Danish Ship Finance, the Scandinavian shipping bank, has just published its eagerly anticipated forecasts for the industry. Published twice a year, the report is one of the most keenly read by the world’s shipowners. The mood of the latest report is decidedly sombre.
Danish Ship Finance warned in its latest report that shipping’s value propositions are being redefined dramatically.
“[T]he shipping industry is in the midst of a process whereby supply continues to expand while medium to long-term seaborne trade volumes seem to be on the brink of stagnation or are facing very low demand growth,” the ship finance specialist maintained. “This apparent decoupling is expected to introduce massive changes to the competitive landscape of the shipping industry within the next five years. We believe that the forces currently in play will introduce far-reaching changes that redefine or augment the established value propositions within the shipping industry. Some players are already adapting successfully, while others are lacking behind.”
In the shipbuilding sector, the bank said ordering activity and continuous pressure on newbuilding prices would continue in the coming few years, which will see the number of active yards reduced “dramatically” while capacity at continuing yards will be mothballed.
For the container sector, Danish Ship Finance said its biggest concern centred around the tonnage providers, particularly the smaller players, which could become increasingly marginalised as the liner alliances become capable of servicing their trades with less chartered tonnage.
In dry bulk, Danish Ship Finance questioned the perceived wisdom that the sector has bottomed out.
“It looks as though 2016 will end on a better note than it started,” the bank reported. “However, even though the last quarter especially has been good compared with the first quarter, it is too early to say that the trough is behind us.”
For both crude and product tankers, the bank warned premature scrapping will be necessary as future demand will not be sufficient to absorb all the new ships entering the trades. Moreover, the impact on secondhand values will be significant for both crude tankers and LR product tankers since the age profile of both fleets indicates that the average age of the vessels to be scrapped could be as little as 17-18 years.
“If this is the case, older vessels could see their value reduced by up to seven years’ worth of expected future earnings,” Danish Ship Finance warned.
For the LPG trades, the bank said the outlook for 2017 and 2018 is subject to a large orderbook, a reduced economic growth outlook for Asia and the risk of shorter travel distances.
The LPG orderbook currently equals 22% of the fleet, indicating what the bank described as “significant expansion potential”. At the same time, scrapping potential is limited, as only 5% of the fleet is older than 25 years.
“We consider it unlikely that freight rates for VLGCs and MGCs will remain stable without significant scrapping – which could include younger vessels,” the bank stated.
Source: splash. 15 December 2016