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Maritime Financial Insight

June 2019

 

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Container shipping

That the container shipping market is facing a tough time is evident from the latest 1Q19 financial results where two of the largest carriers, Maersk Group and CMA-CGM, posted negative results. To worsen matters, overall debt levels for most carriers have risen significantly. While the pursuit of vertical integration strategies has contributed, part of the problem also lies in the new IFRS 16 lease accounting standard, which forces carriers to put their long-term lease obligations on their balance sheets. On the macro front, the IMO regulatory rules, especially those governing ballast water exchanges and low sulphur fuel, will prove to be disruptive. The demand side issues are clouded by uncertainty amid global sanctions on Iran and Venezuela, the ongoing trade war, Brexit, among others.

 

Port operators

The extended trade war is tipping the scale of the container handling industry as volume growth shrinks and returns squeeze. The sector is grappling with heightened competition as excess capacity and underutilization eats into top-line growth. We anticipate demand for container handling to lag supply and therefore the keep prices ’in check’. Sector profitability generally is not a bright spot as new IFRS 16 rules will mean higher interest expense which in turn will hit their bottom-line.

 

Dry Bulk shipping

The charter earnings are expected to increase in the remaining quarters of 2019 as demand for dry bulk vessels stabilises. The operational disruptions at Vale’s iron ore mines see a slow recovery amidst a tight global supply. However, the overall recovery in charter rates in 2Q19 will mainly depend on how quickly Vale resumes operations at full capacity. Meanwhile, long-term recovery in dry bulk fortunes will depend on the extent of demolitions on account of IMO regulations.

 

LNG shipping

LNG spot rates are on recovery path after seeing a low in March. Short-term and long term LNG charter rates continue to be resilient on account of long term positive outlook in the sector. Despite China’s increase in tariff on US LNG imports, US projects continue to move ahead. LNG stock prices have been weighted down by the market concern on US-China trade war, seasonal weakness and low LNG spot prices.

 

LPG shipping

In the LPG shipping space, the Baltic LPG Index closed at USD 77.42 per tonne on 17 June 2019 – the highest since January 2016. VLGC earnings surged 138% m/m in April to reach USD 42,600pd due to loading delays the US Gulf reducing vessel availability. The market defied the odds and continued its bull run, and the vessels are being fixed at around USD 70,000pd in the third week of June as vessel availability remains relatively tight. We believe this is a short-term phenomenon and rates will stabilise after a correction in 3Q19 before picking up again in the latter months of 2019 on the back of strong winter demand.

 

Crude Tankers

Crude tanker shipping stocks generated an average return of 25.5% YTD, despite a correction of 12.6% in the past one month ended 20 June. We believe the stocks might decline further in the seasonally weak summer, but the prospects of Crude tanker shipping market are bright on the back of improved market dynamics. We expect the stocks under over coverage to book significant gains towards the latter months of the year.

 

Product Tankers

The product tanker market witnessed firm charter rates in the first quarter mainly supported by declining orderbook to fleet ratio and seasonal strength. Also, the companies reported a strong quarter financially. However, In the second quarter, product tanker freight rates declined as refinery runs came down.

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6

$6bn: The combined value of container shipping industry investments we have advised on since 2010.

20

$20bn: The value of financing projects we have provided commercial due diligence advice for in port M&A since 2010.

54

The number of countries in which our advisors have completed assignments since 2005.

400

Our advisors have been involved in over 400 port assignments over the past 10 years.
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