Richardson Lawrie Associates Ltd gives its assessment of the deep-sea chemical tanker market and how digitalisation will impact existing processes
The global deep-sea chemical tanker trade has proven to be robust, despite the trade wars that have sprung up between two of the main players in the industry, China and the USA. The deep-sea chemical tanker trade is estimated to have grown to 121M tonnes in 2018, at a year-on-year growth rate of 2.9%; this follows a growth rate of 2.8% in 2017. Nonetheless, there was a decline in growth on the individual trade lane between the US and China from April 2018 onwards.
On the fleet supply side, the boom in orders in 2013 and 2014 fed into a high level of deliveries in 2015, 2016 and beyond. This tailed off in 2018 and ordering last year was on average just 46% of the high levels in 2013 and 2014. The influx of new tonnage led to a significant level of scrapping and removals from the chemical tanker fleet in 2017. The figures for 2018 indicate that scrapping was running at around 132,000 dwt and removals of 53,000 dwt.
This has left a relatively modern deep-sea chemical carrier fleet: 74% of vessels are less than 15 years old and only 12% are older than 20 years old. A large proportion of those are in the hands of the global chemical carrier fleet operators, which traditionally scrap tonnage rather than sell into the secondhand market, where the tonnage may become competitive with a much lower capital cost base.
It is apparent that the orderbook as a percentage of the fleet has been declining in recent years, but after a rise in the third quarter last year the latest figures show a continuation of the falling trend.
That said, the deep-sea chemical carrier fleet surplus remained high, at over 20% of demand on a deadweight basis in 2017, with a similar estimate for 2018.
One area for concern is in the less than 10,000 dwt sector, where the current stainless steel and non-stainless-steel fleet is dominated by around 2,000 vessels built between 2005 and 2009. Over the next decade this portion of the fleet will enter the realm of scrapping candidates, and/or may be less attractive to charterers. The current orderbook has less than 200 replacements scheduled to enter the fleet in 2019 and just over 100 in 2020.
“Maritime digitalisation is a key driver in giving management control from the ship-to-boardroom level”
On the earnings side, the petroleum products tanker and easichem chemical carrier spot markets largely experienced declines in 2018, having been constrained by moderate demand growth, rising vessel supply, flat freight rates and increasing bunker costs. However, there were signs of an upturn for both markets in Q4 2018, with rising freight rates and declining bunker costs.
Spot tce rates for stainless steel cargoes have followed a similar pattern, apart from the Continent-Far East trade lane which did not see an upturn in the fourth quarter of 2018. One ever-present factor in the chemical carrier trades is the ability of petroleum product tankers to swing into the easichem side. In the spot chemicals business the clean petroleum product tankers entering the trade peaked in 2016 and have since accounted for a declining proportion of the chemical carrier trade.
At the 2016 Tanker Shipping & Trade Conference and Awards, Charles Lawrie opined that growth in developing regions, especially China, might lead to an increase in Chinese ownership and operation of chemical tankers. At the time, around 2% of the fleet was in Chinese hands. There was a spurt in ownership, but this seems to have stabilised at around 4%, according to the latest figures.
One area of the chemical carrier trades that has seen substantial growth is that of consolidation among owners and operators:
Consolidation brings critical mass
Charles Lawrie, a specialist in economic and market analysis and forecasting, noted the following main factors driving consolidation – whether through mergers, acquisitions, or the formation of pools. No two mergers are the same, but a requirement to lower expenses and overheads through increasing the economies of scale is a strong driver, although increasing utilisation levels is also a prime motivation. A larger group increases the presence in the marketplace and provides the ‘critical mass’ required to win Contracts of Affreightment (CoAs).
The consolidation process has mainly benefited the middle-ranking companies, which have bulked up. Apart from the top six independent operators, there are now five operators that control in excess of 2% of the fleet. This has slightly weakened the position of the top six operators, which in 2012 controlled 45% of the fleet; in 2018 this dropped to 42%.
Another driver of consolidation is to provide private equity with an exit strategy. However, a larger group requires a change in information flow and control, and maritime digitalisation is a key driver in giving management control from the ship-to-boardroom level. The influence on a highly technical fleet such as the chemical carriers is profound. Ships are becoming increasingly reliant on software-based control systems connected to shore through high-speed satellite links. Ship managers can monitor fleet utilisation, routeing, trim, fuel consumption, emissions management and asset integrity management, and intervene with corrective actions via the crew.
This gives the stakeholders in the process a better view of the logistics behind ship operations and a better understanding of the decision-making process. In Mr Lawrie’s opinion, the system behind maritime digitalisation needs to be proven and robust. Charterers need to be engaged in the process, especially when it comes to the impact on charter parties/documentation. A key aim for owners and operators will be to make the handling of demurrage claims more efficient and remove the long delays in payments that have become the norm in the current process.
2018: A year of consolidation
Some of the mergers that took place in 2018 had their origins in events that took place years before, such as MOL Chemical Tankers Pte Ltd, (MOLCT) purchase of Nordic Tankers, that ended a line of ownership that can be traced back to Wonsild & Son (established 1962).
The sale brought together two companies with similar business models. Both companies operate a relatively small, owned fleet with a high proportion of chartered-in tonnage serving a base cargo developed from long-term contracts of affreightment.
The fleets are similar, too. The Nordic tanker fleet comprises of two 14,700 dwt chemical tankers and three approximately 20,000 dwt owned chemical tankers (all built at Fukuoka, Japan) and a further 15 chemical tankers operated under various charter arrangements serving the trans-Atlantic and Latin America trades.
The combined owned MOLCT/MOLNT fleet of 35 chemical carriers makes the company the 11th largest chemical tanker fleet, based on VesselsValue data – excluding vessels on charter.
The sale was completed in February 2019 and thereafter Nordic Tankers continues to trade from Copenhagen and offices in Houston, Stamford and Bogota under the new name MOL Nordic Tankers A/S (MOLNT).
Just days after the completion of MOLNT deal came the announcement that Eastern Pacific Shipping, a diverse tanker operator with eight stainless steel tank 20,000 dwt chemical tankers managed by Ace Quantum Chemical Tankers, had completed the purchase of 13 similar chemical tankers from BW Group. The sale was first rumoured in December 2018 and confirmed in early 2019. The expanded fleet is reported to be operating in the Ace Quantum Chemical Tankers pool.