Who can forget September 2008? Lehman’s demise, the bailout of AIG, the end-of-the-world buzz that suffused financial centers like Manhattan. That was 11 long years ago – and to a large extent, ocean shipping is still dealing with the lingering hangover-throb of that epic collapse.
September 2008 was also important to shipping for another reason: It was the last time rates for very large crude carriers (VLCCs, vessels with capacity to carry 2 million barrels of crude oil) were as lofty as they are today. The ascent of VLCC rates over recent days has been so steep that the sector has actually clawed its way back to pre-Lehman levels.
The Baltic Exchange index covering crude tankers, the Baltic Dirty Tanker Index, jumped another 119 points to 1,561 points on Oct. 10. Estimates for the Middle East Gulf-to-Asia trade lanes were $158,000-$162,000 per day, with some individual bookings at much higher levels.
According to Frode Mørkedal, shipping analyst at Clarksons Platou Securities, “Recent disruptions have heightened charterers’ concerns for vessel supply and resulted in charterers’ scrambling for tonnage. Activity out of the U.S. Gulf is flourishing. In the Arabian Gulf, vessels are being fixed ahead of time, with five VLCCs already fixed for November loading.”
As previously reported by FreightWaves, VLCC rates are being energized by: (1) the Sept. 25 decision by the Trump administration to place sanctions on COSCO (Dalian), a subsidiary of shipping giant China COSCO Shipping Corp.; (2) increasing seasonal demand; (3) the looming IMO 2020 sulfur-cap rule, which has boosted refinery runs and pulled multiple VLCCs from service for exhaust-gas scrubber installations; (4) higher demand among importers due to concerns over future supply following the Sept. 14 attacks on Saudi oil facilities; and (5) sanctions on Iran, with those exports being replaced by longer haul voyages from sources including the U.S.
More recently, a sixth driver has emerged to further juice returns for tanker owners: a reported decision by ExxonMobil (and potentially other charterers) to cease employing any tanker that has called in Venezuela over the past year. Such moves slash available tonnage even more, yet another tailwind for rates.
Public companies with spot VLCC exposure: Euronav (NYSE: EURN), DHT (NYSE: DHT), Frontline (NYSE: FRO), International Seaways (NYSE: INSW)
Just how low can container rates go?
Another week, another downward step for container-shipping rates. During upcoming quarterly calls, executives of liner companies such as Maersk will clearly have, as Ricky Ricardo used to say, “some ‘splainin’ to do.”
One theory is that comparing the 2019 peak season to 2018’s is apples-and-oranges because last year’s stretch featured front-loading of cargo volumes by U.S. shippers racing to beat the Trump tariffs on Chinese imports.
However, if container rates are viewed globally, that theory tells only part of the story.
The price to ship a 40-foot-equivalent-unit (FEU) container is tracked daily by Freightos. The Freightos Baltic Daily Index covering the largest trans-Pacific trade lane, between China and the North American West Coast (SONAR: FBXD.CNAW), is down 46% year-on-year.
But it’s not just about America. The index covering the largest container trade lane in the world – Asia to Northern Europe (SONAR: FBXD.CNER) – is down 18% year-on-year, and the overall global index (SONAR: FBXD.GLBL) is down 22%.
U.K.-based consultancy Drewry’s said on Oct. 10, “Freight rates have further dropped after the Golden Week holidays in China. Carriers will attempt rate hikes for the second half of October and this should result in an upward rate movement next week.” More FreightWaves/American Shipper articles by Greg Miller
Public shipping companies with exposure to spot box shipping rates: Maersk Line (Copenhagen: MAERB.C.IX), Hapag-Lloyd (Frankfurt: HLAG.D.IX), Matson (NYSE: MATX), Evergreen Marine (TWSE: 2603), Hyundai Merchant Marine (KS: 011200)
Editor’s note: Freightos has a business agreement with FreightWaves that includes editorial coverage.