Slow recovery ahead for chemical shipping
Dec 1, 2011 12:00 PM, By Rick Weber
TOO many ships are chasing too few cargoes, according to ICIS markets editor Lane Kelley.
In “Uncertainties in Chemical Trading: Challenges for Shipping,” Kelley said the industry is still trying to recover from 2009, when The London Daily Mail captured an indelible image of the ghost ships of the recession: 500 of them anchored in Singapore — an armada of freighters with no cargo and no crew, and without a destination between them. Kelley spoke during the 2011 Intermodal Bulk Liquid Symposium that was organized by the Intermodal Tank Container Association and was held October 20 in Kemah, Texas.
“Things improved in 2010, but there are still too many ships and a tonnage overhang in chemical shipping that is expected to last for at least another year,” Kelley said. “I'm not a forecaster and have no crystal ball about where things are going, but I will point out that US chemical shipments in April were basically flat, up barely 1% over the same month last year.”
He said pirate attacks have constituted a mixed scenario, with Somali attacks up 58% — 199 this year through September compared with 126 in first nine months of 2010 — but successful hijackings down 31%. Only 24 vessels have been attacked by Somalis this year, compared with 35 during the same period of 2010. Hijackings have been successful in only 12% of all attacks this year, which is less than half the percentage (28%) at this time last year.
Key deterrents have been policing by naval forces and onboard security measures such as security crews, crews retreating to a safe room onboard, and blasting pirates with water and loud music.
“The crew of the Montecristo tried the message-in-the-bottle method and tossed the bottle through a porthole,” he said. “A NATO warship found the bobbing bottle, and learned from the message inside that the ship was safe to board. Royal Marine commandos boarded the ship, with a helicopter overhead, and the 11 pirates surrendered immediately. The crew was locked inside an armored area of the ship and was still navigating the vessel.
“Thanks to naval forces and helicopters and jets that are accompanying ships now, we've reached a strange situation where pirate attacks are going up but getting fewer ships to hijack. It's still a bit of a problem, but something is working.”
He said North American chemical output is lagging — down 10% from the peak in 2008. Western Europe is climbing out of the hole, with a 10% gain since 2009. The Asia-Pacific boom continues — a 12% increase since 2009 and a 30% increase since 1999.
He said the ICIS shipping report methodology is based on spot liquid chemical fixtures and enquiries, and contract rates are not included. Assessed rates are for 2,000 tonnes and 5,000 tonnes. Other market factors are arbitrage and the cost of environmental rules (double-hull tanker requirements and low-sulfur bunker fuel).
“All of these, and then some, are making increasing costs prohibitive for those smaller vessels under 10kt,” he said. “Plus, the larger chemical tankers are now competing for petroleum product cargoes.”
Kelley said the US is a net exporter of styrene, largely because our cheap natural gas helps to keep prices low. The US has outpaced Europe and Asia since late April, when the US price was lower than the European.
He said all fixtures on the caustic soda route this year (all in the 5,000- to 14,000-tonne range) have originated in Europe.
“Why has the US price been consistently higher?” he asked. “Most recently, it's been because of the Mississippi River flooding, which put suppliers in a bind because they couldn't get barges loaded and offloaded in mid- to late-May. So they had to move chemicals in railcars to distribute to customers in the Midwest, and railcars are more expensive than barges, and trucks are even more expensive than railcars. Major destinations for US caustic exports are Brazil, Canada, Chile, Mexico, and Venezuela — no European countries. The European spot drop in mid-January was because of improving availability and limited export opportunities.”
Kelley said marine fuel is outpacing freight rates. Crude oil has increased 45% in the last 12 months, with the bunkers in Houston, New York City, and Rotterdam experiencing gains between 47% and 55%. The transatlantic 5,000-tonne eastbound rates are up 32%, with the transatlantic westbound rates steady, and Rotterdam-Taiwan up 12%.
“We list the cost of bunkers in every report — usually IFO 380 fuel, and I like to put the crude price in as well because it provides an easy comparison of how the two are linked,” he said. “Many weeks, bunkers will follow crude prices in going up or down, but it's not always the case. I try not to waste any space torturing the data.”
He said the Japan tsunami had a dramatic effect on the USG-ASIA 5,000-tonne freight rate, which still has not recovered. It was $70-75 the day before, $60-65 one day after, $55-60 six weeks later, and currently is $55-60.
“The disaster in Japan being what it was, freights showed an immediate reaction, but it doesn't always happen that way,” he said. “The Mississippi River flooding in the United States didn't have much negative effect on rates. Westbound transatlantic freights have started to rise, but that's probably due to some increase in demand. After all, if you can't get a cargo into Baton Rouge or New Orleans, you can ship it to Houston, so you do have choices.”
He said that Asia (excluding Japan) has 35% of the world business of chemistry output, followed by Western Europe (23%) and North America (20%), which explains why the largest chemical ports in the world are in Singapore, Rotterdam, and Houston.
“About 90% of the global trade moves by water, and much of it in vessels that are five to six times the size of the Titanic, or larger,” he said. “The average chemical tanker is much smaller, around 28,000 tonnes, according to a recent study by Pareto Securities in Oslo (Norway). Chemical tankers can be even smaller than that, so the size of the fleet really depends on how small you want to count. Eitzen Chemical says there are almost 3,700 ships in the global chemical tanker fleet, taking all product tanker sizes into account, including those less than 10,000 tonnes. No matter how small the vessel, though, just remember that the average chemical tanker is just a fraction of the size of most oil tankers and container ships on the water.”
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