All posts by maritimeinsight

Shifting oil market dynamics key to 2018 tanker trade prospects says MSI

Q3 earnings have floundered but peaking fleet growth and increased tonne-miles could see spot rates stabilise and T/C rates make a modest improvement

London, August 16, 2017. The Q3 2017 tanker market is proving vexatious for owners still struggling with the effects of fleet oversupply. But in its latest monthly forecast, Maritime Strategies International observes that changing trade patterns could help stabilise the market towards year-end and into 2018.

With all-OPEC crude exports setting record highs in July, the cartel’s attempts at lowering production are clearly open to question. There was a reduction in flows from OPEC’s Gulf producers while China’s imports tumbled to seven-month lows in July.

Exports are seeing a divergent trend in the group though, with African volumes of lighter grades on the rise while Middle Eastern medium/heavy crudes have been receding.  China’s decline could signal the potential start of a slowdown in imports, yet the July figure was still up by 12% from a year prior and the ongoing downtrend in China’s domestic crude output should continue to lend support to imports.

With Saudi Arabia pledged to cut September crude allocations to Asia by 10%, Asian importers may buy more longer haul crudes from the Atlantic Basin to fill the gap, according to MSI Analyst Sierra Highcloud.

“Though the remainder of Q3 will be weak, fleet growth has now moved past its peak which should have some stabilising effect as we look to 2018. Despite falling in June, T/C rates are set to see a modest improvement over our forecast. However, liquidity is thin and should the upside expected in Q4’s spot market not materialise, the period market could move lower as owners look to protect against spot market downside.”

Other factors are in play too. India has been able to buy more US crude after recent upgrades which have allowed refiners to easily switch between running light and heavy crudes. African OPEC volumes of lighter grades have tracked higher while Middle Eastern medium/heavy crudes have been receding.

In Venezuela, where output has already seen a dramatic decline due to political turmoil, any possible oil-related sanctions would invariably have numerous and far-reaching impacts across the tanker market, adds Highcloud.

“There would be winners and losers within the different tanker segments, and were the flow of 750,000 bpd between Venezuela and the US to dry up, Aframaxes would suffer and likely cede trade to larger vessels as the bulk of these volumes would be diverted to Asian buyers. Equally, the US would have to source replacement grades from further afield, giving an additional leg of support to tonne-mile demand.”


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About Maritime Strategies International
Since its inception in 1986, Maritime Strategies International (MSI) has established itself as one of the shipping industry’s foremost independent research and consultancy firms. Our success is built on a strong focus on maritime economics and econometric modelling. We provide a comprehensive range of advisory services, including forward valuations market forecasts, reports and commercial consultancy services for all shipping sectors. MSI asset price forecasts are used by ship finance providers holding 40% of all shipping bank debt and we provide analytical and methodological support to give the context and credence to our results.

For further information and interviews, please contact Neville Smith, Mariner Communications Tel: +44 7909 960 182.

Supply/demand improving but shipyards must still fight for survival, says MSI

Sea storm

Some major market indicators are improving but yards remain underemployed and newbuilding and second-hand prices have not yet hit bottom

London, 2 August, 2017. After a painful decade in which the shipping industry has suffered from an unhealthy supply position, a sustained reduction in contracting has at last begun to move the orderbook into closer balance with an improving demand picture.

But despite the positive news, shipyard prices may still fall according to the latest MSI analysis. Too many yards still have too little forward cover and even those considered high quality facilities must be considered at risk of closure.

Comparing the situation of mid-2015 with today’s orderbook, MSI analysis shows that orderbook levels across all the main sectors have come down significantly. Even so, several factors weigh on the yards’ ability to compete until demand and earnings pick up towards the end of the decade, says MSI Director Dr Adam Kent.

“On an annual average basis, MSI believes there is around another 5% for newbuilding prices to fall in 2018. Obviously this will be partly dependent on the shipyard and the vessel type, but we think that shipyard forward cover will fall further in 2018, as deliveries outstrip contracting. What this means for newbuild prices as a whole, is that we don’t believe the bottom of the price cycle has been reached yet,” he says.

Many shipyards will remain woefully underemployed in 2018. The only facilities looking relatively healthy on a historical basis are European, where cruiseship orders placed in the last 12 months will keep them busy for some time to come.

Scheduled output in South Korea in 2017 is at around 100%, but looking just six months out to 2018, the country’s Tier One yards are only at around 50% utilization. Yards that remain so severely underemployed will continue to price low to attract new orders.

“China is looking a little better at the Tier One yards, though there is still a large swathe of Tier Two yards that have no orders, and the same goes for Japan. There has been a lot of talk about a ‘Chinese White List’ of shipyards but when we look at these, it is apparent that it has been a long time since many of these have taken any orders, ” adds Dr Kent.

MSI expects shipyard costs to decline marginally in 2018, largely driven by commodity prices and the reduction in steel plate prices in 2018 before we see some uptick in 2019 and 2020.

Looking at second-hand vessel prices, where the actual bottom of the price cycle will be found is also dependent on the sector under analysis, but MSI does not expect a sustained recovery second hand prices across the sectors until 2019 or 2020, according to Dr Kent.

“Based on MSI’s quarterly forecasts for second hand prices, Capesize vessels will actually come off further this year and the bottom of this cycle will be in Q1, 2018. Tankers will hit bottom a little later but MSI believes the worst stage of the cycle has already passed for containerships.”


About Maritime Strategies International
Since its inception in 1986, Maritime Strategies International (MSI) has established itself as one of the shipping industry’s foremost independent research and consultancy firms. Our success is built on a strong focus on maritime economics and econometric modelling. We provide a comprehensive range of advisory services, including forward valuations market forecasts, reports and commercial consultancy services for all shipping sectors. MSI asset price forecasts are used by ship finance providers holding 40% of all shipping bank debt and we provide analytical and methodological support to give the context and credence to our results. For more information please see

For further information and interviews, please contact Neville Smith, Mariner Communications Tel: +44 7909 960 182.

Education, Technology and the Fourth Industrial Revolution

The future of shipping requires that we invest in education and skills with the same enthusiasm as we embrace technology

The fourth industrial revolution – that is, the digital technology revolution – should not be defined within the maritime industry by technology alone. Rather, it should also promote education and training, seek poverty alleviation and knowledge propagation as the foundations of sustainable global trade.

By adopting an approach that puts the emphasis on development as a means of meeting human needs, we have an opportunity to create an industry that reflects diversity, encourages personal achievement, reflects social values and is fit for the challenges of the future.

Technology alone cannot achieve this, it requires skills and innovation, new champions and entrepreneurs to shape it. These are all traits common to shipping but in the next generation of emerging leaders, they must be used to develop an industry which encourages the development of human capital.

The Trouble with Technology

The shipping industry is in danger of being overwhelmed by a focus on new technology and in the process, being led into a future defined by the technology vendors. Unfortunately, the western view of technology tends towards the patrician – as divisive as it is unifying – and does not address the needs of the majority of the world’s citizens.

This does not stop it being touted as the solution to everything from the crewing crisis to greenhouse gas emissions, but without the social and political groundwork in place to enable it, there is little chance of such results.

In particular, the industry is very bad at recognising the difference between the personal technology that we in westernised economies enjoy and the industrial technologies that can be used to further global development.

These are emerging – quantum computing, gene therapy and AI for example – but the lesson from consumer technologies is the necessity of understanding whether the benefits and risks are properly understood before they are adopted.

The other problem with a technology-led approach is that very few of technologies with which we are apparently obsessed are the solution to the majority of our very physical problems.

They are like another patch of code released to update software that is no longer performing as designed. Simply adopting new technologies as a means of solving short term problems is not a long term answer.

Instead, we need to create a future defined by a sustainable development strategy that actually reflects global trends and the needs of communities around the world.

Trade and Development

It has become fashionable for western economists to call the end of globalisation and a consequent structural decline in world trade, even though serious poverty still exists around the world.

Shipping is the connector between global supply and demand and given the scale of economic development challenge remaining, there is good reason to believe that demand can be sustained, albeit at a lower rate.

In fact the world may be about to see another period of economic development that completes the gravitational shift to the east. China’s Belt and Road programme covers an area that is home to three-fifths of the world’s population and could re-shape supply chains in regions and countries whose development has been stalled by isolation or political systems.

This includes some countries for which the positive impact of globalisation is an increased opportunity for learning and education. We know that bringing people out of poverty depends to a large extent on better access to education, especially for women. It is a once in a generation opportunity.

We know too, that many in the industry fear that the regulatory regime that has governed it for nearly 70 years is, if not broken, then in desperate need of reform. This is not because the ideals are necessarily wrong, but because with an apparent breakdown of political consensus, regulation that makes rules by consent cannot function to its fullest extent.

While this may be true at local and some national levels there are other trends in play. For example, we have already seen that citizen activism is beginning to play a more important role in political and social processes.

Greater connectivity makes it harder for barriers to exist in practice but we also need rule-makers who are able to respond to the challenges of the 21st century. The shipping industry needs people who can advocate for it as well as those who can critically appraise it.

A Lack of Image?

While these external influences are continuing to make their mark, the shipping industry is – in some quarters at least – still wringing its hands over its public image. This is ultimately a pointless and diversionary process, a rabbit hole of self-regard that simply skirts around more important issues.

While the industry obsesses about why it does not garner its share of the news headlines, shipping is missing an opportunity to use its central role in world trade to support the creation of better societies and win back trust in globalisation.

In the process it would have a much better chance of building for itself a sustainable public policy position, using the profits it generates – even in the bad times – to invest in further education. Such a programme could help to create the professionals that the industry needs and in turn could also foster new technologies from which it could benefit in the longer term.

If the shipping industry wants something back from society it needs to put more in. There are laudable and concrete projects that are already doing this – physical commitments that should be applauded – but education, unless it is for the seafaring workforce, receives far too little attention.

Above all, what is needed is an understanding about the kind of people we need to attract to the industry in future and how to train and educate them.

In the future we are likely to see an increase in automation and machine learning, a change to the way that industrial sectors operate and how many people they employ. The same is arguably true for education; it cannot simply rely on either national public education or mandatory skills training to shape and nurture the talent we need.

Machines of loving grace

The worst possible error would be to simply shrug our shoulders and say ‘not to worry the machines will run everything in future’. Not only is this to misunderstand the relationship between humans and machines, it is an abdication of our responsibilities to each other and to succeeding generations.

The head of the leading international shipping organisation said recently that equipment vendors should not be allowed to push shipping down a road towards the adoption of certain technologies simply because it is possible.

The reason that technology is so attractive a solution to so many owners and operators is that it requires so little intellectual effort, only more capex and opex. It allows the patch to be applied without addressing the industry’s deeper needs.

In part because of the clamour around technology adoption, too few people recognise the importance of educating the workforce we need to work with these new technologies, systems and business models.

Those Millennials and Gen Zeroes are likely to take a much less indulgent view of shipping’s traditional exceptionalism and instead see their professional lives as a means of addressing social issues as well as professional ones.

Yes, their ‘native’ attitude towards the use of technology will cause its own displacement and disruption, but if this is something they are doing with broader goals in mind then the result is likely to be a greener, leaner and more socially-engaged shipping industry.

Creating that future would be a far greater achievement than simply applying technology as a means of circumventing the industry’s current challenges. They are far too numerous for that.

And we do have an opportunity to develop that future. It is almost within reach, but it must reflect not just the dreams of a technology-driven ideal, but the education and nurturing of the minds that will help to make it a reality.

Institute of Chartered Shipbrokers signs agreement to increase access to professional education resources in China

Co-operation programme will promote professional standards by making Institute learning materials available in Chinese for the first time

London and Shanghai, April 4, 2017. The Institute of Chartered Shipbrokers (The Institute) has signed a strategic agreement with China’s Ministry of Transport & Shanghai International Shipping Center to expand the delivery of its professional education services.

It promotes co-operation between The Institute and the Ministry of Transport which is designed to improve professional standards for shipping personnel in China and increase opportunities for international exchange in educational excellence.

The Institute will be responsible for developing curriculum content and implementing the programme using experience gained from its work in other developing maritime economies. The Ministry will translate the teaching materials and promote the courses to universities, vocational colleges and the wider shipping community.

Director of The Institute of Chartered Shipbrokers Julie Lithgow said:

“One of our core aims at The Institute is to increase access globally to our qualifications and promote professionalism, especially in key shipping regions. China has been a developing region for us for more than a decade, from the establishment of a Teaching Centre in 2005 to the launch the International Shipping Professionalism Development Programme in 2016. We look forward to welcoming more Chinese students and shipping professionals to a network that stands for lifelong learning, knowledge and integrity.”

The agreement was signed in China during a trade delegation visit organised by Maritime UK and attended by United Kingdom Trade Minister Mark Garnier MP, building on The Institute’s growing footprint in Asian shipping markets.

Mark Garnier MP, said:

“This historic agreement combines two sectors where the UK is an acknowledged world leader; education and maritime services and demonstrates the strengths of UK business in forging new partnerships in high-growth economies. China is a major engine for maritime trade and I’m pleased The Institute has been selected as a key partner to support China’s growing demand for professional education and standards.”

In addition to organising Institute Tutorship courses and training for China’s shipping community, the Institute’s teaching centre in China has arranged Institute Examinations in Shanghai Maritime University every year since 2007. Seminars and networking events are regularly held for Members and candidates, attracting strong attendance from across the local shipping industry.


China March 2017_1

Picture Caption: Julie Lithgow, Director of ICS and Ms. Lei Xiao Fang, Director of Jiaotong International Cooperation Service Center sign the agreement on behalf of both parties. Standing behind are Mr Zhu Chuan Sheng, Vice Director of Professional Qualification Authority, Mr Xu Guo Yi,  Deputy Head of Shanghai Composite Port Management Committee, Mark Garnier MP and Doug Barrow, Chief Executive of Maritime London.

Notes to Editors
The Institute of Chartered Shipbrokers (The Institute) was established in 1911 and received Royal Charter in 1920. It is the only internationally recognised professional educational body in the maritime arena and represents shipbrokers, ship managers and agents worldwide. ICS is based in the heart of the City of London and has 25 branches in key shipping locations worldwide with 4,000 individual and 120 company members. ICS membership represents a commitment to maintaining the highest professional standards across the shipping industry.

For further information and interviews, please contact Neville Smith, Mariner Communications Tel: +44 7909 960 182.


Can Blockchain help design a better maritime internet?

2017-03-02 12.27.58When all you have is a hammer, so the old saying goes, everything tends to look like a nail. When a revolutionary technology such as Blockchain comes along, the temptation must therefore be to view it as the solution to something.

It’s a subject that is beginning to seep into shipping and the pace looks likely to quicken with the announcement of a joint venture between container giant Maersk and IBM. For these partners, the opportunity might be relatively straightforward, since Maersk moves physical cargo and financial information around the world, sometimes with little more than trust as the down payment.

The issue confronting anyone attempting to get to grips with Blockchain is to understand what it might mean for the shipping industry.

As Deanna MacDonald, CEO and Co-Founder of Blockchain Labs for Open Collaboration told the DigitalShip iShipping event in Copenhagen this month, Blockchain is a system of technical components whose abstract nature makes it challenging to explain.

Among these components are platforms, which are the application space for Blockchain, where users can contribute to and take from the open source computing that makes it possible.

This allows the creation of protocols, essentially rules that dictate the types of Blockchains that exist, the first and best known of which was for crypto-currency Bitcoin. Its second plank is ‘smart contracts’ which can be used to embed business logic and processes into a digital space, allowing for business work flows such as documents, messaging, systems or processes to be executed automatically.

Blockchain relies upon users – known as Miners or Validators – to check, confirm and record data, acting as gatekeepers to validate information. In Bitcoin the miner solves a cryptographic puzzle to mint the currency and is paid in that currency for their time and effort.

What makes Blockchain of interest to business as well as hackers is the very high levels of security that enables information exchange or transactions. Users sign to show that they contributed data using public or private keys but what can be seen and by whom depends on familiar read/write privileges.

Underneath the cryptography is a public ledger system or database of digital assets where assets are tracked and traced. Because the ledger is distributed among the network, users can contribute but the data can’t be compromised because it is stored among so many computers.

This fiendishly complicated arrangement, conceived as only a hacker could, is part a secure system of information storage and verification and part social experiment. Or as MacDonald helpfully put it: “the Blockchain provides the digital infrastructure on top of the internet of things. What it asks is can we not better organise the internet and have a single source of digital assets that we can all access?”

The answer for the majority, assuming they can grasp the concept, is maybe. Blockchain’s ‘origins’ in the crypto currency make it appear shady but financial information service providers are already pushing its adoption as a means of clearing the millions of equities, derivatives and other trades made globally every day.

The same is true of larger shippers, carriers and ports – anyone in fact with complex multi-party physical-financial transactions to complete. The paper trail that still dominates shipping, requiring dozens of documents per container move has been crying out for a solution for decades. But MacDonald says Blockchain is about going beyond digitising existing processes, it creates the opportunity to completely re-think approaches.

It opens up the potential for regulatory applications where large amounts of information must be validated and reported – and shipping has plenty of those – in a way that trades manpower for computing power.

“The Blockchain enables peer-to-peer exchange and because you can’t change the records even though the database is accessible by all, it enables trusted interaction between peers and businesses,” she continues. “Essentially you don’t need a third party to validate your information any more, you’ll have trusted immutable source that is tamperproof and common to all.”

This potentially opens up a market to improved checks and balances through the ability to track and store any kind of tangible or intangible digital assets. Reputation can be managed by viewing past dealings and transactions to verify if counterparties are valid.

If this degree of transparency sounds horrifying, MacDonald says the potential to create new types of network models that allow people to exchange information in a trusted and transparent way are clearly of interest to some.

MacDonald’s organisation BLOC has already worked with the Danish Maritime Authority to examine whether Blockchain could be used for compliance with EU MRV regulations. Putting in place a regime for the IMO’s global 2020 sulphur cap might be too big an ask by the deadline, but the IMO is set to begin its own CO2 data collection process, likely to be followed by some kind of regulation.

Some shipowners have pointed out that the issue facing the industry in 2020 is not compliance but enforcement of the regulations and how to ensure a level playing field that does not discriminate against those who want to show leadership.

MacDonald’s vision of Blockchain as a tool of good governance suggests applications in anti-corruption, faster payment and what she describes as ‘frictionless’ global trade. Proving regulatory compliance seems a natural extension.

“As a shipper of cargo, can you explore and conceive new ecosystems to move assets, create trust in your partners and your supply chain,” she asked. “There are lots of middlemen in the maritime industry and this could remove the need for many of them.”

As a tool of digital disruption Blockchain sits right in the middle of the current debate about whether established service providers are adding value or adding to problems in the supply chain.

Just like that conversation it requires that we set aside some preconceptions. In a business where many sectors are still struggling to make a profit that might sound like a stretch, but this is precisely why liner operators are interested, if it enables them to get paid earlier and faster.

Whether or not one buys into the shift of computing power from centralised sources to a wider community of users, it is hard to argue with MacDonald’s assertion that Blockchain “is going to be the next layer of the internet, it will enable us to use the internet like we haven’t done before.”

Turbulence ahead for shipping’s smart future

2017-02-28 10.57.40The view from 30,000 feet can provide an interesting perspective, even when the subject is the future of shipping.

I happened to be flying from Hamburg to London last week when storm Doris was doing her worst to disrupt travel and transport in the UK. Having already had my original homeward flight cancelled, I raced onboard and sat tight even though I knew what might be coming.

After an hour on the tarmac while Heathrow decided if they would let us take-off, we finally departed and I turned my attention to typing up some notes on – what else – digital disruption and the future of smart shipping.

As the flight drew on, the bumps and shocks grew worse, as did the queasiness of many passengers for whom being violently buffeted by high winds had not been part of their plans.

On final approach conditions worsened dramatically and much use was made of what we used to call sick bags but which are nowadays probably known as universal waste fluid solutions.

How apt, I thought, in an increasingly desperate attempt to take my mind off the buffeting. I am experiencing a physical manifestation of what is happening – and will continue to happen – to shipping.

The principle trouble with the future of shipping is that, to my mind the graphics department has got ahead of engineering’s ability to deliver. But there are more fundamental issues too.

Let’s begin at the sharp end of the challenges. A realistic re-valuation of shipping assets and re-ordering of business models will call for a very strong stomachs; it’s the reason why so little of either has happened.

The prospects for digitally disintermediated sectors – freight forwarding is under pressure but there are others – look fragile. We are told almost continually how much the industry needs to embrace its role in the wider supply chain but many will baulk at the changes this requires.

There was plenty to ponder but I wondered if in fact this wasn’t the storm but really just the tremors that precede the real action. My notes on disruption and shipping’s digital future are increasingly typically of the content I produce and some recent conversations make me think there may even be something of a backlash building against the futurologists.

I won’t speak for my clients but from a personal point of view, some of the ideas we hear proposed as part of shipping’s smart future will remain at the very outer edges of credibility.

I’m pretty tired of lazy reversions to arguments for autonomous ships that prefer snazzy graphics to actual use cases. Forget a milk run from the Elbe to the UK, when transiting the North Atlantic in winter, an owner as well as a shipper will want crew on board to keep an eye on the cargo and the ship. Problems that go unattended can very quickly have huge commercial and environmental consequences and crew costs are relatively minor compared to the potential costs of not being able to respond to problems.

Equally, when I hear speakers talk about the Uberisation and digital disruption I wonder whether those making the assertions really understand their context. We are hearing about this subject as if it is expected tomorrow and the over-excitable believe the industry can solve operational problems with better apps.

Yes, software will help make operations safer and play a powerful and transformative role in connecting demand with supply, but when it comes to fulfilment it’s still all about steel.

What is much harder is for companies to look at their internal structure, cost base and business model and decide whether it is sustainable. Just because the future is not going to be like the past doesn’t mean we have to throw everything away.

As for the return of wind power, well I don’t need to remind you what happened to the last company to try this one on. Navigating bad weather is difficult enough without having also to manage sails, so the usage window will likely be small.

Agree or disagree, the mistake is to buy the hype. Spending too much time thinking about wind power, autonomy or Uberisation risks wasting time that could be used on more pressing problems. There are plenty of technologies whose time – thanks to better bandwidth and cloud computing – has come but where to focus and refocus is as important as simply looking for the latest shiny and fashionable thing.

As my flight landed safely a round of applause broke out – only the second time I’ve witnessed such an outbreak of airline love – in three decades of business travel.

I won’t labour the fact that this was because a qualified and highly competent team of humans was in the cockpit making decisions and anticipating risk faster than a computer. You’re human, and I suspect had already worked out how the story would end.

Shippers flex their BICEPS over shipping’s GHG problem

This time last year, Great Circle published a blog pondering whether 2016 would be the start of shipping’s carbon age. Given that the industry had once again dodged the bullet of inclusion in the latest COP agreement there was, it seemed, an opportunity for the IMO to provide the kind of leadership that the industry wished to see.

Shipping was arguably fortunate to be left out of an agreement with so much good intent and so few teeth but the positive by-product was that COP21 shifted the conversation towards both seeking to limit climate change and countries making climate contributions, rather than taking responsibility for causing the problem.

This meant that IMO might have been able to take action on the basis of a shift in attitudes among developing and developed countries and create the conditions for some progress towards a market-based mechanism of the kind that some member states and NGOs were calling for.

As it turned out, the IMO was principally able to achieve progress on its existing programme of emissions data collection, with the hope that the European Union would take the opportunity to align its own data collection system, MRV with the IMO’s when the time was right.

This may yet happen but the signs do not look encouraging. Indeed the decision by MEPs to support the inclusion of shipping in the European Union Emissions Trading System (EU ETS) is a demonstration of how few friends the industry has in the Commission and European Parliament.

The decision is a perverse one too, given the failure of the EU ETS to deliver much by way of quantifiable results in other sectors, but it does reflect the fact that for European lawmakers, the authority of the IMO is there to be challenged.

The IMO has said previously that inclusion of shipping’s CO2 emissions in the EU ETS significantly risks undermining its efforts on a global level. IMO Secretary General Kitack Lim said last month that such a move “could easily be the first step on a slippery slope towards fragmentation of the regulatory regime that controls global shipping”.

The industry too has urged the European Union to drop its inclusion in the proposals adopted in mid-February, saying it risks distorting trade and international efforts to cut the sector’s emissions.

But at present, the draft reforms adopted by the EU Parliament for action post-2020 could result in shipping being included despite protests from the International Chamber of Shipping among others.

Trying to include thousands of small shipping companies, including thousands of companies not based in the EU, into a system designed for major EU power-generating companies, steel and cement producers will only complicate the reform needed, the ICS argued.

Environmental campaigners, meanwhile, welcomed the Parliament’s stance and will doubtless be celebrating something of a coup by managing to ally with those with the power to make the change – the shipowners’ customers.

In two letters, an association of shippers and cargo owners called on the Parliament, Council and Commission to include shipping in the EU ETS under a special fund.

This backed the Parliament’s own environment committee proposal to regulate the sector via a Maritime Climate Fund from 2023 “if IMO does not deliver a global measure to address shipping GHG emissions”.

The Clean Shipping Index, which represents 29 major global shippers, said that action by the industry alone would be insufficient and that first mover action at state or regional level has in the past helped trigger action at a wider international level.

In its letter, a shipper coalition wittily known as BICEPS and including AB InBev, AkzoNobel, DSM, Farm Frites, FrieslandCampina, Huntsman, IOI Loders Croklaan, Lamb Weston/Meijer, and Vion Food Group, said it was time to “boost actions at international level to reduce ship CO2” and issued a similar call for action if the IMO “does not deliver a global measure to address shipping GHG emissions”.

So far, so much doom and gloom and the industry is right to be worried. In other industries, when your customers tell you there is a problem, it’s often too late to act or manage the fall-out. BICEPS and the CSI are not the cargo sector in toto but they do represent some big and potentially embarrassing voices.

Perhaps though, we shouldn’t panic just yet about the ability of IMO to regulate international shipping. As noted above, at the last MEPC meeting, the committee succeeded in adopting mandatory requirements to collect the data that will enable the organisation to understand how to design a workable MBM.

It also approved a roadmap for reducing GHG emissions which foresees an initial reduction strategy to be adopted as early as next year. The roadmap contains a list of actions, including further GHG studies and intersessional work that aligns with the MEPC’s three-step approach to ship energy efficiency improvements.

This the IMO believes, creates a way forward to the adoption of a revised strategy to include further short, medium and long-term measures in 2023. The choice of dates by the NGOs and shippers thus becomes clearer – the potential mismatch is if the IMO delivers the strategy but not the reduction mechanism.

So it seems from only the very briefest of readings that the EU Parliament is being urged to do something that is scheduled to happen already. Or rather, that those who wish to see action are making sure they know where the big stick is in case they need to use it.

The experience of ECAs and MRV means the IMO will know that the EU is not bluffing. Trouble is, the EU is far from being the majority of shipping supply or demand. Trouble too that we appear to live in at a time when agreements and treaties are subject to change at the whim of the incoming politicians.

As a bureaucracy, the EU Commission is much less subject to those forces but, in a year of major European elections, its Parliament and MEPs will be forced to weigh and take notice of popular opinion like never before. For the IMO, other unelected, some would say unaccountable diplomats must also recognise that they are low on bullets – however big the target.

When good prices go bad

clownHow little is too little to pay for freight? It’s a question that has been exercising the minds of operators in the Multi-Purpose (MPP) vessel market as the financial health and stability of one player after another has been called into question.

In such market conditions the risk of schadenfreude or attempts to gain further market share must be resisted. This is a structural crisis that threatens to impact all players in the Ro-Ro and Break-Bulk sectors to some extent.

When it is your customers which have reportedly threatened to blacklist shipping companies offering freight at unrealistically low levels, alarm bells should be sounding. When OEMS perceive a risk to their cargo from the carrier entering bankruptcy mid-voyage, the signal that is being sent is clear: we are already at the point where freight is too cheap.

A period of cut-throat competition has left the MPP market close to implosion and we are likely to see a clearing out of operators that cannot continue to burn cash trading their assets at below break-even levels.

Typically of course the removal of an operator, whether through closure or merger does not result in removal of capacity. This suggests another, more fundamental question that needs to be addressed: will there be a point in the coming year when rates stop declining, start to stabilise and even begin to increase?

From the actions of shippers it seems clear that – despite satirical suggestions to the contrary – they do not want their freight for free. All-in delivery might be a good incentive at the point of consumption but the role of the logistics provider is not something that the shipper expects should be delivered at zero cost.

The challenge for the carriers seeking a better rate has been to deliver competitive differentiation in markets where there is a high degree of commoditisation. This is true for the automotive industry and parts of high and heavy cargo groups. It is less true in break-bulk but this has not been enough to prevent gouging of rates to unsustainably low levels.

So which tools can be used? Consolidation looks likely to continue in the container market – though this will reach natural limits defined by capacity and by regulatory constraints. The Lo-Lo sector is the more fragmented and therefore open to some consolidation, an opportunity that exists to a far lesser extent in the Ro-Ro sector.

This suggests that it will be harder for operators in the specialist sectors to achieve lasting rate increases. Scrapping is already having an effect on capacity so perhaps the long term solution does not lie in a ‘self-correcting’ market model where supply and demand will re-balance over time.

Where these specialist shipping sectors go in the longer term is a function of deeper changes that lie inside the companies themselves and in their relation to the customers they serve.

To survive the current crisis and to adapt themselves for the future, operators in these shipping sectors need to understand the paradigm shift they will need to make; embracing a model that makes them part of an industrial value chain that connects producer to end user.

There are already sectors where the shipping element is a ‘floating pipeline’ and closely integrated to the industrial process, rather than a zero sum game of ‘lowest bid wins’. If they are to come through this current crisis, shipping companies will have to make the determination for themselves whether such a transformation can be made; where they can reduce their costs, adapt their business model make a margin based on added value.

This may sound no less painful than the process of restructuring and protection that many are making or facing at present, but it does at least offer hope for the future, albeit one that shares few of the characteristics of the past.


New skills, old problems: the crewing crisis in a competency context

The shipping industry has a worsening crewing crisis. But like other crises, it’s one that is bad, but not severe enough to stop ships trading or interrupt world trade.

The degree of the problem is well known. The BIMCO/ISF study estimates the current shortfall to be 16,500 officers, projected to grow to 92,000 by 2020 and to 147,000 by 2025. Other research estimates that the shortfall could be another 42,000 by 2020 and an additional 90,000 by 2025, depending on growth in the global economy.

The second, related factor in this assessment is that the competence standards of existing crew are acknowledged by the P&I community and others to be lower than before, despite a fall in the number of major claims.

When training software provider Seagull undertook competence evaluation testing of 242 companies against STCW standard tests, it concluded that the average competence of those who replied was about 60%. STCW has no pass mark but Seagull thinks that 75% should be the expected score.

At the recent IHS Markit Risk Forum, North of England P&I Club Deputy Director, Loss Prevention, Colin Gillespie argued that the 60% level was not the problem, but rather, what happens at the bottom end of the curve. Without the problem of a supply shortage, crew scoring 30-40% wouldn’t be employed but right now, owners have to be satisfied with crew that simply have a ticket.

Of course STCW like other IMO regulations is designed to deliver a minimum acceptable standard of competence and in that sense, he said, the countries that provide most crew are all around the 60% competence level. Any move to demand a higher standard would potentially worsen the shortage of supply.

“Where would your red line be?” he asked. “Below what level would you not employ – it’s up to the company. But if one seafarer in 12 scores less than 40% in these tests, we have to ask, should they even be in the industry? The trouble is they have a ticket and we need them.”

While P&I is primarily concerned with safety, he pointed out that there was a market effect at play too. The crew shortage is adding to owners’ cost pressures because seafarers can argue for better pay – but the bigger issue is the effect on standards.

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How hard will OPEC’s production cuts hit tanker markets in 2017?

LogoAfter a year of political and policy upheaval, both oil and tanker markets are undergoing a process of rebalancing, writes Tim Smith, Senior Analyst, Maritime Strategies International


The fourth quarter of 2016 capped what has been a mixed 12 months for the tanker markets. The agreement by OPEC members and non-OPEC alike to reduce production in an attempt to reduce oversupply will be a core determinant of conditions in 2017. The latest MSI Quarterly Tanker Market analysis* finds that despite the cuts having a negative near-term impact, there are reasons to be positive on prospects for the longer-term.

Despite some seasonal upside in the final period of the year, 2016 has undoubtedly been a year of negative dynamics across the tanker industry. This has been the case both in terms of the annual change in freight rates, which has been universally negative against 2015, and asset prices, on which the twin gravitational forces of lower newbuild prices and lower earnings have acted forcefully.

Compared to other shipping sectors, the last couple of years in the tanker market have seen a distinct lack of trend. Markets have move up rapidly and then retreated at almost the same speed. Volatility and uncertainty over the shifting landscape of the oil market have been reflected and amplified in the tanker freight market.

Oil markets are now returning to more ‘normal’ conditions, with OPEC having put in place restrictive output policies, which should act to support crude prices and accelerate stock draws already evident in Q4.

Oversupply of productive capacity in the oil market has been mirrored by excess tonnage capacity in the tanker market. Both are now rebalancing and although fleet growth is expected to remain high in 2017, low earnings and the ratification of ballast water treatment regulations support MSI’s expectations that tanker scrapping will move sharply higher in 2017.

This will help construct a market recovery in 2018 and beyond, built on much lower fleet growth rates than being seen currently, both in the large crude and product tanker sectors.

Relative restraint in Middle East crude production during 2017 has been and remains an implicit element of the MSI Base Case. OPEC’s decision to cut output remains fraught with uncertainty on how the group will manage to maintain discipline and encourage non-OPEC participants to join in. Moreover, the cut is not especially big.

Chart 1 below shows that periods of actual decline in OPEC crude production in the last 15 years have always been accompanied by a decline in crude tanker freight rates.

Looking at the last three major reductions in OPEC production which began in 2000, 2008 and 2012 from peak to trough, the outcome is more important than the intent, as will be the case for the latest efforts to support prices.

In these three instances the relative declines over the highlighted periods were 20%, 13% and 7% from monthly average peak to trough. The agreement OPEC has reached is to cut output by 1.2 Mn b/d from October levels which according to IEA data was 33.6 Mn b/d.

CHart 1






*Includes VLCC, Suezmax, Aframax spot benchmarks

Chart 1: OPEC Crude Production and the Crude Tanker Market.

This provides a framework to look at OPEC’s production cut in context. Included in Chart 1 are the annual average OPEC production levels over the last three years (2016 is January- October) with the implied target level of 32.5 Mn b/d. The drop between 2016’s annual average and 2017’s, assuming this is maintained across the year – and the initial proposal is for the first six months – is just 1.4%.

Should this succeed the profile will be more dynamic – taking a similar peak-to trough approach MSI estimates a drop of 3%, perhaps stretching to 5%. This will be joined by non-OPEC producers, led by Russia, aiming to reduce combined production by 600,000 b/d.

It is difficult to put a positive slant on these actions, reinforcing our expectations for weaker tanker earnings levels in 2017 versus 2016. Even so, MSI cautions on becoming too bearish, given the relatively light cut by OPEC, prospects for crude coming out of the US and potential improvement in the refining sector, should the oil glut be alleviated.



This latter process has been protracted and downside risks of high fleet growth, a relapse in Chinese demand and broader macroeconomic malaise resulting from e.g. intensified protectionist measures are still present, and could still push 2017 substantially lower than the MSI Base Case.

The tanker market, like the oil market, is in a clearing phase, removing over-supply and rebalancing. That process could take another year or so before returning to a position where sustained gains can be made, but we remain positive on the long-term outlook.

The MSI analysis concludes that one-year time charter rates are close to a floor in terms of Q4 levels, with much of the downward dynamic having already occurred in 2016. 2017 will be low but will see more restrained downward movements.

Over the course of this year MSI has steadily downgraded forecast newbuilding prices, while keeping the same general evolution of the forward curve. In Q4 revisions to the near-term have been relatively limited, as we approach a price floor below which we believe few shipyards are willing/able to venture with forward cover (estimated time to complete current orderbook) at Asian yards of 1.6 years.

On the cost side of the shipbuilding equation, other trends have generally acted to undermine newbuilding prices, with steel plate driven lower this year by massive oversupply in capacity which has disconnected price evolution from the trend in broader semi-finished steel products.

The currency markets, while always volatile, have been in turmoil, with events conspiring to send most key currencies in the opposite direction to expectations. In Asia the trends have been significant with implications for shipbuilders across the region. Asian currency turmoil reflects to some extent the impact on Asian emerging markets of Trump’s US election victory.

As a result, second-hand prices will struggle with the combined weight of both falling newbuilding prices and the continued deterioration in vessel earnings during 2017.


About Maritime Strategies International
Since its inception in 1986, Maritime Strategies International (MSI) has established itself as one of the shipping industry’s foremost independent research and consultancy firms. Our success is built on a strong focus on maritime economics and econometric modelling. We provide a comprehensive range of advisory services, including forward valuations market forecasts, reports and commercial consultancy services for all shipping sectors. MSI asset price forecasts are used by ship finance providers holding 40% of all shipping bank debt and we provide analytical and methodological support to give the context and credence to our results. For more information please see

* The MSI TSPS Tanker Report was produced using MSI’s proprietary forecasting models and expert technical analysis. The quarterly report is available on request and MSI experts are available for interview. For further information please contact Neville Smith, Mariner Communications Tel: +44 7909 960 182.