According to available data collected by VesselsValue, the number of dry bulk vessel transactions globally fell by about 14 percent in 2018 compared with last year, although the Baltic Dry Index (BDI) is at a five-year high and the market has thrived in the early period of 2018, especially in sales and purchase. In the second quarter of last year, trading volume in global staple commodity markets werre at the highest since the first quarter of 2017, significantly higher over 2018.
However, as for the current market, practitioners are still not confident, which is clearly indicated by the sharp decline in the BDI. In 2018, we saw a rise in the value and interest rates of the dry bulk carrier fleet, while in 2019, we have noticed the rapid adjustment of the market. At the macroeconomic level, the decline in the trading volume of global dry bulk carriers may be the first sign, so is the position of dry bulk carriers in the general shipping market cycle.
In view of the sluggish market, any second-hand ship transactions related to the dry bulk shipping market are unlikely to increase relatively. In 2019, shipowners and operators may witness a consecutive decline in the value and revenues of dry bulk carriers. At the same time, this situation could also lead to an increase in ship dismantling, which may allay people's concerns about excessive supply of ships. Optimistically, we may see a pick-up in the interest rates of dry bulk shipping market later on.
The trading speed of handy-size bulkers increased in the fourth quarter of 2018. Through analysis, we hold the view that this trend is down to relatively positive supply and demand relationship of handy-size bulkers. However, shipowners and operators are losing interests in the market of capesize bulkers, whose asset value appears to be slightly higher than the peak value shown in the current cycle.
Looking back in 2018, low returns in most segments of the global oil transportation market created a rare opportunity to consolidate the entire market. At the same time,the relatively high price of steel scrap has aroused tanker owners’ interest in scrapped ships, so they are more willing to dismantle ships. As a result, it becomes easier for tanker owners, who own most of the old ships, to dismantle them.
Since the third quarter of 2017, the number of tankers trading in the global oil transportation market has grown steadily from a persistent downturn, indicating that market participants are actively adjusting their positions so as to take advantage of the potential market volatility. Unfortunately, the recovery in the global oil market has not been so smooth that shipowners or operators have to stay patient and wait for the expected market return. As spot markets fluctuated, shipowners with more old tonnage finally saw the potential of the oil market rise in the short term.
The diversification in the oil transportation market offers the best opportunity for second-hand ship buyers. In 2018, second-hand tanker trading worldwide peaked at its highest in the past two years. At the same time, the number of sold handy-size bulkers have made significant contribution to the overall level of sales and purchases of all types of tankers in the past two trading quarters.
Looking into 2019, uncertainties of the outlook for the global tanker shipping market will continue to limit the enthusiasm of some buyers to participate in the transactions. Besides, such market tensions will remain before the International Maritime Organization’s (IMO) new regulations on environmental protection are enforced. At present, the market trend and the pricing are indefinite under this circumstance.
Container Ship Market
After the climax of bankruptcies in previous years, the container shipping market has seen a slowdown in opportunists’ buying capacity, which can also be seen obviously in trading volume. In the last two quarters of 2018, the trading volume of ships in the global container shipping market accounted for only 28 percent of the total volume of capacity sales and purchase transactions around the year.
2017 is an unforgettable year when the container shipping market was struggling so much that a seven-year-old Panamax container ship was sold as waste. However, the current situation is that the existing shipowners or carriers in this field are waiting for the expected market returns, hoping that it would be improved as soon as possible so that they can recover upfront investment and pay off outstanding debts.
In the middle of 2018, the surge in time charter rates of container shipping market brought shipowners a relatively optimistic outlook, especially for small ship markets. So far, more shipowners or chief operating officers have joined the market to buy or sell ships, and the transactions of Ultra Large Container Ships(ULCS) account for a relatively large proportion of overall transactions. At the same time, some opportunistic buyers are entering the field, waiting periodically to get a higher input-output ratio that may occur.
In the entire shipping market, Greek buyers are most active in the trade of oil tankers and dry bulk carriers, which coincides with the demand of strong spot market as can be seen. However, several of the recent high-priced transactions in the container ship market mainly came from Japan, while Greek shipowners just bought a large number of cheap or relatively small ships, and many of the ship transactions were made by consortia good at capital operation.
In the fourth quarter of 2018, the activeness of buyers from China ranked second globally in the trade markets of dry bulk carriers and oil tankers. Of course, if Chinese buyers preferred second-hand ships to new ones, the trading volume might have overtaken Greece's to be number one in the world
More generally, in the fourth quarter of 2018, the trading volume of second-hand container ships globally was significantly lower than that of the dry bulk carriers and tankers markets, partly because the container shipping market is smaller than dry bulk carriers and tankers market. Meanwhile, there are many orders for new ships in the container shipping market, and the capacity expansion of shipowners or operators focused on ultra large container ships(ULCS) with more economic benefits, which increased the capacity of this market significantly and aggravated the tension between supply and demand.
In the first quarter of 2019, the shipping industry was still mixed by many uncertain market factors. The IMO’s new regulations on environmental protection, to be implemented in 2020 will be the first major challenge for market participants. What's more, some trade-related issues make it worse for the shipping industry to go forward, such as production negotiations of the Organization of the Petroleum Exporting Countries(OPEC), trade frictions between the world's two largest economies, and a slowing manufacturing growth in major manufacturing countries. Thus, the timing of the shipping industry's real recovery remains pending.
Source: China Ship Survey