Market insight
By Dionysis Kourouniotis, Research & Valuations Department
The imminent global shift towards eco-friendliness has caused divide among the shipping community because there is no outlined, clear-cut way via which shipowners can start approaching the future IMO targets. In 2018, the Marine Environmental Protection Committee adopted a greenhouse gas (GHG) emissions reduction strategy entailing (among others): reduction of CO
2 emissions by at least 40% by 2030 and by at least 50% by 2050, compared to 2008 levels. Earlier this month, the 4th IMO GHG study forecasted that shipping emissions are due to increase by approximately 50% till 2050! This will undoubtedly speed up the need for effective GHG mitigation techniques in the maritime industry. It can be argued that realistic attainment of the IMO 2050 target will likely need to encompass a combination of market-based, technological, logistical and ship finance measures. Propulsion methods such as LNG and ammonia currently offer high yet expensive CO2 mitigation potentials. On the other hand, a bunker levy could offer a directly implementable and R&D cost-free approach towards the IMO targets.
A bunker levy may be implemented by a direct carbon tax or an emission trading scheme (ETS). The latter is less desirable since it can only absorb (40-75)% of emissions captured by a current respective bunker levy. Carbon neutral fuels would set a zero-levy baseline; the levy could be increased with increasing carbon footprint of fuels. This method would require a tax per ton of CO2 ($/CO2) emission equivalent (as an industry benchmark). The three current levy implementation strategies proposed in 2019 by the Technical University of Denmark led by Dr. Harilaos Psaraftis include low, medium and high levy intensity strategies.
A horizontal IMO-imposed levy could be enacted on a gradual basis starting from 2023-24 to account for the current newbuilding orders placed. Current IFO price is at around $280/ton, therefore a carbon levy of $75/ton (even at a [15-25]% initial implementation) would increase fuel costs by approximately [5-7]%. Alternatively, a greater than 70% levy imposition by 2030 could be overly aggressive as it would require the timely development of GHG reduction technologies to avoid the shifting of costs from shipowners to end consumers. This is because total annual costs to the shipping industry would exceed $65 billion (computed based on BP’s Statistical Energy Review & Outlook, 2019). The revenue stream distribution of the carbon levy would have to be carefully allocated by the IMO. Arguably, a significant proportion of the funds would have to be used to finance greener shipbuilding methods (inclusive of R&D required) and end-products (vessels). The policy could also incentivize investment in eco-friendly vessel newbuildings by providing lower carbon taxation rates on vessels with better Energy Efficiency Design Indices (EEDIs).
In conclusion, an industry-wide carbon levy may be an efficient approach towards carbon neutrality in shipping due to its direct implement-ability and cost-effectiveness. Regardless of the method(s) employed, successful and feasible GHG mitigation would need to impact all shipowners fairly; this could be accomplished by accurate assessment of each vessel’s carbon footprint. Achieving the IMO 2050 target will require sound collaboration among regulators, industry players and research and financial institutions which could in turn result in the much anticipated and needed re-designing of the international seaborne landscape.
Chartering (Wet:
Soft- / Dry: Stable+)
The dry bulk market was a bit of mixed bag this past week, with rates across the different sizes moving to opposite directions. The BDI today (01/09/2020) closed at 1471 points, down by 17 points compared to Monday’s (31/08/2020) levels and decreased by 47 points when compared to previous Tuesday’s closing (25/08/2020). The weakness in the crude carriers’ earnings has yet to catch a break, with further discounts noted across all sizes. The BDTI today (01/09/2020) closed at 466, decreased by 11 points and the BCTI at 482, a decrease of 1 point compared to previous Tuesday’s (25/08/2020) levels.
Sale & Purchase (Wet:
Firm+ / Dry: Firm+)
It has been a while since we last witnessed such a plethora of secondhand tanker transactions with tanker deal volumes surpassing those of dry bulk units. Furthermore, SnP momentum remained strong for dry bulk units while appetite for both sectors varied across the size spectrum. In the tanker sector we had the sale of the “BAG MEUR” (306,324dwt-blt ’00, S. Korea), which was sold to Singaporean owner, Equatorial Marine, for a price in the region of $22.0m. On the dry bulker side sector we had the sale of the “TETE OLDENDORFF” (180,585dwt-blt ’11, S. Korea), which was sold to Greek buyers, for a price in the region of $19.0m.
Newbuilding (Wet:
Firm+ / Dry: Soft-)
The number of newbuilding orders emerging last week revealed a spurt of sentiment, with contracting activity divided across all types of vessels. Tanker candidates had the lion’s share of recent newbuilding contracts with MR product carrier orders being the most prominent. Indeed, a total of 14 newbuilding MR vessels were ordered during August with Hyundai HI group having the exclusive shipbuilding role for all of them. At the same time, interest for bulk candidates remained timid over the past weeks with Supramax/Ultramax sizes constituting the majority of orders. At the same time, the current shipbuilding atmosphere is reflected among shipyards which continue to offer discounts on newbuilding units. In terms of recently reported deals, Vista Shipping, a joint venture between Hafnia and CSSC Shipping, placed an order for four firm LR2 vessels (115,000 dwt) at Guangzhou, in China for a price in the region of $60.0m each and delivery set in 2022.
Demolition (Wet:
Stable+ / Dry: Stable+)
Following two months of rising scrap prices, breakers across the Indian subcontinent stabilized their bids this past week. A moderate cash buyers’ approach was more or less anticipated with owners’ appetite for disposing their units increasing amidst high fetching scrap prices. In addition, the increasing covid-19 cases are causing fears for potential lockdowns during the next quarter, especially in India where more than 970,000 cases have been recorded during the past 2 weeks. Pakistani breakers are still leading the race offering an average price of $360 and $340 per ltd for tanker and dry bulk units, respectively. It remains to be seen, whether their Indian and Bangladeshi cash buyer competitors, will surpass these levels. Such an event may materialize soon largely owing to the increasing steel plate prices in these regions. Average prices in the different markets this week for tankers ranged between $200-360/ldt and those for dry bulk units between $195-340/ldt.
