shipping outlook 2021 – expect the unexpected
TRANSCRIPT
Shipping Outlook 2021
Shipping Outlook 2021 – expect the unexpected
Foreword
Shipping Outlook 20212
Ladies and Gentlemen, dear Clients and Friends of the shipping industry,
The year 2020 was extremely exceptional and challenging – both for the global economy and for the shipping industry. However, although the growth rates in the global economy collapsed in 2020 due to the Corona crisis, the shipping industry experienced a really good year for the most part. Freight rates in the three major sectors of containers, bulkers and tankers were on average at very solid levels. Even in these times of crisis, global trade just does not come to a halt. At the same time, the shipow-ners‘ recent cautious ordering policy strategy has paid off – rates were not suppressed by an oversupply of capacity. This differentiates the current situation from previous ones.
Is this positive development set to continue in 2021? Our Chief Economist Dr. Cyrus de la Rubia addresses this question in his analysis. To make a long story short: We are looking to the future with optimism! Demand for container transport remains strong, and for bulk carriers it will depend on whether China continues to order iron ore and coal as strongly as it has recently. The V-shaped recovery of the Chinese economy so far at least points to this. In the tanker segment more patience is required. Here we expect increasing rates in 2022.
So everything is good? For the moment, yes, but after the experiences of 2020, we still recommend the maxim: Expect the unexpected – this has always proven to be true.
Enjoy reading, we look forward to exchanging ideas with you.
Best Regards
Dr. Nicolas Blanchard Jan-Philipp RohrChief Clients and Products Officer Global Head Shipping
Jan-Philipp RohrDr. Nicolas Blanchard
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Looking back, 2020 was a wild ride for shipping. Would you have expected container freight rates to increase to all time highs ironically in the year of the deepest recession since the WWII? Could you have imagined that the de-mand for tanker capacity went through the roof, while oil prices plunged intonegative territory?
A wild rideOne thing is certain: You should always expect the unexpected. Having said this, I will try to give you an impression where we think the shipping market might head to next year being well aware that black swans are all around.
Shipping Outlook 2021 – expect the unexpected
Source: Macrobond, HCOB
Average earnings, US-Dollar/day
100000
90000
80000
70000
60000
50000
40000
30000
20000
10000
19000
18000
17000
16000
15000
14000
13000
12000
11000
10000
9000
Containerships,18957 USD/day (right hand scale)
Bulker,14381 USD/day (left hand scale)
Tanker,7538 USD/day (left hand scale)W2 W15 W28 W41
2019 2020
Shipping Outlook 20214
Source: HCOB Economics, IMF
Germany
0,6
5,0
3,7 3,68
0
-8
2019 2020 2021 2022
-8.1
0.0 3.6
Latin Am.&Caribbean
4
-4
-12
2019 2020 2021 2022
2.7
Euro area
1.3
-6.6
6
-2
-10
2019 2020 2021 2022
5.3 2.7
8.0
Emerging & Dev. Asia
5.5
-1.1
6.312
4
-4
2019 2020 2021 2022
China
6.11.9
8.25.8
16
8
0
2019 2020 2021 2022
United States
2.2
-3.7
2.78
0
-8
2019 2020 2021 2022
2.7
World
2.8
-3.8
4.18
0
-8
2019 2020 2021 2022
5.1
Growth all over the world
Let’s start with the big picture. We expect the year 2021 to be divided into two parts. In the first half of the year, the pandemic will initially worsen in parts of the world and contribute to a renewed economic slowdown. In the second half of the year, the pandemic will be increasingly pushed back by broad vac-cination campaigns. Obviously, this does not apply to China where a nice V-shaped recovery has happened. In this environment inflation will increase again from a very low level, especially due to the higher energy prices, while the increased freight rates and transport costs should not to have a major impact on overall inflation. Will this general picture translate into higher trade volume by the end of 2021? Not necessarily. The boom in container trade has been triggered – amongst other things – by a shift from services consumption to goods consumption. In other words, many people bought a sofa set or a new kitchen, as they were not able to spend the money for travel and con-certs. Thus, if people start to reverse their spending behavior amid mass vac-cination, this might dampen trade somewhat in the short term.
How will interest rates, the Euro/US-Dollar exchange rate and the oil price evolve in this environment?
GDP Change
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The Federal Reserve Bank as well as the European Central Bank are very, but very clear that they will continue to keep financing conditions extremely favorable over the medium term. Our advice to those who speculate that long term rates are going significantly up is: Don’t fight the Fed and don’t fight the ECB.
Stay where you are! Interest rates are barely to move in 2021
Policy rate, USD-Libor and 5 years swap rate
Source: Macrobond, HCOB
5y swaprate: 0.62
USD-Libor: 0.25
Policy rate:0.25
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.02016 2017 2018 2019 2020 2021 2022
Shipping Outlook 20216
The Euro’s appreciation over the last weeks is about to continue, based on a risk-on mood which usually is benefitting the Euro. This trend is supported by the positive decision on the 750 bn Euro EU-recovery fund which will support growth in the euro area.
Oil markets: normalization, but only the start of itWill we see negative oil prices again this year? Though you never know, it looks that the constellation we had in spring 2020, where the corona induced slump in oil demand combined with the price war between Saudi Arabia and Russia, which led to a steep increase for floating storage, has been unique. However, it looks as if the OPEC may still be too optimistic about growth in oil demand underestimating the weakness of the global economy in the first half of 2021. While prices should increase in the second half of this year the average price for Brent will be at around 49 US-Dollar/Barrel according to our forecast and therefore not miles away from the average level of 2020 (Brent: 41.3 US-Dollar/Barrel).
US-Dollar under pressure
EUR/USD
Source: Macrobond, HCOB2016 2017 2018 2019 2020 2021 2022
1.28
1.24
1.20
1.16
1.12
1.08
1.04
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Brent US-Dollar/Barrel
It should be generally noted that the supply side in shipping has improved very much over the last years. Orderbooks have normalized significantly and the recent jump of prices for scrapping steel bodes well for the expectation that scrapping activity, especially in the bulker and tanker segment, will in-crease this year thereby improving the market balance which has been cha-racterized for many years by huge oversupply. The requirements of IMO 2020 combined with higher demand for ESG complying assets help to break the too well-known pattern of boom and bust in the shipping industry, given that older vessels have to be sorted out eventually. Note therefore that vessels with higher environmental standards should be better positioned in the fu-ture to withstand any slowdown.
What are the implications of this picture for shipping?
Source: Macrobond, HCOB
90
80
70
60
50
40
30
20
10
02016 2017 2018 2019 2020 2021 2022
60,0
41,3
Shipping Outlook 20218
Going through the different shipping segment and starting with container vessels, over the last few months we saw a boom that was very much driven by high demand for consumer goods from the United States and high growth of intra-Asian trade. This extraordinary development is about to continue over the next months before normalization will kick in. High corona related demand backlog, which seem to ensure robust need for transport over the coming months and container boxes, which have been dislocated in spring due to the sudden stop in trading and now need to be relocated, will continue to absorb vessel capacity. In addition, dock workers in quarantine due to corona are an additional factor which delays the transport.
What should be clear, however, is that these are extraordinary circumstances and those record high levels of freight rates are not sustainable over the whole year. However, even after a fall in freight and charter rates, the sound discipline
Throughput through the roof
RWI/SL Container Throughput Index
Source: Macrobond, HCOB, RWI
125
123
120
118
115
113
110
108
105
103
Jan Apr Jul Oct Jan Apr Jul Oct
2019 2020
12/31/2019Covid-19 appeared in Wuhan/China
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showed by liner companies combined with the fact that new vessel supply is rather modest should help maintain adequate rates. Comparing the perfor-mance of large container vessels used in the main routes with the smaller vessels employed in intra-regional trade leads to an ambiguous assessment. Currently the large container vessels obviously are the outperformers. Howe-ver, the vessels focused on intra-regional trade are usually characterized by a lower but steadier cash flow.
In Bulker all depends on ChinaBulker continue to depend on the performance of China’s demand for iron ore and coal. The rapid recovery of China is good news in this respect.
It is remarkable that even when China’s harbors were disrupted by the pande-mic last winter, the average earnings rates did not enter into a free fall like happened in 2008. Current levels are still covering OPEX. The environment for bulker remains challenging, however. The very granular market with in-tense competition is more vulnerable than for example the market for cont-ainer vessels where the main players are well known. While the recent fall in coal imports by China may be an indication of increasing coal demand over
Source: Macrobond, HCOB Economics, NBS
China GDP level, index 220
210
200
190
180
170
160
2017 2018 2019 2020 2021
In Bulker all depends on China
Shipping Outlook 202110
Source: Macrobond, HCOB Energy Information Administration (EIA)
China GDP level, index
the next months, people are familiar with China’s fickleness with respect to its decisions to purchase coal from abroad. We expect that iron ore imports, on the other hand, will show a more consistent picture of increasing demand, in continuation of the decades long upward trend and based on the sound expansion of the Chinese economy. This should contribute to some stability of this market.
Hangover MoodThe tanker market is still in hangover mood, after having registered in spring the highest daily revenues ever since statistics began in 1990. The average tanker earnings reached at their highest point fantastical 98.000 US-Dollar/day. The combination of a disruptive corona induced fall in oil demand and simultaneous price war between oil giants Saudi Arabia and Russia delivered the perfect storm, which led to a jaw dropping jump in demand for floating storage. And here comes the hangover: the floating storage is now unwinding gradually. This will very probably continue over the next months.
While some fundamentals are improving, as the normalization of the oil mar-ket means that oil production will increase step by step and in parallel to the increase of demand, a positive impact on rates will be felt most probably only in 2022.
105
103
100
98
95
93
90
88
Bar
rel/
Day
, Mill
ion
2014 2016 2018 2020 2022
99,2 million
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Dr. Nicolas BlanchardChief Clients and Products [email protected].: +49 (0) 40- 3333-0
Shipping
hcob-bank.com
Hamburg Commercial Bank AG
Gerhart-Hauptmann-Platz 5020095 HamburgTelefon 040 3333-0
Author:
Jan-Philipp RohrGlobal Head [email protected].: +49 (0) 40- 3333-13584
Dr. Cyrus de la RubiaChefvolkswirt [email protected] Tel.: +49 (0) 40-3333-15260