Prospects for the shipping market

Prospects for the

shipping market

At the Global Executive Petroleum & Energy Conference (GEPEC), organised by S&P Global Commodity Insights, a panel moderated by Peter Norfolk, editorial director, Global Shipping & Freight, S&P Global Commodity Insights, examined the state of play for shipping.

BEGINNING THE DISCUSSION, Jake Seed, research analyst at Galbraiths, remarked that it has been a volatile few years for the freight market, which “fell off a cliff” with the onset of the pandemic in early 2020. For the past two years throughout the pandemic, freight has been at very low levels, translating in many cases into earnings for shipowners at or below operating expenditure and even dipping down, certainly in the case of VLCCs, into negative earnings.

The Russian invasion has had a “big impact” on tanker markets, Galbraith commented.

“On the crude side, the days following the invasion saw a big increase in freight, particularly Suezmaxes and Aframaxes, the two sectors disproportionately affected by the invasion, with shipowners pulling back from lifting cargos from Baltics and Black Sea. That resulted in big increases in rates in those sectors. On the crude side we have seen freight tail off again in the last weeks, largely caused by the fact that VLCCs are still seeing low levels of freight and earnings, and they are cannibalising trade that traditionally would have been lifted on Suezmaxes and Aframaxes.

“On clean, it is a different story; following the Russian invasion, we have seen freight surge, staying at high levels over the last few weeks, largely down to the dislocation in products, with a big increase in ton miles of diesel coming into western markets on LR2s and LR1s, the larger products tankers, as well as MRs seeing increased trade, for example out of North America, with more volumes going down to Latin America as well as heading translatlantic into Europe. This has sustained high rates on the clean side.

“Looking forward over the next few months and into 2023, the big story is the EU sanctions in terms of the embargo on Russian oil imports and insurance ban. This is going to create substantial dislocation in products, particularly now in crude as well; we’re expecting a big surge in ton miles going forward as crude into Europe dries up, and Russian crude finds a home elsewhere, east of Suez and increasingly into India as well as more volumes into China. At the same time, Europe is losing Russian barrels, so we are going to have to see replacement volumes from other regions.

“So we will see an increase in freight in the dirty segment, as well as this continued surge in clean.”

The Russian invasion of Ukraine has had a big impact on shipping markets.

The future bunker fuel market

The panel also examined prospects for the bunker fuel market, and the growth of alternative fuels in the quest for net-zero. Andrew Scorer, freight analytics lead at S&P Global Commodity Insights shared the company’s forecasts for overall bunker demand, highlighting the current heavy reliance on fossil fuels which currently account for 98% of the mix, including 2% LNG, with only around 0.2% accounted for by alternative fuels. By 2030 the share of LNG is projected to grow to around 6%, but 92% is still accounted for by residual fuel.

“By 2050, there will be a massive change, but hydrocarbons will still be there, with LNG a big part of it,” Scorer said. S&P Global Commodity Insights forecasts that of alternative fuels, ammonia and methanol will then hold large market shares of 41% and 32% respectively, with 8% accounted for by hydrogen and 16% by biofuels. ESG concerns, increasing regulation and ambitious IMO emissions reduction targets will play a role in this shift. While the company forecasts a big increase in trade by 2050, with the main demand coming from dry bulk and containers, efficiencies, design and engine changes, slow steaming as well as changes in behaviour (such as a move to ‘just in case’ from ‘just in time’) will impact the bunker fuel market.

The panel highlighted the role of efficiency improvement technologies as well as future fuels, noting that solutions and technologies such as rotor sails, air lubrication systems and improved weather routing, can all help to reach 2030 targets, improve economies in terms of fuel consumption and reduce costs, particularly in the high bunker fuel cost environment, thus helping to improve ship owners’ bottom lines as well.

It was suggested that while technology is advancing rapidly, the future fuel and freight scenario could become much more complex, with questions remaining over fuel availability; multiple fuels, rather than just one, could be available depending on routes, there could be differing forms of propulsion within the same vessel class and differing bunker costs. This could cause uncertainty for ship owners and charterers, although it could also result in opportunities for niche players on the bunker side. n