30 Sep 2020
CMA CGM has had an eventful past week with a new 23,000 teu vessel going into service, investment in a...
Maritime trade in transition
Chris Pålsson, Head of Lloyd's List Intelligence Consulting, opens the Lloyd's List Singapore Business Briefing with his big picture view of the world fleet. In his presentation, Chris provides a macro-economic overview of the industry, and talks in detail about the outlook for the energy sector, world fleet trends along with shipbuilding forecasts.
Watch the video to understand the drivers for market growth or contraction in your sector and consider the potential outcomes from the renewable energy revolution.
Don't have time to watch the video? See the full video transcript below.
Ladies and gentlemen Mr Chris Pålsson.
Thank you very much Richard, and ladies and gentlemen what a pleasure to see you all here, I'm glad you can make it. I'm going to keep to my ten minutes(ish), I'm a consultant after all. First a message from our legal department, please don’t pay any attention to what I'm about to say.
So we'll start with the macroeconomic overview, and why not start at the top with the global GDP development here expressed in US dollars, and in its latest forecast the International Monetary Fund forecasts that global GDP will grow by around 3.8% within the next three or four years, we are currently slightly above three, now that is of course good news the majority of the gravity will be from this part of the world.
As you know trade is a significant part of GDP and our trade model where we run 3.8% per annum growth suggests that by 2021 world trade would have grown by two-and-a-half billions tons should the IMF forecast be correct. That is of course lovely and even better so is that according to our trade model there two billion out of the two-and-a-half billion will be seaborne, and that is fantastic news. The world has not come to a complete stop and the future is not cancelled, not yet anyway. That actually means that the average annual growth rate would be slightly below the GDP growth at around 3.5% which actually is higher than the five years we have behind us. Much of the reason that the past is lower is due to crude oil trade that actually was on a slightly declining slope until the crude oil prices fell off the cliff mid 2014 and trade recovered quite rapidly to the benefit of not least tanker ship owners.
So driving the future growth oil demand would benefit much from the growth of the world vehicle fleet, particularly here in Asia, shale gas will drive parts of the chemical trade, energy generation will drive coal, gas and not least renewables. And speaking about energy, which is of course at the core of very much what goes on in shipping, this should be a familiar slide at least in terms of its content, this is the development over time of energy consumption in the world by the source of fuel, and today one-third of energy consumed in the world is sourced from oil, 24% from gas and 29% for coal, I'm pretty sure that that is well-known within the shipping industry and completely unknown to the main public. Renewables, if we exclude hydro and nuclear, account for around 3% today. BP forecasts, and that's pretty much aligned with EIA and IEA, in their long-term forecast that renewables will grow about ten times faster than oil over the next 10 / 15 years. Now should that be true then renewables would have a share slightly below 8% by 2030 but fossil fuels would still account for more than 80% of the source to the energy.
A little bit closer on the pricing here. Here in one graph you see the prices for coal, natural gas in the US and crude oil expressed in dollar per oil equivalent unit. A couple of messages I'd like for you to take away here, natural gas in the US, the green line, decoupled from the development some eight years ago, that is due to the shale gas revolution, you may call it, i.e. the fracturing technology, that suddenly made natural gas in the US as cheap as coal which means that it is almost for free. Another point is of course the sharp drop in oil prices with partly it could be explained by a similar technology used in the production of oil, tight oil we call it, which added a lot of new capacity and OPEC’s response to this, led by Saudi Arabia, was to keep supply going in order to push these out from the market. It was temporarily successful at a very high price, and I'll say temporarily because they are back again, maybe stronger than before.
So let's just have briefly a little look at the dynamics of crude oil production. Between mid 2014 and the end of 2015 production increased in the world by 4.2 million barrels per day led by Iraq, North America to say something and then of course Saudi Arabia. The impact on prices was that it dropped by $80 per barrel, a year which was completely off the cliff. Then between end of 2015 to mid 2016 production retracted by two million barrels per day and the price increased by $17, and since then we have added yet another $2.7 million dollars per barrel with no impact whatsoever on the price, or marginally, which suggests that we are running at a tight balance here because consumption has increased significantly during the same period of time.
Iran is one key player, and this is derived from the LLI unrivalled service called APEX, which tracks every oil shipment and goes back a long period of time. These are exports and shipments rather out of Iran and you can clearly see the impact of the embargo. Throughout the embargo shipments continued to India, China, Korea, Turkey and Japan. Post-embargo volumes to India have doubled and we have also seen strong new entrance of volumes to Italy and Spain. This may be a quantum leap step but I have to cover everything in ten minutes as you say.
Let's view some of the structures in the world fleets and how that may tie-in to what I've just said here. Starting with a crude oil tanker fleet, and the structure of this slide is that it shows the building year of the current fleet, and to the right of the vertical orange line that you may or may not see, you see the forecasted delivery of the ships currently on order. The crude oil tanker fleet is a very young fleet in many respects. With that follows that if you are looking to scrapping yourself to a better future then you need to start targeting very, very young ships, not a pleasant way to go and probably not going to happen in any large scale. The impact of the increased business on the back of the falling oil prices led to new ship ordering pretty big time. We currently have an order book that looks to 20% of the current fleet capacity, which is quite significant, 76 million deadweight. Most of it to be delivered next year and that of course is slightly challenging.
Looking at the refined products, the product anchor fleet, including the combined tankers at first glance it looks like quite the opposite. Quite a lot of scrapping candidates, well if you draw the line by the millennium shift you have 4,200 of them which may be good news, the downside is that the majority of them are very, very small, so even if we were to remove all of them at once you are only balancing out the current order book more or less. But the order book by any means is quite reasonable you could argue, 40%, 450 ships, 25 million deadweight, to be compared to the older one, 4,200 ships and 29 million dead-weights.
The dry bulk one, numerous very, very small ships that don’t add up very much capacity, a small and shrinking order book, which is quite unusual in the dry bulk sector but that is the case right now, 11% of the current fleet and it is falling. That of course sets the scene for something if you start thinking about the lead time between the contract to delivery and we have already seen signs of positive development.
Then we take the container ship profile and this is my second last slide so you can start breathing again Richard, which sort of combines the worst of the two worlds, a limited number of scrapping candidates and a bulging order book, not the ideal place to be you may argue, and you may find that a good argument as well. We have seen a couple of examples of really young ships that are actually heading for the beaches. I have a point to make, and I would say that there were around 100 ships per year delivered between 2007 and 2012 that were not state of the art from an energy efficiency point of view, these are still very young ships but as we head towards 2020 where we have the regulation for emissions kicking in then we may see the number of early retirements actually picking up.
So the final slide here shows the development over time of the shipbuilding order book, which is on a declining state here. If you look at it in relation to the world fleet capacity we are actually going down within the next two or three years according to our forecast anyway, below 10% which is a place we haven’t been since the middle of the 1990s. So ladies and gentlemen thank you very much for your attention, and Richard the word is yours again.