Global shipping market set for a recovery from new marine fuel rules - GulfToday

Global shipping market set for a recovery from new marine rules


There is strong optimism about demand for shipping in 2020.

The global shipping market is set for a recovery, benefiting from new global rules on marine fuels that came into effect at the beginning of the year after more than a decade of tough market conditions, according to IHS Markit.

The international shipping industry is responsible for the carriage of around 90 per cent of world trade. Shipping is the life blood of the global economy. Without shipping, intercontinental trade, the bulk transport of raw materials, and the import/export of affordable food and manufactured goods would simply not be possible.

“Overall, there is strong optimism about demand for shipping in 2020,” said Rahul Kapoor, vice president at IHS Markit in a note.

Owing to new regulation implemented by the International Maritime Organization (IMO) to curb sulphur emissions, scrubber retrofits and removals of older fleets with a high compliance cost are expected to lead to fleet tightening, which will help increasing freight rates across sectors and ultimately boost orders, said IHS Markit.

In the biggest shake up for the oil and shipping industries in decades, the IMO banned from the start of 2020 ships from using fuels with a sulphur content above 0.5 per cent, compared with 3.5 per cent previously, unless they are equipped with sulphur-stripping devices known as scrubbers.

About 2,000 vessels, or less than 10 per cent of the global fleet capacity, are equipped with scrubbers, as of Jan.1, according to IHS.

While retrofits were slow last year and delayed by technical difficulties and a lack of key parts, “scrubber adoption is expected to continue and a second wave of installations is expected this year”, said IHS, adding that it expected more than 3,500 units to be equipped with scrubbers by January 2021.

“Considering the fact that fleet supply will likely tighten due to scrubber retrofitting and potential demolitions, given that demand remains healthy, we may see stronger freight rates this year,” said Dalibor Gogic, principal analyst at IHS Markit.

The dry bulk market, whose fleet is expected to grow 3 per cent in 2020 compared with 3.8 per cent in 2019, is on a long-term recovery cycle, primarily driven by supply normalisation, said IHS.

“For 2020, the dry freight market is expected to be stable with artificial supply tightness owing to scrubber installations as well as robust iron ore trade growth while political risk remains in the coal trading sector,” said Daejin Lee, principal consultant at IHS Markit.

The oil market, however, is expected to remain volatile due to concern about global trade and slowing economic growth together with uncertainty and instability in the Middle East.

Still, the oil tanker freight market is expected to be stronger in 2020 than last year with fundamentals starting to noticeably improve since the second half of 2019, said IHS.

Despite a slowing crude oil market share from Organization of the Petroleum Exporting Countries in 2019, tanker demand growth will be driven by increased crude exports from the United States, Brazil, Guyana and Norway, said Fotios Katsoulas, principal analyst at IHS Markit. Shipping demand growth for the entire tanker sector could reach about 4 per cent in 2020, said IHS.

IHS Markit is a London-based global information provider formed in 2016 with the merger of IHS and Markit Ltd. Some parts of this company are pre-1800.

One part of this conglomerate originally was a firm that assigns IMO identification numbers for ships, companies and registered owners. It has since grown to incorporate other companies in the information services sector, many dating back to the late 1700s and 1800s. These include Cambridge Energy Research Associates, Global Insight, Jane’s Information Group, Carfax, Inc., Prime Publications Limited, and John S. Herold.

The shipping industry has been looking forward to a trade deal between the US and China for quite some time now. As a result, the latest positive development is expected to boost the fortunes of both the dry bulk and the tanker markets, but also to increase demand for vessel acquisitions among shipowners.

In its latest weekly report, shipbroker Intermodal said that “it seems that we are finally seeing whitish smoke as far as the trade feud between the US and China is concerned, while following this much anticipated deal between the two countries, everyone in the shipping industry is currently trying to assess the impact in the different shipping sectors. The first phase of the agreement signed last week reduces tariffs but only for a percentage of imports, with the majority of the imported and exported goods from either country retaining the previously imposed tariffs at the same levels.


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