Shipping Outlook 2021 - expect the unexpected - Hamburg Commercial Bank
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Shipping Outlook 2021 Shipping Outlook 2021 – expect the unexpected
2 Shipping Outlook 2021 Foreword
hcob-bank.com 3
Dr. Nicolas Blanchard Jan-Philipp Rohr
Ladies and Gentlemen, dear Clients and Friends of the shipping industry,
The year 2020 was extremely exceptional and challenging – both for the
global economy and for the shipping industry. However, although the
growth rates in the global economy collapsed in 2020 due to the Corona
crisis, the shipping industry experienced a really good year for the most
part. Freight rates in the three major sectors of containers, bulkers and
tankers were on average at very solid levels. Even in these times of crisis,
global trade just does not come to a halt. At the same time, the shipow-
ners‘ recent cautious ordering policy strategy has paid off – rates were not
suppressed by an oversupply of capacity. This differentiates the current
situation from previous ones.
Is this positive development set to continue in 2021? Our Chief Economist
Dr. Cyrus de la Rubia addresses this question in his analysis. To make a
long story short: We are looking to the future with optimism! Demand for
container transport remains strong, and for bulk carriers it will depend on
whether China continues to order iron ore and coal as strongly as it has
recently. The V-shaped recovery of the Chinese economy so far at least
points to this. In the tanker segment more patience is required. Here we
expect increasing rates in 2022.
So everything is good? For the moment, yes, but after the experiences
of 2020, we still recommend the maxim:
Expect the unexpected – this has always proven to be true.
Enjoy reading, we look forward to exchanging ideas with you.
Best Regards
Dr. Nicolas Blanchard Jan-Philipp Rohr
Chief Clients and Products Officer Global Head Shipping
4 Shipping Outlook 2021
Shipping Outlook 2021 –
expect the unexpected
Looking back, 2020 was a wild ride for shipping. Would you have expected
container freight rates to increase to all time highs ironically in the year of the
deepest recession since the WWII? Could you have imagined that the de-
mand for tanker capacity went through the roof, while oil prices plunged into
negative territory?
Average earnings, US-Dollar/day
100000 19000
Containerships,
90000 18000 18957 USD/day
(right hand scale)
80000 17000
70000 16000
60000 15000
50000 14000
40000 13000
Bulker,
30000 12000
14381 USD/day
20000 11000 (left hand scale)
10000 10000
Tanker,
9000 7538 USD/day
W2 W15 W28 W41 (left hand scale)
2019 2020
Source: Macrobond, HCOB
A wild ride
One thing is certain: You should always expect the unexpected. Having said
this, I will try to give you an impression where we think the shipping market
might head to next year being well aware that black swans are all around.hcob-bank.com 5
Growth all over the world
Germany Emerging & Dev. Asia
8 3,7 12
3,6 5.5 8.0 6.3
0,6
GDP Change 0 4
-8 5,0 -4 -1.1
United States 2019 2020 2021 2022 2019 2020 2021 2022
8 Euro area China
2.2 2.7 2.7
0 6 5.3 16
1.3 2.7
-3.7 8.2
-8 -2 8 6.1 5.8
1.9
2019 2020 2021 2022 -6.6
-10 0
Latin Am.&Caribbean 2019 2020 2021 2022 2019 2020 2021 2022
4 World
0.0 3.6 2.7
8 5.1
-4 2.8 4.1
-8.1 0
-12
2019 2020 2021 2022 -8 -3.8
2019 2020 2021 2022
Source: HCOB Economics, IMF
Let’s start with the big picture. We expect the year 2021 to be divided into two
parts. In the first half of the year, the pandemic will initially worsen in parts of
the world and contribute to a renewed economic slowdown. In the second
half of the year, the pandemic will be increasingly pushed back by broad vac-
cination campaigns. Obviously, this does not apply to China where a nice
V-shaped recovery has happened. In this environment inflation will increase
again from a very low level, especially due to the higher energy prices, while
the increased freight rates and transport costs should not to have a major
impact on overall inflation. Will this general picture translate into higher trade
volume by the end of 2021? Not necessarily. The boom in container trade has
been triggered – amongst other things – by a shift from services consumption
to goods consumption. In other words, many people bought a sofa set or a
new kitchen, as they were not able to spend the money for travel and con-
certs. Thus, if people start to reverse their spending behavior amid mass vac-
cination, this might dampen trade somewhat in the short term.
How will interest rates, the Euro/US-Dollar exchange rate and the oil price
evolve in this environment?6 Shipping Outlook 2021
Stay where you are! Interest rates
are barely to move in 2021
Policy rate, USD-Libor and 5 years swap rate
3.5
3.0
2.5
2.0
1.5
1.0
5y swap
0.5 rate: 0.62
0.0
2016 2017 2018 2019 2020 2021 2022 USD-
Libor: 0.25
Source: Macrobond, HCOB
Policy rate:
0.25
The Federal Reserve Bank as well as the European Central Bank are very, but
very clear that they will continue to keep financing conditions extremely
favorable over the medium term. Our advice to those who speculate that long
term rates are going significantly up is: Don’t fight the Fed and don’t fight the
ECB.hcob-bank.com 7
US-Dollar under pressure
EUR/USD
1.28
1.24
1.20
1.16
1.12
1.08
1.04
Source:
2016 2017 2018 2019 2020 2021 2022 Macrobond, HCOB
The Euro’s appreciation over the last weeks is about to continue, based on a
risk-on mood which usually is benefitting the Euro. This trend is supported by
the positive decision on the 750 bn Euro EU-recovery fund which will support
growth in the euro area.
Oil markets: normalization, but only the start of it
Will we see negative oil prices again this year? Though you never know, it
looks that the constellation we had in spring 2020, where the corona induced
slump in oil demand combined with the price war between Saudi Arabia and
Russia, which led to a steep increase for floating storage, has been unique.
However, it looks as if the OPEC may still be too optimistic about growth in oil
demand underestimating the weakness of the global economy in the first
half of 2021. While prices should increase in the second half of this year the
average price for Brent will be at around 49 US-Dollar/Barrel according to
our forecast and therefore not miles away from the average level of 2020
(Brent: 41.3 US-Dollar/Barrel).8 Shipping Outlook 2021
What are the implications
of this picture for shipping?
Brent US-Dollar/Barrel
90
80
70
60 60,0
50
40 41,3
30
20
10
0 Source:
2016 2017 2018 2019 2020 2021 2022 Macrobond, HCOB
It should be generally noted that the supply side in shipping has improved
very much over the last years. Orderbooks have normalized significantly and
the recent jump of prices for scrapping steel bodes well for the expectation
that scrapping activity, especially in the bulker and tanker segment, will in-
crease this year thereby improving the market balance which has been cha-
racterized for many years by huge oversupply. The requirements of IMO 2020
combined with higher demand for ESG complying assets help to break the
too well-known pattern of boom and bust in the shipping industry, given that
older vessels have to be sorted out eventually. Note therefore that vessels
with higher environmental standards should be better positioned in the fu-
ture to withstand any slowdown.hcob-bank.com 9
Throughput through the roof
RWI/SL Container Throughput Index
125
12/31/2019
123
Covid-19
120 appeared in
Wuhan/China
118
115
113
110
108
105
103 Source:
Jan Apr Jul Oct Jan Apr Jul Oct Macrobond, HCOB, RWI
2019 2020
Going through the different shipping segment and starting with container
vessels, over the last few months we saw a boom that was very much driven by
high demand for consumer goods from the United States and high growth of
intra-Asian trade. This extraordinary development is about to continue over
the next months before normalization will kick in. High corona related demand
backlog, which seem to ensure robust need for transport over the coming
months and container boxes, which have been dislocated in spring due to the
sudden stop in trading and now need to be relocated, will continue to absorb
vessel capacity. In addition, dock workers in quarantine due to corona are an
additional factor which delays the transport.
What should be clear, however, is that these are extraordinary circumstances
and those record high levels of freight rates are not sustainable over the whole
year. However, even after a fall in freight and charter rates, the sound discipline10 Shipping Outlook 2021
In Bulker all depends on China
showed by liner companies combined with the fact that new vessel supply is
rather modest should help maintain adequate rates. Comparing the perfor-
mance of large container vessels used in the main routes with the smaller
vessels employed in intra-regional trade leads to an ambiguous assessment.
Currently the large container vessels obviously are the outperformers. Howe-
ver, the vessels focused on intra-regional trade are usually characterized by a
lower but steadier cash flow.
In Bulker all depends on China
Bulker continue to depend on the performance of China’s demand for iron
ore and coal. The rapid recovery of China is good news in this respect.
China GDP level, index 220
210
200
190
180
170
160
Source: Macrobond,
HCOB Economics, NBS 2017 2018 2019 2020 2021
It is remarkable that even when China’s harbors were disrupted by the pande-
mic last winter, the average earnings rates did not enter into a free fall like
happened in 2008. Current levels are still covering OPEX. The environment
for bulker remains challenging, however. The very granular market with in-
tense competition is more vulnerable than for example the market for cont-
ainer vessels where the main players are well known. While the recent fall in
coal imports by China may be an indication of increasing coal demand overhcob-bank.com 11
the next months, people are familiar with China’s fickleness with respect to its
decisions to purchase coal from abroad. We expect that iron ore imports, on
the other hand, will show a more consistent picture of increasing demand,
in continuation of the decades long upward trend and based on the sound
expansion of the Chinese economy. This should contribute to some stability
of this market.
China GDP level, index 105
103
Barrel/Day, Million
100
99,2 million
98
95
93
90
Source: Macrobond,
HCOB Energy Information
88
Administration (EIA) 2014 2016 2018 2020 2022
Hangover Mood
The tanker market is still in hangover mood, after having registered in spring
the highest daily revenues ever since statistics began in 1990. The average
tanker earnings reached at their highest point fantastical 98.000 US-Dollar/
day. The combination of a disruptive corona induced fall in oil demand and
simultaneous price war between oil giants Saudi Arabia and Russia delivered
the perfect storm, which led to a jaw dropping jump in demand for floating
storage. And here comes the hangover: the floating storage is now unwinding
gradually. This will very probably continue over the next months.
While some fundamentals are improving, as the normalization of the oil mar-
ket means that oil production will increase step by step and in parallel
to the increase of demand, a positive impact on rates will be felt
most probably only in 2022.Hamburg Commercial Bank AG
Gerhart-Hauptmann-Platz 50
20095 Hamburg
Telefon 040 3333-0
Dr. Nicolas Blanchard
Chief Clients and Products Officer
nicolas.blanchard@hcob-bank.com
Tel.: +49 (0) 40- 3333-0
Jan-Philipp Rohr
Global Head Shipping
jan-philpp.rohr@hcob-bank.com
Tel.: +49 (0) 40- 3333-13584
Author:
Dr. Cyrus de la Rubia
Chefvolkswirt
cyrus.de.la.rubia@hcob-bank.com
Tel.: +49 (0) 40-3333-15260
Shipping
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