Uncertainty continues to grow in the shipping industry which could spur further consolidation across the shipping and shipbuilding sectors says BRS in their Annual Review of Shipping and Shipbuilding Markets released today. The review discusses how some shipping segments outperformed others and provides a comprehensive update on how the shipping industry is preparing ahead of stricter environmental regulation.
The BRS review provides analysis of all the activities and trends of the 2019 shipping markets, in what has been another challenging year for many players. As usual, the review provides specific analysis of all the major sectors: Shipbuilding, Dry Bulk, Tanker, Chemical, LNG, LPG, Offshore, Ship finance, Cruise, Containership, Car Carrier and Ro-Ro. For those wishing to republish part of the review, kindly credit the origin.
The fog is lifting!
We announced 2019 with uncertainty and it certainly lived up to our expectations. Although surprises and unforeseen circumstances are the foundations of the maritime world, we see some clarity in the years to come. It appears that a combination of factors starting to emerge should lead to a healthier and a more sustainable future for shipping.
SUSTAINABLE SHIPPING
The world has woken up to the environmental damage mankind has brought on itself and despite the tepid leadership our governmental organizations have shown, the general population has identified emissions in all their forms as being one of the root causes of a pending climate disaster. Investors, universities and their students, the consumer and the manufacturing industry have all decided that if governments can’t or won’t put meaningful measures in place to limit global warming, there will be economic sanctions enforced by the consumption choices of the world’s citizens. The latest restrictions on the emissions from shipping came into force with IMO2020 but companies, countries, ports and zones are pushing for much tighter restrictions. There is the perception that emissions are causing global warming. As casualties grow, this will strengthen rising sea levels and consequential risk of low-lying land being submerged, increased extreme weather events impacting all corners of the globe be it fires, droughts, floods, hurricanes or typhoons. The consequences of these are the transfer of populations and sadly the loss of human life. If shipping was a country it would be the 6th largest polluter in the world and no doubt shipping, like other industries which heavily contribute to emissions, will have to invest more in Research and Development and find new ways of transporting by sea while emitting less.
SHORTER ASSET LIFE
The useable life of an asset can no longer be the standard 25 to 30 years which owners used to amortize their assets, as like technology and consumer goods, it will shorten significantly. Already financing seems to be limited to 7 to 10 years with the leasing houses who are now responsible for the lion’s share of financing in the maritime world. Shorter shelf life, means less risk, but higher costs. Combine this with ‘sustainable lending’ and we should see a far less speculative industry and one that requires end users and financial leases or charters to guarantee a return on ever more expensive technologically advanced vessels. On the other hand, there is a current of thought that foresees extending asset lives with refitting and upgrading. In any case, it will require constant investment and owners will only undertake it if there is a guaranteed payback or penalty for not adopting the technology.
ADJUSTEMENT OF YARD CAPACITY
Before building too many ships, the Asians (particularly the Chinese who opened themselves to the world at the end of the last century) built too many shipyards. During 2019, shipbuilding nations and particularly China, continued to rationalize yard capacity through mergers and bankruptcies in order that their yards be not only profitable, but capable and responsible for providing sufficient capacity to renew and to innovate on a much shorter cycle.
DATA: ARTIFICIAL INTELLIGENCE
Shipping markets are becoming more financially sophisticated and freight hedging tools are becoming mainstream. They will soon be essential in every owner’s and charterer’s maritime endeavours. When used correctly, they permit protection and assure the financial returns required to keep up with technological innovations. It is no wonder that the owner operator model, that requires hedging with FFA’s and using options to make and secure significant profits, has led to very big discrepancies between the results received by owners, freight traders and commodity giants. The most successful users are often the most sophisticated with the best access to data and the resources to correctly interpret it.
ENERGY: THE UNKNOWN
It is certain that fuel for transporting by sea will not be the same in the future as it has been for the last 100 years. To meet the ambitious targets set by the IMO of reducing CO2 emissions by 50% over 2008-2050, other energies will undoubtedly play a larger and larger role in ocean transportation. It will be sometime before any one energy source replaces oil but a multitude of possibilities are starting to emerge: natural gas, hydrogen, wind, solar, methane, methanol, ammonia, LPG all with their economic restrictions and potentials. Innovation is leading to a less speculative market, be it driven by shipyards, citizen pressure to curb emissions sustainable financing, or by improved data transparency and tools to monitor and evaluate technology and commercial practices.
The oil majors, the miners, the mega container carriers are already increasingly working hand in hand with yards and owners to prod our industry towards a future where it is capable of meeting future global transportation requirements efficiently and sustainably. Indeed, an industry that can accurately calculate its environmental savings and the associated costs, is a big step ahead in materializing returns on its efforts. GHG emissions represent a serious challenge for shipping. If this challenge is not taken seriously, it might simply reduce the reliance on international shipping as a transportation mode and support recent calls for de-globalisation. The shipping community needs to reconquer public opinion as transportation at sea remains the most economical transportation per ton-mile in terms of energy use. We are starting to leave the boom and bust shipping cycle to concentrate on innovation, technology, data and financial tools where returns can be foreseen and anticipated. Accordingly, shipping and the environment will be better off as a result.
Source: BRS
