The big winners of the fares

By Eva Tzia

This year’s Poseidonia, which took place four years after the pandemic, finds all key shipping sectors at healthy profitability levels. The steady opening of most economies after extensive restrictions, combined with the unexpected city in Europe, has so far created a positive outlook for maritime trade, despite the undeniable challenges already facing global warming.

The tankers, which have had extremely low profitability since the summer of 2020 and until the beginning of this year, have benefited significantly in recent months from the combination of low stocks of petroleum products with sharp upward demand for them, as fuel consumption in most countries has returned to pre-pandemic levels.

In addition, the forthcoming sanctions on Russian oil are helping to keep the industry’s profit at an all-time low just before the start of the summer season, despite the balancing trend seen in early May due to EU reluctance. to impose direct sanctions on Russian production. In the medium term, however, demand expectations are now less positive than at the beginning of the year. In the middle of last year, OPEC revised downwards its forecast for increased oil demand in 2022. This is the second consecutive monthly cut by the organization, which now expects an 8% lower increase in oil demand this year due to oil demand this year. further fueling aggressive inflation in energy prices, as well as the recent resurgence of the pandemic in China. The latest assessment by the International Energy Agency, published the same week, coincides with that of OPEC. The agency, which had predicted a possible global shock to oil availability earlier in March, now says global supply will be enough to meet demand, with rising output around the world appearing to be supply gap expected to be created due to pending sanctions on Russian oil. Despite less optimistic forecasts, the increase in tonnage, as European importers of crude oil and petroleum products have already begun to turn to exporters far further away from Russia, will continue to support the tanker sector in the coming years.

LNG market returns have also picked up significantly since March, and after certain routes, fares for the US / Europe round trip, which were around $ 25,000 / day in the last week of February, exceeded today $ 89,000 / day. As the EU has already announced its intention to distance itself steadily from Russian gas, the LNG market in Europe has seen an even more dramatic increase in flows across the Atlantic than the already increased cargo volumes observed in January and February due to the increased demand for energy that was observed even before the start of the war.

This year, January-April LNG volumes from North America to Europe are 127% higher compared to the average of the same period in 2020 and 2021, while LNG flows in this route in the first week of May exceeded the total flows. during May the previous two years. As some of the additional flows in Europe represent substantial shifts shifted from the US / Asia route, aggregate tonnage demand does not receive the boost one would expect from rising European imports so far, as travel is US. about twice as long as the corresponding US / Europe. On the other hand, the rapid growth of US LNG production, which significantly exceeded the additions made by other exporters in 2021, has already led to a 50% increase in exports from North America last year. As there is already a forecast for further increase in production in the country, soon exports to both Europe and Asia will not necessarily replace those that do not and, therefore, the continuous increase in demand from both continents. for the coming years will continue to benefit profitability in the industry.

Existing sanctions imposed by EU states In the case of coal, which is due to start in August, as well as the significant cessation of grain exports from the Black Sea, these are developments that have a positive outlook for the dry bulk cargo sector. The EU, which until recently covered more than 40% of its needs for semi-finished steel products from Russia, will have to rely even more on Turkey, its other important source of trade. However, with Turkish production failing to meet the needs of the EU, the next choices for importers are far further countries, such as Brazil, China, South Korea and India. Sanctions imposed on coal from Russia at the end of the summer are also significant, given that 45% of EU imports comes from Russia and the EU Together with the United Kingdom they account for more than 23% of Russia’s total exports. Russia is expected to increase its exports to more distant destinations in Asia, while the EU will turn to other exporters, which are also much further away, with the result that demand for tonnes will receive a significant boost in this case as well as in the case of the grain trade. Although no sanctions are being considered on Russian cereals, Ukraine’s railways carrying grain have been severely damaged, and ports on the northern shores of the Black Sea – from where both Russian and Russian exports are made. cargo – is excluded due to war, EU countries have already turned to other more distant producers (on the East Coast of South America but also on the US Gulf Coast), with France, the closest major exporter, not being able to fill the gap. Finally, with the growing support that the Chinese government has pledged to provide to those hardest hit by the extensive food shortages, a recovery is also emerging in iron ore demand. As the larger dry cargo vessels already account for a significantly higher share of coal transport from Asia to Europe and from Russia to Asia, the recovery in maritime trade for iron ore, which even more profitability in the following months, with the first signs of an impressive recovery already visible from mid-May.

Container profits, which have broken all records in the last 12 months due to pressure on the global supply chain, have fallen sharply in recent days due to widespread shortages in China. While this sector is also the least affected by developments in Europe so far (as the number of companies operating in the Black Sea is relatively small), the changing trade flows affecting the rest of the shipping global supply chain. Indeed, following the Russian invasion of Ukraine, this index, which measures this pressure and is published by the Federal Reserve Bank of New York, increased significantly in April, as a result of the year, to be maintained at very high levels for the season. An additional boost in fares may be given by the gradual de-escalation of the Chinese loot in the coming weeks. However, uncertainty around the city in Europe, coupled with rising energy and commodity costs such as food, is expected to weigh on demand for finished products in the medium term, with increased ship orders in the industry expected in the last two years. bring additional pressure on fares in the future and until a significant part of the existing fleet is dismantled.

* Ms Eva Tzia is Head of the Marine Research and Valuation Division of Seaborne Shipbrokers SA

Republished from the special edition of Forbes magazine “Poseidonia 2022”

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