The tanker market enjoyed a prosperous year in 2014, at least for the most part, with lower oil prices helping towards increasing demand from nations which are looking to increase their strategic reserves at low prices. At the same time, owners are benefiting from the low price of bunkers, which make up for almost 70% of operating costs. According to the latest report from shipbroker Gibson, the first thing to note about the new year, is the fact that it started off with the new maximum sulphur limits introduced into the ECAs from January 1st. It is far too early to see the impact for owners/charterers in terms of operational problems; however the decline in bunker prices has at least softened the blow in the short term”.

Gibson also said that it expects to see “the Ballast Water Management Convention ratified (and implemented 12 months later)at some stage during the year. This convention requires just one moderate sized flag state to sign off the code which will compel owners to invest in expensive treatment systems. Several flag states are known to be keen to sign up to the convention, but are reluctant to be the one to tip the balance”.

At the same time, “2015 should also see the final few single-hull tankers taken out of trade once and for all. While very few are still trading in the conventional sense, mostly in the MR sector and below, this could have an influence on scrapping levels Of course overall crude tanker supply growth slowed considerably during 2014 on the back of low ordering between 2011 and the 1st half of 2013 with the exception of Suezmax tonnage. As a consequence the crude tanker delivery profile for this year is just 50 units (10.6M/dwt). Conversely orders placed for product tankers over the same period will explode rapidly into the clean market during 2015 with just shy of 200 orders (12M/dwt) scheduled for delivery”, said the shipbroker.

Similarly, as with 2013, last year many sectors of the tanker market finished with a flourish. Gibson noted though that “the difference between this year and last is so far that we haven’t seen a proliferation of ordering buoyed by the improvement in the freight market. Investment, for the time being, appears to have largely dried up which for most, must be viewed as good news. OPEC’s decision not to cut production may have had some influence in this area and speculation about how this decision will play out ahead of the next scheduled meeting in June remains rife. The low oil price can be viewed as a double-edged sword, stimulating oil demand but creating downwards pressure in terms of oil production. The oil contango has steeped significantly over the last few days and many protagonists are currently assessing their position ready to take advantage of the situation. Also, any changes to US/Canadian policy on crude exports will also stimulate the market and recent changes in condensate exports legislation may be the first step to achieving this. Finally we make no apologies for using again a famous Donald Rumsfeld quote to open our report which we believe to be apt to describe events as we enter into 2015″, Gibson concluded.

Meanwhile, in the crude tanker market, in the Middle East, Gibson noted that “VLCC Charterers had Owners on the run up to, and through, the Christmas period, but then shopped in concentrated enough numbers to allow for a market U-turn, and a steady upward ramp into the New Year, with further upward pressure threatening as we enter the final phase of the January programme. Further, the crude price Contango has entered ‘green light’ territory to make storage economically viable for traders, and already a basketful of period deals have been concluded. Currently, rates stand at around ws 70 to the East with high 30’s paid to the West. Suezmaxes had a calmer time of it and broadly retained an unchanging front over the period.130,000 to the East moves at ws 92.5 -ish with West runs operating in the mid ws 40’s. Aframaxes dipped initially, but regained to 80,000 by ws 105 to Singapore, and should inflate further over the coming week”.

In the Mediterranean, “Aframaxes had a fairly grim time of it, hovering around the ws 90 mark X – Med, but we are now moving through a busier phase, and Owners will be at least trying to add a bit of fat into next week. Suezmaxes found plenty of festive spirit, and rates up to 140,000 by ws 120 from the Black Sea to European destinations, but the Russian holidays took a little shine off, and the market eased to around ws 105 in consequence”, Gibson concluded.

Source: Hellenic Shipping News Worldwide

The gradual fall of the dry bulk freight market over the course of the past couple of months was enough to erase the rally which preceded and in essence dent any hopes that were left about the market staging a sustainable recovery this year. At the same time, as the end of the fourth quarter is approaching, shipbroker Intermodal noted that “we are all witness to the second hand market prices softening day by day. Any new deal surfacing the market is at significantly lower level compared to the previous last done. In this respect, some Owners are accepting these new discounted levels, accepting the new asset level reality, whereas others prefer to withdraw their ships or chose to wait, hoping to find more eager Buyers who can pay their aiming levels”, said the shipbroker Snp Team in its Shanghai office.

According to Intermodal’s data, “for the modern dry bulker tonnages, owners are still holding back and are insisting on asking prices, which in some cases are more in sync with the levels of the market six months ago. Most of them, however, are trying to fix the ships in small period contracts that will help them sit through the bad market in the next few months, hoping that by the end of the contracts they will face a better market. Some unrealistically priced sale candidates, which still remain in the market, have created a small increase in the supply of tonnage for sale which does not help the more serious Sellers to get a good or at least a decent price for their vessels”.

At the same time, in yet a worrysome sign, “demolition prices are softening every week and the period of time where the prices were around 480-500 usd/ldt for bulkers is well behind us. Today, we can see Owners receiving figures at around 420-430 usd/ldt basis delivery in Bangladesh or West coast of India. Many people in this industry are pessimistic and they don’t expect any increase in demo prices in the near future, with some expecting average demo bids to fall below the 400 usd/ldt mark sooner rather than later. The iron ore and steel price remain on a downward slope, while the continuous imports of cheap Chinese scrap steel is still the main hurdle faced by demo breakers in the Indian subcontinent”.

Intermodal added that “the softening of the demo market has had a big impact on the selling prices of the early/mid 90s built dry bulk carriers since their value calculation is usually based on the demo price plus a premium. This is most notable on Panamax and Handymax dry bulk tonnage, which have lost significant value during the past months and all this doesn’t seem to be changing soon, as the vessels on the market are too many and the majority of the Buyers are based in China, who is well accustomed in being patient in order to get something cheap. Chinese Buyers already seem to be attracted by the present lows of the market and there is definitely some warming up of activity here. However, as everybody has a feeling that prices will most probably keep dropping, as a result of the continuously softening demo prices, most potential Buyers chose to wait a little further before they invest in second-hand tonnage. The logic behind this is that instead of acquiring now a low-mid 90’s blt ship, there might be an opportunity in the very near future to purchase, at a similar value, a late 90’s blt tonnage”.

Finally, the shipbroker noted that “hopefully, these bad market conditions will come to an end soon. If this situation persists for long enough though, everybody involved in the industry will start facing problems. On the other hand, this hasn’t had a significant effect on Tanker Owners who are trading in a significantly improved freight market, ever since oil prices dropped and demand of oil increased. But whether this perfect storm will continue to favor the tanker market is the million dollar question here”, Intermodal concluded.

China has recently promulgated a new law which imposes tax on profits from freights of inbound routes. The objective of the new tax law titled “Provisional Measures on the Collection of Tax on Non-Resident Taxpayers Engaged in International Transportation Business” (Bulletin of the State Administration of Taxation 2014, No. 37) is to strengthen the tax administration of foreign companies operating international transportation business with China.

What has changed?

Until recently, China had only been taxing international outbound routes with an effective tax rate of 1.25% on the gross revenue. The new rules extend the scope of the tax to inbound routes, and increase the tax rate. As of August 1st, 2014, freights of non-resident shipping companies operating in international routes towards Chinese ports are expected to pay a new tax rate (Enterprise Income Tax – EIT) of 25% on profit. The tax is levied on freights on voyage charters and time charters.

How will the new tax be collected?

Currently there are three options for collection, however further clarification is expected:

1. Tax registration in China: Non-resident shipping companies will have to register with Chinese tax authorities and comply with local bookkeeping and tax rules. The tax at the rate of 25% will be levied on the declared net profit, or

2. Tax on deemed profit: where the enterprises are unable to calculate and report taxable income accurately, they can register and pay tax on a deemed profit. The profit rate cannot be less than 15% and the tax rate will be 25%. Therefore, for a freight of $100, it will be deemed that there is a $15 profit, for which a 25% tax will be due (therefore an effective tax rate of 3.75%), or

3. Have tax withheld by an agent: instead of registering with the Chinese authorities, a company can pay the tax at the rate of 25% on the assumed 15% profit, by having the tax withheld by the customer or other persons designated by the local tax authorities as withholding agents.

How does this impact Greek shipping?

The Double Taxation Agreement and the Merchandise Franchise Agreement , which Greece and China have in place, protect Greek shipping companies or non-Greek shipping companies that are managed by Greek management offices by exempting them from any tax on freight transportation income in Chinese ports.

It is important to note that the exemption is not automatic; once the Chinese authorities finalize the filing requirements, close attention shall need to be paid to the completion of necessary documentation in order to secure the exemption.

Additionally, the Greek Government is in the process of setting up further safeguards by amending laws related to tax residency certificates in order to ensure that the Greek shipping companies will be exempted from this new levy.

In this case, the impact of the new law could only be compliance requirements and not actual tax costs. However, it is still unclear if the DTT and the MFA mentioned above and the submission of the necessary tax residency certificate will have the power to secure shipping companies exemption from this tax law. Deloitte is following closely any development and will keep its clients informed on any news.

Deloitte’s global shipping leader, George Cambanis, commented, “Provided the proposed amendments to the current Greek law enable management offices to obtain the tax residency certificates which would then exempt Greek shipping companies from this new Chinese tax law the only downside to Greek shipping would be the administrative cost of compliance.”

Source:  Hellenic Shipping News

Richard Kamppari-Baker, claims manager of FP Marine Risks, explains the challenges of project cargo risk assessment from an insurer’s point of view.

Project cargo is the large, oversized, overweight heavy lift cargo or critical pieces of equipment that may be high value or time sensitive and sometimes both. Project cargo insurance covers against loss or damage in transit for critical components of large civil, production facility, infrastructure, and/or construction projects.

Considerations

In addition, there are considerations to be taken into account for Delay in Start up (DSU) and Advanced Loss of Profits (ALOP) against loss of income and profit arising from late or non-delivery of critical components due to an accidental occurrence in transit.

Failure of a shipment to arrive, or not arrive intact, can turn a USD10 million cargo loss into a claim ten times its value when factoring in the knock-on effects of one piece of equipment not being ready at a particular date, which then causes disastrous consequences to the project as a whole. Whilst failure of any cargo to arrive has an enormous impact on operations, for project cargo this has far reaching ramifications.

For this reason the assured look towards insurers to cover the additional economic cost when something goes wrong.

Evaluating risk

Insurers will only compensate the assured for the loss or put it back in the same position. So how does an underwriter even start to evaluate the risk when the consequences are not easily apparent? Project cargo is specifically dependent on transport logistics and tight timeframes, so missing any goal or target will have serious knock-on effects.

To begin a proper assessment of the exposure, a few crucial factors need to be considered. The time and costs for re-fabrication as well as for reshipping the item need to be calculated, which is not an easy task when the bespoke nature of these items is considered.

During this time, insurers will need to calculate the knock-on effects when other goals or targets cannot be met. This means they need to evaluate the loss of profit and/or other operational costs at each stage affected until the project is completed. This is by no means guesswork and there is a complex system involved in calculating each risk.

Appraising the exposure is only part of the problem to insurers because one must consider how to move such an item. Project cargo will most likely be out-of-gauge or exceed regular weight limits, so the question is how the transport is to be done. Moving pylons across muddy roads in India during monsoon season, or loading reactors onto vessels, need the highest level of expertise. The services of engineers, surveyors, mariners, naval architects, consultants and government officials will be required. Careful consideration is essential in deciding who to employ.

Relevant experience

A major factor is to ensure the right people with the relevant experience are chosen. A team of international experts may need to be flown out at each stage of the transit. A key role is an individual who will be in charge of coordinating all communications amongst the team, ensuring all members are properly informed whilst avoiding any misunderstanding whatsoever.

Once the determined route has been scrutinised, the next stage is to ensure all requirements are met. Inland transits often require special authorization or conditions and vessels might need special clearance from their P&I clubs or insurers.

Insurers are very reliant on the assured and other experts to advise on stowage and on whether an item is capable of withstanding the rigours of transit. Items that protrude or carry extreme weights present a huge problem while stationary, but these complications are magnified tenfold when combined with extreme forces of rolling and pitching while in transit.

Calculations need to be carried out by professionals, securing contractors to ensure correct fastenings, buttresses, and so on, are used. Stability during the voyage is essential, so great care is taken to ensure the centre of gravity is evenly distributed.

All the advice from the experts is only as good as Mother Nature permits. A final weather routing will often need to be agreed before the shipment can commence.

No matter how fastidious insurers, carriers, freight forwarders and shippers are, there is a chance that an accident will happen. Claims will of course arise when route surveys are not properly carried out of when stowage of fittings are not adequate.

There will always be unforeseen events that cannot be predicted. The role of the insurer is not to take a gamble on whether a shipment will arrive in time and good order, but to know the risks and eliminate the uncertainties. For project cargo this is critically important, given the high cargo values and the potentially enormous claims involved.

Source: FP Marine

Ship values have remained on a high note over the past month, albeit the overall trend seems to be shifting downwards, as freight rates have remained on negative territory. Still, interest in modern tonnage is always high, especially when compared with the past couple of years.

According to the latest monthly report from shipbroker Golden Destiny, “the instability of freight rates during the second half of the year seems do not influence investment movements of shipping players as there is still an optimistic approach for the performance of dry bulk segment despite the downward pressure of Balitc Dry Index below the psychological barrier of 1,000 points”.

The shipbroker noted that “June seems that follow the downward incline of previous month for tanker and dry bulker freight environment, while there are some signs of revival with skepticism in the container segment. However, asset prices for secondhand vessels keep on the high side with a downward trend after the negative incline of freight rates”, Golden Destiny noted. According to the assessments from Baltic Exchange, secondhand market values for bulkers and tankers kept the increasing levels of previous month with a flat sentiment:

Bulkers – S&P assessments for 5yrs old vessels:

• Capesize (172,000 dwt): $49,18mil end May 2014 (from $40,7mil end Dec 2013)

• Panamax (74,000 dwt): $26,9mil end May 2014 (from $23,9mil end Dec 2013)

• Supramax (52,000 dwt): $25,2mil end May 2014 (from $23,7mil end Dec 2013)

Tankers – S&P assessments for 5yrs old vessels:

• VLCC (305,000 dwt): $73,06mil end May 2014 (from $58,8mil end Dec 2013)

• Aframax (105,000 dwt): $37,4mil end May 2014 (from $28,9mil end Dec 2013)

• MR (45,000 dwt): $26,5mil end May 2014 (from $28,2mil end Dec 2013)

As a result, “shipping players keep going with strong investments in the secondhand and newbuilding market, but with a lower appetite for newbuilding orders following record levels of activity in the previous months. Overall, S&P activity in the secondhand market for May 2014 ended with a soft upward trend from the levels seen last month and even higher than the levels of 2012. Scrapping activity appears to follow a steady pace of volume with an average of 16 vessel disposals reported per week during the year. In the first five months of 2014, the average number of weekly reported S&P transactions is 33vessels, up by 27% year-on-year compared with 26 vessel purchases in the first four months of 2013 and up by 57% from 2012 levels (21 vessel purchases). However, the downward trend of freight rates has downsized investors’ appetite from the end of the first quarter of 2014. During March 2014, the average number of secondhand vessel purchases per week was estimated to be 37 vessels compared with 29 vessel purchases during May 2014″, said Golden Destiny.

It also noted that “compared with the investments in the secondhand market, in terms of number of vessels, the ordering appetite for the construction of new vessels has now decreased to 94% from 97% in April, as shipping players is not unlikely to follow a lower investment strategy for newbuilding vessels during the second half of the year.

During the first five months of 2014, the average number of weekly reported new orders was 64, up by 60% year-on-year (40 new orders on average reported per week in January-May 2013) and up by 167% from 2012 levels. (24 new orders on average reported per week in January-May 2012)”, said Golden Destiny.

DEMOLITION

Meanwhile, “in the demolition market, the scrapping appetite of shipping players is now showing lower levels than last year as it has decline to 16 vessel disposals per week, on average, from 19 in 2013 and 2012. It remains to be seen how shipping players will react during the second half of the year if the downward pressure in dry bulk and tanker freight rates persist and scrap rates rebound at firm levels upon the end of monsoon season. During January-May 2014, the average number of weekly reported demolitions represents 16% year-on-year decline with 16 vessels reported on average per week in 2014 compared with 19 vessels disposals per week in 2013 and 19 vessel disposals in 2012″, Golden Destiny concluded. Following is a summary of the main monthly trends:

Secondhand Vessel Purchases: (up 20% month-on-month and no change year-on-year) – 112 vessels for an invested capital of more than $1,8 bn, 3 S&P deals reported at an undisclosed sale price. (May 2013: 112 vessel purchases)

Newbuilding Orders: (down 41% month-on-month and 19% down year-on-year) – 187 vessels for an invested capital of more than $11,2bn, 67 new orders reported at undisclosed contact price. (May 2013: 230 new orders)

Demolition: (up 7% month-on-month and 1% up year-on-year) -77 vessels for disposal of about 3,1mil dwt, 10% year-on-year increase in the number of bulker disposals. (May 2013:76 vessel disposals)

Hellenic Shipping News Worldwide

Despite the weaker than expected market sentiment in the dry bulk market over the course of the past few months, analysts and shipowners alike appear optimistic about a sustainable recovery of the market going forward.

According to Friday's report from dry bulk shipowner Golden Ocean, "even though second quarter spot market so far has been weaker than predicted by most analysts following the sector, earnings have still been better than for the same period last year.

The Capesize earnings has year to date been $14,650 /day, compared to $5,650/day for the same period last year.

In 2013 the dry bulk market started its recovery in June and gained more momentum from August onwards.

From a demand perspective it is expected that new iron ore supply coming on stream will be the main driver over the next two to three years. From 2014 through 2016 as much as 280 million tons additional supply will become available for the global steel industry", said Golden Ocean. 

In its market outlook the company noted that "analysts following the Chinese steel industry are expecting lower steel production growth.

This is based on the assumptions of lower GDP growth and a gradual change from heavy infrastructure projects and construction to a more consumer focused growth model.

In spite of a slower steel production growth analysts believe that demand for iron ore will continue to grow at a steady pace.

With all the new capacity entering the market is likely that international iron ore prices will come under even stronger pressure.

Consequently a major portion of the domestically produced iron ore which is both more expensive and with an inferior quality could potentially be ousted. Meanwhile, the ordering of new vessels has been quite brisk.

But given that most orders that have been placed lately are for second half 2016 onwards, the supply growth next eighteen months is not expected to exceed five per cent per annum.

Most shipping analysts believe that demand growth will be around six per cent per annum and thereby outpace supply growth, leading to a higher utilization of the dry bulk fleet through 2015", Golden Ocean noted. 

In its analysis of the dry bulk market so far in the year, the company said that "the second biggest economy in the world continued to make the headlines during first quarter of 2014.

China has become the favorite of concerns among many observers analyzing the macroeconomics.

The importance for the dry bulk industry is well known and China contributed with 83 per cent of global dry bulk growth, or 200 million tons in pure volume growth, during 2013.

Chinese GDP grew by 7.4 per cent during the first quarter which was in line with expectations.

In addition to the positive development in the U.S., several of the European economies showed signs of recovery.

On the back of this EU increased its steel production by 6.7 percent compared to same quarter in 2013. 

The global steel industry and energy coal for utilities are accounting for about 70 percent of seaborne dry bulk transportations and both coal and iron ore volumes increased during first quarter.

China imported 240 million mt of iron ore during the first quarter. This is 20 per cent more than the same quarter last year.

Coal imports to China came in at 71 million mt or 9.5 per cent more than the first quarter of 2013. Japan imported 49.5 million mt of coal, which again represented an increase of about 9 per cent.

Preliminary data is indicating an overall volume growth in seaborne dry bulk trade of 6 per cent for the first three months of 2014 against a net fleet growth of about 5 per cent", it noted. 

From: Hellenic Shipping News