports could be at risk if they are
smaller-scale alterations.
applied via a password-protected software fuel limiter. considered not to be doing enough about their CO2
The issues become clearer amongst older vessels. The footprint.
Engine power limitation (EPL) will be overridable if a ship
scale of reduction required is likely to be more expensive
is operating under adverse weather conditions and
and require major changes, for example larger engine
requires extra engine power for safety reasons; in this
power limits which could affect actual operational speeds
situation, the override should be recorded and reported to
and vessels’ prospect for future hire.
the appropriate regulatory authority.
The new regulation could drive additional market
EPL could cut fuel usage and CO2 emissions if it reduces
segmentation where vessel earnings (and secondhand
the operational speeds of affected vessels. The EEXI will
prices) are increasingly subject to the vessels ratings.
not directly reduce fuel usage and CO2 emissions if ships
Shipping Market Review – May 2021 17SHIPBUILDING
Shipping Market Review – May 2021 18SHIPBUILDING: UPDATE
High capacity but few new orders DS:FUNDAMENTALS
Contracting activity increased significantly from October to April 2021 but the total for the MARKET CYCLE POSITION – APRIL 2021
past 12 months remains at a low level. Owners are holding back, since uncertainty related
Newbuilding prices have increased 6% in the past six months
to the decarbonisation of the shipping industry are increasing risks. Many yards are
quickly running out of orders. A group of 64 first-tier yards, representing half the global [Newbuilding prices 2017:2021]
capacity but 80% of the orderbook, are performing more strongly than the 221 second-
tier yards. Yard capacity has kept fairly stable at 57 million cgt since 2019, but 133
Min Median Max
second-tier yards with a combined capacity of 10.5 million cgt (20% of capacity) are [0%] [50%] [100%]
scheduled to deliver their last orders during 2021. It seems that 2022 is currently Period [2000:2021]
scheduled to be more difficult.
Yards delivered 28 million cgt in 2020, which was only 80% of scheduled orders.
EMPTYING ORDERBOOKS AND IDLE YARD CAPACITY
First-tier yards delivered 84%, while second-tier yards only delivered 73%. South
The increased contracting activity between October and April 2021 allowed newbuilding Korean yards delivered according to schedule, and Chinese and Japanese yards
prices to rise by 6%. Still, newbuilding prices were only settled between 60 yards, each delivered 75% of scheduled orders. Higher contracting activity increased the
representing 60% of yard capacity and 70% of the orderbook. The remaining 225 yards orderbook by 5% to 70 million cgt from October to April. Still, with a global
did not receive any new orders during the period. These yards are expected to deliver capacity of 57 million cgt, yards could deliver the orderbook in 16 months if
50% of their orderbooks during the last eight months of 2021. orders were placed to utilise capacity fully.
Contracting activity picked up in the period to be delivered before year-end 2022. The Yard utilisation: Yard capacity The average South Korean yard is
from October to April, with 18 million cgt front-loaded nature of the orderbook is remains poorly utilised. The average only scheduled to utilise 63% of its
contracted. Container vessels accounted most severe in Japan, where 95% of the yard only utilised half of its capacity capacity in 2021. The country’s six
for half of the contracted capacity, orderbook is scheduled to be delivered in during 2020. first-tier yards are performing better,
distributed evenly between Chinese and the period, compared with 73% in China utilising 70%, while the four second-
This is expected to increase to 60% in tier yards are scheduled to utilise only
South Korean yards. Contracted volumes and 60% in South Korea. 2021. The group of first-tier yards are 15% of their capacity this year.
account for 25% of the current orderbook. performing significantly better than
South Korea is performing best in terms of their second-tier competitors. Yards with a combined capacity of
China and South Korea are gaining market the size of the orderbook relative to yard Japanese and Chinese first-tier yards 10.5 million cgt, representing 20% of
share at Japan’s expense, but all three capacity (order cover of 1.5), but the are scheduled to utilise more than global yard capacity, are set to run
regions are struggling to secure enough orderbook is more stretched than, for 85% of their capacity in 2021, while out of orders in 2021. Yards
new orders to utilise their yard capacity. example, the Chinese, which is creating the average second-tier yard is accounting for another 13 million cgt
scheduled to utilise less than 40% of are currently projected to run out of
periods of low utilisation, especially at
Two-thirds of the orderbook is scheduled its capacity. orders in 2022.
second-tier yards.
Shipping Market Review – May 2021 19CONTAINER
Shipping Market Review – May 2021 20CONTAINER
Strong earnings but relatively weak fundamentals DS:FUNDAMENTALS
The network of alliances has managed to exercise strict capacity control, allowing box MARKET CYCLE POSITION – APRIL 2021
rates to rise sharply during a period when the supply surplus has increased. At its peak in
Freight rates have increased by 100% in the past six months
2020, vessels with capacity of more than 2.6 million teu (the equivalent of two years of
fleet expansion) were excluded from service. The box rate outlook is subject to the [Secondhand prices 2017:2021]
commercial discipline of the alliances, since the balance between supply and demand is
expected to be largely unchanged in the years to come. Once the effects of Covid-19 have Median
Min Max
subsided, the fragile market balance could easily be jeopardised if one party attempts to [0%] [50%] [100%]
gain market share, or the recent profits are (over)invested in new vessels. The orderbook Period [2000:2021]
is low but largely oriented towards large vessels. We see a long-term risk of surplus Secondhand prices have recovered 50% in the past six months
vessel capacity in these vessel segments.
Surplus vessel capacity continues to build. The fleet expanded by 4% in 2020,
FREIGHT RATES AND SECONDHAND PRICES
while demand contracted by 1.2%. Travel distances were relatively stable. Still,
Container box rates have experienced a record-breaking bull run since the fourth quarter volumes resumed strongly from the fourth quarter of 2020, as reduced travel and
of 2020 and into the first quarter of 2021. The temporal shift in consumption patterns leisure spending shifted consumer spending towards containerised goods,
towards containerised goods has driven a surge in cargo demand, while active capacity including personal protective equipment. Landside bottlenecks have contributed
has struggled to keep pace. The average secondhand prices index increased by 16% to the current Container shortage, while carriers have proved to be very adept at
during the fourth quarter of 2020 and another 28% during the first quarter of 2021. managing capacity.
HIGH BOX RATES... The carrier bonanza was clearly driven by Deliveries continued to decrease, months: 0.75 million teu during the
Box rates on the major westbound Asia- logistical issues rather than a shortage of from 1.3 million teu in 2018, 1 million fourth quarter and 1.4 million teu
Europe trade almost doubled over the vessels. in 2019 to 0.9 million (140 vessels) in during the first quarter of 2021.
course of the fourth quarter 2020 to reach 2020. Still, 1.1 million teu is
…AND LONGER CHARTER PERIODS scheduled to enter the fleet in 2021. Orderbook: The orderbook
their highest level in over ten years. The
Tonnage providers did not all benefit represented 10% of the fleet for large
CCFI Composite Index climbed 50% Scrapping: Few vessels are being parts of 2020 but increased to 15% as
equally during 2020, but the average
during the fourth quarter. This scrapped, despite the surplus per April 2021. For vessels larger than
timecharter index gained 42% during the capacity. Only 79 vessels (one above
represented the fourth consecutive quarter 15,000 teu, the orderbook represents
fourth quarter and an additional 34% 8,000 teu) were scrapped (0.2 million a somewhat concerning 65% of the
of rising average freight rates and was by
during the first quarter of 2021. The teu) in 2020. Still, scrapping absorbed fleet.
far the steepest rise on record.
average fixture period has become 83% of the intake below 12,000 teu.
Demand is temporarily strong, but
The development continued into the first significantly longer, signalling that carriers Contracting: Surplus vessel capacity annual figures for 2020 declined by
quarter of 2021, and in February the CCFI expect the strong market to last at least has not been enough to keep 1.2%, while forecasts for 2021
Composite Index passed Index 2,000. until the end of 2021. contracting low. More than 2 million suggest a 4% increase compared to
teu has been contracted in the last six 2019.
Shipping Market Review – May 2021 21MARKET DYNAMICS IN THE LAST SIX MONTHS
A change in consumer behaviour has supercharged Container demand and sent box rates through the roof
Container demand was stronger than anticipated during demand, but global box throughputs declined by just 1.2%
the fourth quarter of 2020 and the first quarter of 2021. in 2020 and are projected to end 2021 6% above the 2019 STRONG TRANSACTION ACTIVITY
level. S&P activity has increased strongly, with 80 vessels traded
HIGH CONTAINER DEMAND
during the fourth quarter and another 100 during the first
We have seen a massive shift – albeit only temporary – in INFRASTRUCTURAL BOTTLENECKS
quarter. Few expect the high market to last for long. The
consumer spending. Social distancing has subdued The Container market was bordering on chaos during the
blockage of the Suez Canal in March may extend the
contact-intensive activities, dampening leisure spending on fourth quarter of 2020 and into the first quarter of 2021.
current run by a few months. Still, price spreads between
vacations abroad and eating out. Consumers have not Ports were finding it difficult getting back up to speed,
young and older vessels have begun to widen during 2021.
stopped spending; rather, they have redirected their many encountered a shortage of Container equipment, and
Younger vessels currently appear to be priced at high
spending to Container-intensive physical goods. carriers struggled to reintroduce capacity to the market.
levels.
Although new services were added during the fourth
BUT MANY MARKET PARTICIPANTS WERE UNPREPARED
quarter, there likely would have been more had the supply
The change in consumer behaviour took many by surprise.
chain been working properly.
During the second and third quarters of 2020, many
operators prepared for a double-digit percentage fall in
BOX RATES AND SECONDHAND PRICES SECONDHAND PRICES (4,500 TEU) S&P ACTIVITY (NUMBER OF VESSELS)
2,200 60 40 350
1,650 49 30 263
1,100 38 20 175
4Q
550 26 10 88
> 5YR 10YR 15YR
0 15 0 0
2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 2017 2018 2019 2020 1Q2021
Source: Clarksons, Danish Ship Finance
Shipping Market Review – May 2021 22SUMMARY: CONTAINER MARKET OUTLOOK
Surplus capacity continues to build, but box rates could maintain healthy levels
The box rate outlook depends on the commercial discipline of the alliances. With the fleet running ahead of demand, if a battle over
market share begins, it will have a material impact on box rates until a new balance has been restored. In today’s market, earnings
are strong. Some are investing in new vessels, while others seem to be waiting – maybe for more clarity on the pathway to zero-
carbon shipping. Early movers will clearly increase their risk of stranded assets if they choose the wrong path.
The ten largest Liner companies accounted for 85% of deployed Container capacity at the leapfrog LNG as a fuel by expanding trials of biofuel blends and zero-carbon fuels such as
beginning of 2021 compared to 63% at the start of 2009. Tonnage providers own a fleet ammonia.
of 2,455 vessels with a combined capacity of 10.3 million teu – equivalent to 43% of the
The risk of stranded assets is clearly highest for first movers that risk investing in the
Container fleet.
wrong technology, while late adopters may simply choose to retrofit vessels or postpone
The Container market is oversupplied, but operators are strictly managing capacity by investments.
carefully planning the composition of vessels on specific routes. Cascading and slow
steaming continue to help operators adjust capacity, fuel costs and emissions. Overall,
the average Container vessel sailed at 14.4 knots in 2021, which is 26% slower than in
2008. CAPACITY MANAGEMENT WORKS TO BALANCE THE MARKET (TEU)
The orderbook has risen to 15% of the fleet on the back of new orders coming in during 1,800,000
the fourth quarter of 2020 and the first quarter of 2021. 90% of the orderbook is
scheduled to be delivered between 2021 and 2023. Overall supply growth is therefore
expected to be “manageable” in relation to annual demand growth of somewhere between 1,350,000
3% and 6%, but the massive fleet expansion among the largest vessels may create
periods of surplus vessel capacity.
900,000
Liner companies have managed capacity tightly throughout the pandemic. At its peak in
May 2020, 11% of the fleet, or 2.6 million teu (more capacity than that delivered in 2019
1Q
Full year
and 2020), was idle in anticipation of a drop in demand. This figure more than halved
when infrastructural bottlenecks reduced the fleets’ cargo-carrying capacity and demand 450,000
increased throughout the fourth quarter of 2020 and the first quarter of 2021.
The largest risk to the outlook is if the recent appetite for ordering new vessels turns into
0
an over-investment competition, with the green transition serving as an excuse to order 2017 2018 2019 2020 2021
“LNG capable” vessels (currently 21% of the orderbook). Some carriers are working to Out of service (Idle/Laid Up) Delivery
Source: Clarksons, Danish Ship Finance
Shipping Market Review – May 2021 23CONTAINER FLEET OUTLOOK
A strong inflow of large vessels continues to dominate the fleet outlook
The Container fleet is scheduled for growth with an sea routes, while a renewed appetite for vessels between teu have on average been idle in one form or another
orderbook-to-fleet ratio of 15%. Annual deliveries are 15,000 and 18,000 teu indicates that versatility and since 2010. Still, annual demolition peaked in 2016 at 0.6
scheduled to reach 1.1 million teu in 2021 (up 29% flexibility have become increasingly important in the million teu and has remained below 0.2 million teu since
compared to 2020), dipping to 0.8 million teu in 2022 but context of the 133 vessels larger than 18,000 teu (plus 47 2018.
bouncing back to 1.5 million teu in 2023. on order) that dominate the east-west services.
OLDER INEFFICIENT VESSELS MAY BE SCRAPPED SOON
LARGE VESSELS DOMINATE THE ORDERBOOK STRONG APPETITE FOR NEW VESSELS The upcoming IMO regulation could, at some point,
Owners seem to be favouring vessels between 1,000 and Contracting activity surged during the fourth quarter of facilitate the early retirement of the oldest and less
3,000 teu, and vessels larger than 12,000 teu. The smaller 2020 and the first quarter of 2021. A total of 105 vessels efficient vessels – including some of the first-generation
segments are at varying stages of fleet renewal, while in were contracted in 2020, with 60% contracted during the large vessels – since new bigger ships are simply more fuel
the larger segments fleets are expanding quickly. fourth quarter. Another 138 vessels were contracted efficient per unit. But until then, it will continue to be
during the first quarter of 2021. challenging to employ the 3 million teu orderbook that is
BUT INCREASED FOCUS ON FLEXIBILITY
scheduled for delivery before 2024.
The polarised orderbook clearly signals that marginal cost FEW VESSELS SCRAPPED
per moved unit still dictates fleet compositions on deep Demolition activity remains low. Approximately 1 million
AGE DISTRIBUTION (MILLION TEU) FLEET DEVELOPMENT (MILLION TEU) FLEET RENEWAL POTENTIAL (TEU)
8 2.0 20 .0%
2
Fleet growth
Percentage of fleet
7% 8% 12.000 teu +
6%
28%
10 .0%
1.5
6%
6 4% 1.5
Orderbook / fleet >20 yrs
4%
0.0 %
5%
1%
19% 21% 1.0 3% 3% -10.0 %
4 0.5 -20.0 %
1
15%
13%
-30.0 %
0.0
2 5%
-40.0 %
0.5
-0.5 3-11,999 teu
2%
-50.0 %
< 2,999 teu
0 -1.0 -60.0 %
0
0-5 5-10 10-15 15-20 20-25 25+ Orderbook 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 0% 10% 20% 30% 40% 50%
Orderbook/fleet
< 2,999 teu 3-11,999 teu 12.000 teu + Orderbook
Sources: Clarksons, Danish Ship Finance
Shipping Market Review – May 2021 24CONTAINER DEMAND OUTLOOK
Container demand is expected to grow in tandem with the global economy in 2021 and 2022
The temporary factors supporting Container demand during the fourth quarter of 2020 BUT PERIODS OF LOW DEMAND ARE EXPECTED
and the first quarter of 2021 are not expected to last, but stronger global economic Nonetheless, demand conditions are expected to normalise later in 2021 or into 2022.
growth is expected to drive demand growth of 5-6% in 2021 and 3-4% in 2022. Initially, there is likely to be a temporary drop in Container demand, since consumers may
spend more than usual on services after months of lockdowns without travel and leisure
THE GLOBAL ECONOMY IS FORECAST TO EXPAND BY 6% IN 2021
spending. Knock-on effects from unemployment and business closures could intensify the
The IMF expects global GDP to increase by 6% in 2021 and 4% in 2022. All major
effect and create a period of low activity and low box rates if capacity is not managed
economies are expected to grow, but not all may regain the territory lost in 2020.
carefully.
CONTAINER VOLUMES ARE LIKELY TO REGAIN THE LOST TERRITORY DURING 2021
EARLY SIGNS OF NORMALISATION
Current projections for Container volumes seem to indicate that the robust volume
Chinese PMIs dipped briefly in February but recovered in March. Still, growth in credit,
rebound will likely continue until a significant proportion of consumers have been
electricity generation and rail freight has declined. This could indicate that we are likely to
vaccinated, although the peak impact of the change in consumer spending is likely to be
see the peak in global manufacturing growth very soon. If this is the case, the outlook for
behind us. If that turns out to be fairly accurate, Container demand could grow by 5-6%
Container volumes should be revised downwards sooner rather than later. Still, Container
during 2021, with volumes ending up 4% above the 2019 level.
volumes are projected to grow by 3-4% in 2022, but the outlook is clearly uncertain.
CONTAINER THROUGHPUT – CHINESE PORTS MONTHLY INDICATOR (YOY) CHINESE PMI DATA
60% 55
40% 50
20% 45
0% 40
-20% 35
2017 2018 2019 2020 2021 2017 2018 2019 2020 2021
Source: Clarksons, Danish Ship Finance
Shipping Market Review – May 2021 25DEEP DIVE: LONG-TERM TRENDS IN CONTAINER DEMAND
Structural shifts could be lowering the long-term outlook for the largest vessels but improving it for mid-sized vessels
The pandemic has introduced some unusual short-term years, due to underinvestment, underemployment and supply chains with automated production closer to
effects on consumer spending that have benefited labour force declines in many economies. Global GDP is consumers have been going on for the last ten years. The
Container demand hugely. Still, it will have some expected to be about 3 percentage points lower in 2024 pandemic could be the shock that kickstarts the trend in
medium- and long-term repercussions that, in than pre-pandemic projections suggested, according to some sectors and industries, while others may simply opt
combination with pre-existing structural trends, weaken the IMF. to hold more inventory.
the demand outlook for the largest Container vessels.
CONTAINER VOLUMES MAY GROW MORE SLOWLY THAN GDP LABOUR COSTS ARE NO LONGER THE MAIN FACTOR
There seems to be little to suggest that Container
Container demand has historically outpaced GDP growth, Offshoring production to markets with low labour costs
volumes will not continue to grow, but trading patterns
but ageing global consumers and the ensuing shift in and then shipping it to consumer markets on mega
could mean that the largest vessels start falling out of
consumption patterns towards the service sector (e.g. vessels originally made a lot of sense when labour costs
favour.
healthcare and leisure spending) have reduced this trend. were the focus. But in today’s market, where automation
HEAD-HAUL RECOVERY Emerging global consumers are generating less deep-sea is reducing manufacturers’ dependence on labour costs
Head-haul demand volumes should rebound quickly, as head-haul demand per dollar growth than their and the climate agenda has expanded to include supply-
advanced economies are expected to recover sooner and predecessors. Most live in Asia (a back-haul route on the chain emissions (Scope 3 emissions) and circularity, there
more strongly than emerging economies, likely reflecting east-west trade) and are more likely to demand access to seems little indication that production will continue to be
earlier access to vaccines and therapies. rather than ownership of goods, weakening the highly centralised. Naturally, some production will remain
relationship between economic growth and Container centralised, but a large share may become regionalised.
BUT MANY EMERGING CONSUMERS ARE BEING LEFT BEHIND
volumes further.
Still, large swathes of the next-generation consumers are REDUCED LONG-TERM OUTLOOK FOR THE LARGEST VESSELS
finding it difficult to regain their footing. Young people SUPPLY CHAINS ARE UP FOR REVIEW Container demand is unlikely to decline in the coming
and lower-skilled workers (many employed in highly The supply chain disruptions caused by the pandemic years, but there is a question mark over the dominance of
contact-intensive sectors) have been among the most have accelerated pre-existing trends, hastening the shift the mega vessels trading east-west. Many of these will
heavily impacted, with sharp rises in unemployment towards automation, reshoring of production and supply still be required, but alternative lanes with more flexibility
rates, declines in labour force participation, reduced chain resilience across sectors and industries. Few of are likely to emerge alongside these main infrastructures.
incomes and permanent shifts in consumer preferences. these trends are supportive of long-term demand for the We expect to see more regionalisation, shorter travel
Worker reallocation across sectors is likely, but it will largest Container vessels. distances and mid-sized vessels defining the long-term
come at a cost, as average earnings for those who make outlook for a decarbonised Container industry.
the switch will fall. SOME PRODUCTION COULD BE MOVED CLOSER TO CONSUMERS
The pandemic – and the recent blockage of the Suez
GLOBAL GDP COULD BE 3 PP LOWER IN 2024
Canal – has reminded us that our super cost-effective,
The pandemic is expected to have long-lasting adverse
just-in-time manufacturing ecosystem, with many
effects on global activity. It is likely to worsen the
companies holding near-zero inventories, comes at a
slowdown in global growth projected for the next few
cost. Yet, discussions about having more regionalised
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