Clarkson Research Services offers insight into the quantifiable damage to shipping caused by Covid-19
Without the numbers, it is difficult to put into words the impact of Covid-19 coronavirus on the tanker markets. Fortunately, Clarkson Research Services (CRS) recognised this problem and has now produced Covid-19: Shipping Market Impact Tracker. It shows that as at the end of July 2020, the World Health Organisation (WHO) was reporting over 155,000 new Covid-19 cases. Rapid intervention took place and China, the initial epicentre of the outbreak, created the first episode of Lockdown, which then spread around the world.
Global GDP growth, the lead indicator for seaborne trade, was forecast as a respectable 2.9% in 2019 and actually rose to 3.3% in January 2020. April 2020 is generally seen as the first month to show the true impact of Covid-19; GDP growth fell to minus 3.0%. Since then, GDP forecasts have continued to go downward and at the halfway point of 2020, GDP growth was down sharply to minus 8.2%.
“In May, China’s crude oil imports were higher than ever before”
As a result, seaborne trade has contracted from a positive 3.5% in 2019 down to minus 8.2%. Underlining the remarkable decline in demand is the crude oil picture. In 2019, the crude oil balance was in favour of demand, which at 100M bpd was about 3% above global supply of 97.4%. The disparity was stark in April 2020: 100.5M bpd of supply versus demand of 72.0M bpd. The half-year situation is a fall of 13% in demand year-on-year (yoy) versus a fall of 3.9% yoy in supply.
The excess supply has driven down the price of crude oil, which at one point even went (technically) negative and saw traders rushing to fix tankers to deliver or store the cheap crude oil. This caused a spike in earnings. VLCC earnings reached an average of US$159,000/day in March 2020, and US$171,000/day in April 2020 – compared to an average of US$43,000/day for 2019.
The demand for tankers also saw an increase in speed. Crude tanker average speeds were up by 0.5% in 2019, accelerating noticeably during the spike in Q3 2019. The Q2 2020 spike in earnings also saw another acceleration in speeds by 0.9%. CRS notes that in May-June 2020 the crude tanker sector average speed fell back to 11.7 knots (down 0.1% versus the period January to April 2020). In the product tanker sector, average speeds decreased by 0.5% in 2019. The spike in rates in H1 2020 maintained the average speed, noted CRS.
Over the longer term, the change in overall fleet average speed is even more dramatic. The CRS World Fleet Average Speed Index has a base of 100 set in 2008. The 2019 index is 16% lower than in 2008, with some sectors showing a dramatic slowdown in speed. Tankers have not been immune. The CRS crude tanker fleet average speed index is currently 82.1, versus 100 in 2008. The CRS product tanker fleet average speed index is currently 77.8, versus the 2008 base of 100.
Storage at sea
The other side of the tanker story in the first half of 2020 involved the storage of crude oil and products at sea. Virtually every available tanker was storing crude; even MR product tankers were being called into service to act as floating storage as traders sought to take advantage of the price contango. In April 2020, CRS recorded over 10% of the tanker fleet was engaged in storage (defined as laden vessels that have been stationary for a period of 14 days or more, as well as other vessels which are considered to be engaged in storage).
The fall in the crude oil price had a knock-on impact on the price of bunkers. A significant proportion of the global fleet had booked to have scrubbers retrofitted to take advantage of the US$300 tonne differential in the price between HSFO and very-low sulphur fuel oil (VLSFO). CRS noted that in January 2020, 241 vessels (all types) were reported undergoing retrofits. By the middle of 2020, the number was down by two thirds; it is uncertain if owners will continue with scrubber retrofit programmes while the bunker price remains low.
“It is uncertain if owners will continue with scrubber retrofit programmes while the bunker price remains low”
The current tanker market situation could be considered a return to normality. Speaking at a Marine Money webinar in mid-June 2020, International Seaways president and chief executive officer Lois Zabrocky said the tanker market was finely balanced. “The contango is about US$2/bbl, which is not enough to encourage storage at sea,” she said. “The VLCC sector is still holding up because the China market came back. In May, China’s crude oil imports were higher than ever before,” she noted.
Speaking on behalf of product tanker owners, Diamond S Shipping president and chief executive officer Craig H. Stevenson, Jr. said: “It is unusual for product tankers to be used for floating storage. The airlines stopped flying and the on-land storage of jet fuel ran out. Jet fuel is being stored on the water in product tankers. There are even some handy tankers being used for storage.”
He noted that any full return to normality was expected to be nearer the end of the year, but he observed that normal demand has already started to appear. He looked to the US summer driving season as a key indicator that normality was returning.
Key drivers of trade growth
Real-time tanker analytics provider Vortexa lists eight key indicators that will impact the flow of gasoline seaborne trade on product tankers.