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Intermodal Weekly Report

12 Αυγούστου 2019.

ploiof192Market insight

By Dimitris Kourtesis

Tanker Chartering Broker

 

 

On the 12th of May four tankers were attacked near the coast of Fujairah.  The tankers hit were waiving international flags such as that of Norway.  A month later a second attack took place, involving 2 tankers passing near the straits of Hormuz.  The above incidents were followed by the detention of an Iranian VLCC in Gibraltar by the British Royal Marines, the “Grace 1”, which was carrying crude oil to be discharged in Banyas, Syria.  It should be noted that the discharging of crude oil cargo in Syria is a breach of EU Sanctions.  Following this, British ships were threatened when passing the Straits of Hormuz /Gulf of Oman, thus resulting in many tankers which were supposed to load inside Arabian/Persian Gulf, not proceeding with loading/discharging ops.  In other instances, British naval ships have been escorting ships, as happened with BP's ship the MT British Heritage & the MT Pacific Voyager. To date the situation in the area remains volatile, while Iran’s official position is that there is no involvement from their side in any of the attacks whatsoever.  Meanwhile the market remains under pressure without any signs of significant improvement.

Throughout the above-mentioned period the Joint War Committee listed the Persian Gulf and Gulf of Oman as high-risk areas, and concurrently war risk premiums for ships trading in the area have rocketed.  The present situation should have Owners with ships trading in the area, double checking their contractual rights and protective clauses in their time charter parties.

During the negotiations of fixtures, Owners/Charterers negotiate and mutually agree the trading areas, though if the specific area has not been excluded then it’s something that needs to be renegotiated/reviewed on a case by case basis.  War Risk clauses depending on how they are drafted, may offer protection to owners, by giving the option of terminating the TC/P in the event of a war risk i.e. Shelltime 4, 1984, or enabling the master to refuse charterers orders and timely request new voyage orders.

Another important point to stress is the “Safe/Unsafe Port” situation. If the TC/P lacks a clause targeting directly to the situation of safe/unsafe port or berth, then it’s solely down to Owners/Masters’ discretion. Below there is a good example of how this situation can be complicated, and therefore needs to be assessed on a case by case basis according to the UK Defense club.

“The Saga Cob [1992] 2 Lloyd’s Rep. 545, there had been an attack on a ship at an Eritrean port within the previous three months and there had also been other attacks, yet the port was deemed not unsafe and the charterers were not in breach of the safe port warranty by ordering the ship there. By contrast, in The Chemical Venture [1993] 1 Lloyd’s Rep. 508, there had been three attacks on ships in the previous eleven days at a single port. The court held that the port was unsafe and that it was negligent for charterers to send a ship there.”

To put it briefly, the present situation is not straightforward, before Owners/Charterers order a ship to enter a high war risk area/port/berth they have to timely asses their already agreed contractual agreement, and discuss with their clubs and legal associates before taking any decisions, on how to treat the situation. A cautious and patient approach could prevent claims/disputes with the contractual parties of the TC/P in the near future.

 

Chartering (Wet:Soft-/ Dry:Soft-)

 

Dry bulk rates saw pressure extending for a second week in a row, with the biggest sizes witnessing most of it across both the spot and period side. The BDI today (05/08/2019) closed at 1,744 points, down by 14 points compared to Friday’s (02/08/2019) levels and decreased by 155 points when compared to previous Tuesday’s closing (30/07/2019). Despite the small improvements in the VLCC market, sentiment on the crude carriers side remains soft. The BDTI today (05/08/2019) closed at 617, decreased by 15 points and the BCTI at 489, an increase of 28 points compared to previous Monday’s (29/07/2019) levels.

 

Sale & Purchase (Wet: Stable+/ Dry:Stable+)

 

Firm interest for dry bulk tonnage was sustained at high for the season levels, with no Capesize sales taking place this week either, while VLCC candidates were particularly popular among taker buyers. In the tanker sector we had the sale of the “NAVE ELECTRON” (305,178dwt-blt ‘02, S. Korea), which was sold to Swiss based owner, Vitol, for a price in the region of $27.0m.  On the dry bulker side sector we had the sale of the “YASA NESLIHAN” (82,849dwt-blt ‘05, Japan), which was sold to Greek owner, Eurobulk, for a price in the region of $11.5m.

 

Newbuilding (Wet:Firm+/Dry: Stable-)

 

Despite seasonality, there has been a decent number of orders surfacing during the course of last week, with both tanker and dry bulk orders showing a clear preference on smaller sizes and tanker contracting once again getting the lions share in terms of total ordering. The one tanker order concerning a bigger tanker vessel was that for an MR vessel reported placed by Mitsui & Co at Samsung. The popularity of the size in both the newbuilding and second-hand market remains high, with year to date figures showing that MR orders account for more than 28% of all tanker orders and surpassing in absolute numbers total 2019 orders in other tanker sizes, while MR sales also hold the top place in the tanker second hand market with SnP activity in the size against all sales accounting for an even more impressive 50%. In terms of recently reported deals, Japanese owner, Mitsui & Co, placed an order for one firm MR tanker (50,000 dwt) at Samsung, in S. Korea for an undisclosed price and delivery set in 2021.  

 

Demolition (Wet:Soft-/ Dry: Soft-)

 

Not much has changed in the demolition market since the week prior in terms of sentiment, with average demolition prices in the Indian subcontinent market moving further down in the past days and expectations remaining very soft for the coming weeks.  The very low number of sales that was reported taking place at the same time clearly indicates the lack of appetite from the side of cash buyers in the region who have very little – if any – incentive to position themselves amidst a falling market, with the very few who decide to do so offering at substantial discounts to last done levels. We expect further price discounts in the coming weeks and at least until the end of August, while even if activity does increase throughout this period it will take a bit longer for prices to also start moving up. Average prices in the different markets this week for tankers ranged between $270-400/ldt and those for dry bulk units between $260-390/ldt.

 

Wet Chartering

 

The crude carriers market remains in search of silver linings as the summer season peak seems to have denied any sort if improvement owners might have hoped for at this point given how long pressure has been mounting. Despite the small improvement in the VLCC market last week sentiment remains soft, while earnings across the rest of the sizes have seen additional discounts. Having said that, the period market has seen a spike in the smaller and “clean "sizes” in particular, which provides some encouragement in regards to futures improvements on the spot side as well. On the crude oil front, prices moved further south in the past days as the gloomy demand outlook remains the biggest concern among investors.

The VLCC market saw a week of two halves in the Middle East, with a slow beginning followed by a more encouraging second half as activity picked up, while the West Africa market has seen even bigger improvements.

The West Africa Suezmax kicked off the week with the strength of the week prior giving an additional push to rates but momentum was lost towards the end of the week as enquiry softened. Aframax earnings saw increased pressure across all of the key trading routes, with the weakness in the Med and North Sea being the most notable, while the Caribs market also failed to sustain its levels with talk that the bottom is near intensifying.

 

Dry Chartering

 

The pressure in the dry bulk market extended for a second week in a row, with the bigger sizes once again underperforming the smaller ones, while the period market failed to remain intact this time round, with discounts seen on ideas for periods of up to one year for both Capes and Panamaxes.  Same as during the week prior the market has not been taken by surprise by the negative movement in earnings for the bigger sizes given the speed at which these had been advancing in the past week. As before and despite the softer performance, sentiment remains positive overall with owners already looking at the last quarter of the year and beyond August and any additional discounts that will logically keep taking place in the following traditionally quieter days.

The Capesize market has seen further weakness last week, with owners resisting to the more substantial discounts that charterers were trying to achieve following the sharp decreases that took place during the last week of July, while the soft trend is expected to resume this  week as well.

Panamax earnings saw the steepest discounts in both basins, with transatlantic routes witnessing the biggest pressure. The softening sentiment was also evident on the period front, with the little activity reported reflecting that charterers, same as in the spot market, were taking over control.

Supramax earnings ended the week with small losses, with USG offering very limited support and period enquiry not helping sentiment either, while Handysize rates were the only positive exception across the dry bulk earnings board, with support coming mainly from the Pacific and Continent regions, although at the end of the week thigs slowed down there as well.

 

Analysts:

Eva Tzima

George Panagopoulos

 

 

 

 

 

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