URSABLOG: Refuelling

A dry cargo operator, a bunker broker, a tanker freight collector and a ship sale and purchase broker walk into a wine bar. No, it’s not a joke, it happened earlier this week in a wine bar in Athens, but a large part of the conversation did contain a great deal of black humour. The four of us meet up once or twice a year, but not as frequently as we would like as our lives move in different directions: babies, new partners, work pressures, new jobs all take their toll, but when we do find a date, after catching up with news, we return to the old topics with fresh insights. What are these topics? Shipping and love.

I will not talk too much of love, just to say that the discussion was passionate, funny and in some cases poignant; if love is music, we all play our different instruments in completely different styles, but from the resulting cacophony a strange harmony rises. As for shipping, the discussion was also passionate, funny and in some cases poignant as we looked towards the future from completely different perspectives.

As you may imagine, it was the bunker broker that was most cheerful, and coming to think of it I think we should have made him pay, at least for the wine (a very nice Xinomavro-Negkoska - Goumenissa 2016 from Chatzivaritis - since you ask). As he said, it was his turn now: the charterers, and to a lesser extent owners, had been the winners for too long. And, as he said, of course the suppliers are playing the game, restricting supply and playing one buyer off the other. What did we expect?

The tanker freight collector was happier too; it was easy to get the freight, and on time more or less. The dry cargo operator was facing a hell of a lot of issues, but as his fleet is on timecharter, the immediate problems are mostly in the laps of the charterers, although he felt that the mess will have to be cleared up by the owners at the end of the day.

I was more thoughtful. Scrubbers were once again mentioned, and indeed the spread is wide enough for an owner trading on a voyage basis to recoup their investment fairly quickly, especially in large tankers. But whilst owners with ships on timecharter are avoiding some of the risks of supply, those who have done everything by the book and have found themselves open and spot, and even worse, open and spot in the Far East have started muttering dark and terrible curses in the direction of the IMO in London.

Here is the end result, they say, when people who do not know they are talking about threaten world trade because they have set unreasonable targets in the hope of unrealistic results. Here is the end the result, they say, as they watch the dry freight market fall 50% in a month – well more or less – as charterers hold back cargoes because they ‘want things to settle down’, i.e. see where the bottom of the market is before they re-enter. In the meantime they can use the Chinese New Year holidays, or the traditional first quarter slow down to gain maximum leverage. Throw in the latest geopolitical turmoil, trade wars being solved or not, and so on, and all new year cheer is thrown out with the Christmas trees.

Except the world is still much the same place as it was a few months ago. Cargo still needs to be moved around, people (and economies) need to be fed, and we all need energy to keep us warm and lit. Nothing much has changed, nothing fundamental anyway. And, as I am reliably informed, the more disruption there is to the fleet, the smaller the fleet - in terms of tonne miles – becomes. So when normal life resumes, as it has to, the positional advantages made by the bunker suppliers will fade.

This is already beginning to happen. It is instructive that only now the refineries are waking up and wanting a share of the action, and increasing their prices. The bunker suppliers don’t care so much: they are already making enough profit that a fall of 10-20% of their share will still leave enough to make them happy.

This is why I am fairly sanguine about the overall prospects of the freight market. There is not an evident oversupply of ships, as there was in late 2015 and early 2016, and the orderbook has no huge surprises in store for us any time soon. There has not been a sudden drop in trade; any decrease has been seasonal rather than fundamental. The banking system has not seized up, like it did in 2008. There are no signs of recessions or sharp slowdowns in the three big engines of economic growth, i.e. the US, China and the EU. What is happening, particularly in the dry market, is a reaction by owners and charterers alike to a sudden increase in the price – and a subsequent lack of apparent availability of supply – of marine fuel. We used to look at China GDP figures as a guide to the market, then iron ore or coal prices. Our current obsession is VLSFO and MGO prices, which I happily note are falling fast. This too shall pass.

It is going to hurt, and shake the market, when VLSFO increases from US$ 550 to US$ 750 per tonne (Singapore) in the space of a month. No one is happy having to pay an extra US$ 6,000 a day to keep a medium size bulk carrier moving around, whether owners or charterers, expect of course the bunker suppliers.

No one can see into the future, but life must go on, and a fall in bunker prices will convince people that the worse is over. It is unfortunate that it is shipowners who will take most of the hit, financially and operationally, but outside the industry there will be little concern for their plight. But the issues owners are facing now are a mere dress rehearsal as the IMO gears up for the next tranche of environmental legislation. The measures in the regulatory pipeline now will make early 2020 seem like a storm in a teacup.

As we finished our wine and stepped out into the night, our last words were not about the future of shipping and our place in it, but about the dinner we would be having in a few weeks’ time to say farewell to the dry operator as he leaves Athens and moves to Cyprus. It is these things that are important in life, all the rest is packaging. 

Simon Ward

www.ursashipbrokers.com