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Global oil demand could shrink over 3 mil b/d in 2020 due to virus: S&P Global

Global oil demand could collapse by over 3 million b/d this year due to growing social and economic lockdown measures aimed at slowing the spread of the coronavirus pandemic, according to S&P Global Platts Analytics.

World oil demand could fall by over 12 million b/d on the year in April and May and result in annualized fall of as much as 3.2 million b/d in 2020, the head of S&P Global Platts Analytics Chris Midgley said.

The estimate for the potential demand impact from coronavirus is one of the most bearish by forecasters to date. It also marks a major revision to S&P Global Analytics’ March 11 estimate of a 960,000 b/d contraction in oil demand this year due to coronavirus.

Since then, moves by countries to further shut schools and other public venues while imposing tougher travel restrictions have escalated sharply.

US gasoline demand alone could fall by 2 million b/d in the second quarter, in an “extreme scenario” where the pandemic temporarily shutters 34% of workplaces and 50% of non-essential travel miles, according to London-based consultants Thunder Said Energy.

Norway-based consultant Rystad Energy on Wednesday estimated that global oil demand will contract by 2.8 million b/d this year with jet fuel hit the hardest. Rystad estimated that jet fuel demand would fall by 12% year on year, or at least 800,000 b/d from last year’s average of about 7.2 million b/d.

The International Energy Agency on Match 9 forecast a contraction in global demand for 2020 of 90,000 b/d — which would be the first shrinkage in consumption since the financial crisis in 2009.

Coronavirus could deliver 17 million-TEU blow to container shipping

The world is in the third phase of a global supply chain crisis, according to SeaIntelligence Consulting.

The impact on container shipping lines from the coronavirus pandemic could total about 17 million twenty-foot equivalent units (TEUs), according to Lars Jensen, CEO of Copenhagen-based SeaIntelligence Consulting.

That amounts to about 10% of global volumes in a normal world, Jensen told wealth management firm UBS.

Jensen did say he expects a strong volume rebound in 2021.

Jensen told UBS during a conference call that there currently is a ripple effect from the supply crunch in China. “This consists of insufficient transport capacity for EU and U.S. exporters,” the UBS call summary said.

With the rapid spread of the coronavirus in Europe and the United States, Jensen expects importers to reduce stock levels “until they see clear evidence of demand rebounding.”

The world is in the early stages of the third phase of the global supply chain crisis, according to Jensen.

Jensen explained to American Shipper: “Phase one was when China was closed down due to the virus and therefore there was a shortfall of container volumes due to closure of manufacturing. Phase two is the rebound when Chinese manufacturing was getting up to speed.

Phase three is the shutdown of the rest of the world as the pandemic spreads, causing a sharp drop in demand.

“There is an overlap between phase two and phase three. Phase two was only beginning as phase three suddenly ramped up rapidly and therefore we did not get to see the full effect,” Jensen told American Shipper.

“The problem with phase three is that we are right now in the very early stage of this. Container cargo being booked and shipped right now is based on orders that were sent to the factories one, two and three weeks ago, and this does not reflect what is happening in the market right now,” he said.

Jensen told UBS he is seeing more discipline from ocean carriers on rates.

“In contrast with the past, ocean carriers have moved more swiftly to blank sailings,” the UBS call summary said. This has protected freight rates, and backhaul routes from Europe and the United States “are now seeing increases in freight rates on the back of tight capacity.”

Jensen told American Shipper that freight rates have not plummeted during the coronavirus pandemic.

“Freight rates did decline somewhat during phase one but actually not in any large or catastrophic way. This is because carriers were very quick in removing capacity from the market and in addition held a reasonable price discipline where they saw little need to aggressively pursue volumes through price discounts. As we entered phase one, we were indeed beginning to see price increases caused by capacity/equipment imbalances,” he said.

Earlier this month Jensen wrote in an online post that the “the situation is unprecedented” but “there is one clear comparison: the financial crisis in 2008,” when global container volumes dropped by 10%. If the same contraction rate occurs this year, “this equals a decline of 17 million TEU globally for container lines” and ports and terminals could “potentially be looking at a loss of 80 million TEU of handling volume.”
Source: Freight Waves by Greg Miller (https://www.freightwaves.com/news/coronavirus-could-deliver-17-million-teu-blow-to-container-shipping)

Shipowners eye long term marine fuel contracts on price plunge, some cautious

The recent plunge in shipping fuel prices is prompting some shipowners to eye long term supply contracts on a fixed price basis, but both buyers and sellers remain cautious because of volatile oil markets, several market participants told S&P Global Platts.

The selloff in oil prices this month has pushed price for the mainstay Singapore-delivered Marine Fuel 0.5% bunker down 28.88% to average $355.54/mt so far in March as compared to $499.9/mt in February, Platts data showed.
The sharp drop encouraged shipowners to rush in to buy short term supplies. And many are now exploring longer term contracts.

“I covered most of my LSFO requirements with term contracts for Q1 and Q2 but now I am going to see if I can cover my term for Q3 and Q4 too,” a shipowner said.

A dwindling flat price has also enticed ship owners to not just consider locking in longer term contracts, but also volumes for April, and for high sulfur bunker fuel as well, said traders.

“I am hearing a few fixed price contracts for high sulfur bunker fuel into April…flat price is pretty weak, might be good to lock in some bunker costs,” a Singapore-based bunker trader said.

Singapore-delivered 380 CST bunker is down 24.66% to average $231.31/mt so far in March as compared to $307.03/mt in February, Platts data showed.

The incentive to secure additional short- and longer-term volumes at these low flat price levels is compelling to some of the ship owners who apparently already have contractual volumes with suppliers that they haven’t been able to lift fully due to a demand slump from the coronavirus outbreak.

“We still have inventories, but I think prices are attractive enough for us to procure some [more] spot and term volume,” said another shipowner.

NOT ALL ARE BUYING THOUGH
Even as a good number of shipowners have said they are looking to take the fixed price term contract route, there are some that are skeptical to opt long term sourcing of bunker fuel on a fixed price basis.

The naysayers among shipowners hold a view that the worst with respect to a drop in flat price is perhaps yet to come.

“How can I take a [fixed price] contract knowing there’s a potential that crude could see new lows? It could go terribly wrong,” a Singapore-based head of bunker procurement at one of the largest dry bulk shipping companies said.

Meanwhile, some shipowners were still evaluating their options between taking a fixed price route or on a floating price basis.

“We are trying to see if that’s possible, but on the other hand the discounts to conclude contracts on a floating [price] basis have also widened, so we’re looking at both options,” said a fourth shipowner.

According to traders and shipowners, suppliers are currently looking to tie up Q2 volumes for Singapore-delivered Marine Fuel 0.5% bunker at a discount in the high teens to Singapore gasoil 10 ppm. This compares to a premium of $50-$60/mt at which term volumes were concluded at for Q1 delivery.

Singapore-delivered Marine Fuel 0.5% spot differential to Singapore gasoil 10 ppm cargo has averaged a discount of $19.49/mt so far this month as compared to a premium of $8.44/mt in February and a premium of $88.87/mt in January, Platts data showed.

NOT ALL ARE SELLING EITHER
Some of the suppliers who held a view that shipping fuel demand would improve as global trade claws back to normalcy from the aftermath of coronavirus outbreak going into the second half of the year, were said to be less eager to ink contracts at prevailing low levels, said traders.

This was especially true apparently in the case of tier-2 traders and bunker suppliers who don’t want to, or have the appetite to, take on risk management positions to hedge their fixed price physical exposure.

“We got some inquiries from buyers…we also have some other traders asking us, but we are not so keen,” said one such Singapore-based trader about their reluctance to tie up fixed price-based term contracts.

Major suppliers have been less reluctant though, with a few heard to be approaching shipowners to tie up contracts on a fixed price basis.

“Oil majors and most major traders [now] have presence in the delivered [bunker] market, so they will be able to offer [basis] fixed price as they can hedge their physical exposure,” said a Singapore-based senior trader at a western trading company.

The Cruise Industry’s War Against COVID-19

By Salvatore R. Mercogliano, Ph.D. – On Friday, March 13, 2020, the Cruise Lines International Association (CLIA) announced that their ocean-going cruise lines would be, “voluntarily and temporarily suspending cruise ship operations from U.S. ports of call for 30 days as public health officials and the U.S. Government continue to address COVID-19.” This decision followed on the heels of many shipping lines, making similar choices and marked a historic event.

The outbreak of the Coronavirus gripped most western news sources when the plight of the Diamond Princess in Yokohama, Japan began to unfold. It was followed by the Grand Princess off San Francisco, and others around the world. Some cruise ships, such as Westerdam of Holland-American Lines, found themselves unable to offload their passengers in any ports, a veritable Flying Dutchman. With the suspension of cruises and most vacationers offloaded, the ships are docked or at anchor around the world awaiting a callback. But what that call entails, no one is quite sure.

Over a century ago, the world was in the grip of a global conflict. Stemming from a seemingly insignificant event in the city of Sarajevo on June 28, 1914, within the span of five weeks, the world had been upended. Fighting had erupted in Europe and it would spread like a virus across the Old World, to Africa and Asia, and upon the high seas and even as far away as Bar Harbor, Maine.

On August 4, 1914, the small northern Maine town, the summer resort of the rich and famous was awaiting the arrival of Vincent Astor on board his yacht Noma. One of the stories in the papers was that of the North German Lloyd liner SS Kronprinzessin Cecilie. She had sailed from New York to Germany with over 1,200 passengers. As one of the largest German liners, she was a prize for any British warship that could capture her, for in her hold were $10 million in gold and $3 million in silver to fund the war effort.

That morning, with reports that the ship was making a dash north of the British Isles, the residents and visitors of Bar Harbor awoke to the sight of Kronprinzessin Cecilie swinging from her anchor off The Porcupines. A few days earlier, the ship’s master, Charles Polack, met with the first and second-class male passengers to discuss a strategy to avoid the British and French warships on the prowl for the liner. Among the passengers was C. Ledyard Blair, a New York investment banker who was sailing to Scotland for grouse hunting. An avid yachtsman, he informed Captain Polack of Bar Harbor and volunteered to pilot the vessel to the anchorage, since he owned a cottage and sailed those waters every summer.

After its arrival and with the passengers offloaded, she sailed to Boston, staying within three miles of the New England coast to avoid capture. She, along with other German and Austrian liners, were interned in the United States and neutral ports around the world. The ships lingered for nearly three years. Other passenger liners served as auxiliary cruisers and some became noteworthy, such as when RMS Lusitania met her fate off southern Ireland at the hands of U-20 on May 7, 1915. The interned liners, such as Kronzprinzessin Cecilie, awaited the end of the war to return back to service, but Germany’s resumption of unrestricted submarine warfare in early 1917, and the sinking of ten American ships and the loss of 64 merchant mariners led to the United States entering the war.

German crews, living onboard, sabotaged the vessels with the aim to prevent them from falling into American hands. They envisioned that their efforts would require at least two years of repairs, since the Americans lacked the schematics and parts. However, American naval engineers and U.S. Navy shipyards were able to utilize new techniques, such as electric welding, to return the ships to service in under six months. Kronprinzessin Cecilie joined the U.S. Navy as USS Mount Vernon. She and nineteen other former German and Austrian vessels carried over 500,000 doughboys of the American Expeditionary Force to France. In World War Two, this was repeated when interned liners and those seeking refuge from the Axis powers were used to transport forces around the globe.

Today, the three mega-cruise lines – Carnival, Royal Caribbean, and Norwegian – are scrambling to ride out this storm, much as the German liners did at the start of the First World War. In the Bahamas, over a dozen ships are riding at anchor, while in ports around the world, others are tied up at the docks awaiting a return to normalcy, that may not come any time soon. Taking a page out of history, the cruise lines, which were the early focus of the COVID-19 outbreak, much like Kronprinzessin Cecilie was early in the First World War, may be part of the solution to this issue.

The fear of COVID-19 is that the virus will swamp existing medical facilities and expose additional people. Nations around the world have a finite capability to house and care for patients. The nearly 200 cruise ships currently awaiting a return to duty could serve that role. Those interned liners, besides transporting American soldiers to Europe, also doubled as hospital ships and returned the injured and ill from Europe, including many infected with the Spanish Flu (H1N1 influenza). Perhaps these cruise ships can serve this role around the world.

In the United States, plans are underway to deploy the two hospital ships – USNS Comfort and Mercy – and potentially activate maritime academy training ships to fill this role. Several firms, including Carnival, indicate that their ships are available for such missions. To assist in this endeavor, the U.S. Navy’s Strategic Sealift Officer program is ideally situated. They employ licensed merchant mariners who could serve as liaisons between the vessels and government agencies ashore. If cruise ships from the mega-lines are used, will they be taken over and manned by American’s as happened with the German liners in the First World War?

The cruise lines have obtained substantial loans – Carnival was able to acquire $3 billion alone – to offset losses, but charters to governments and their use as hospital and berthing facilities serves two purposes. First, it could generate revenue through charter rates. While this will not equal the money lost from passengers, it does alleviate some of the loss. Second, it will help repair their image tarnished by those early breakouts and issues with finding ports of debarkation.

The future of the cruise line industry is in a state of flux. Smaller domestic firms, such as American Cruise Lines – which operates under United States cabotage rules, with ships built in Maryland – may be able to get some relief from the federal government. The larger companies that are incorporated offshore in nations like Panama, Liberia, and the Bahamas, and register their ships in similar nations, have forfeited their justification of aid from the American government since they gambled on operating outside American jurisdiction. That decision may have long-term implications. No matter what the future holds, in the short-term, the world is once again looking upon the maritime industry to maintain the flow of goods and help fight this new world enemy.

South Korea Fears Japan Trade Dispute Could Scuttle Shipyard Merger

South Korean officials are concerned that Seoul’s increasingly strained trade relations with Japan could derail the country’s planned megamerger of the country’s two big shipbuilders.

Hyundai Heavy Industries Holdings Co. plans to seek antitrust approvals from Japan, China, Singapore and the European Union to combine operations with Daewoo Shipbuilding & Marine Engineering Co. , according to people with direct knowledge of the matter.

The merger would create the world’s biggest shipyard, with control over some 20% of the global market, and would compete with yards in those countries for new ship orders worth billions of dollars.

If any of those regulators turn down the approval request, the merger could be canceled.

“None of the approvals are certain, but the one from the Japanese government is especially tricky,” one person involved in the process said. “Trade relations between Seoul and Tokyo are quite tense and it’s not the best time to ask Japan on such matters.”

Japan and South Korea have been locked in an escalating trade dispute taking in major businesses in both countries since South Korea’s supreme court last year ordered Japanese companies to pay damages for forced labor of Koreans during World War II.

The tension intensified in July after Tokyo imposed export controls of three materials crucial to Korea’s manufacturing of semiconductors and display screens for electronic devices. In August, Tokyo removed Seoul from a list of trusted trade partners with preferential status, while South Korea withdrew from a regional military intelligence-sharing agreement that includes Japan.

South Korean group seen bidding to operate Qatar LNG carriers

Korea Line, Pan Ocean, SK Shipping, Hyundai LNG Shipping and H-Line Shipping have reportedly teamed up to make a bid for LNG shipping contracts from Qatar Petroleum. While South Korean shipbuilders are dominant in the construction of LNG carriers, the shipping companies are also hoping to cash in on the massive project

WFW advises ABN on US$220m loan facility

Watson Farley & Williams (“WFW”) has advised ABN AMRO Capital USA LLC (“ABN”) in relation to a US$220m loan facility for Team Tankers. The loan facility refinanced certain existing indebtedness and assisted Team Tankers in financing the acquisition of Laurin Shipping AB and Anglo-Atlantic Steamship Company Ltd, and increases Team Tanker’s overall fleet from 37 to 52 vessels. The facility is secured by mortgages over 34 vessels registered on Bermuda, Maltese and Liberian flag. Mandated lead arrangers are ABN, Danish Ship Finance A/S, NIBC Bank N.V., and Skandinaviska Enskilda Banken AB (publ). A multi-jurisdictional WFW team was led by London Maritime Partner Michael O’Donnell, assisted by Associates Nigel Willis, Charlotte Knight and Tanpreet Rooprai. New York Finance Partner Daniel Rodgers dealt with the Liberian and New York aspects of the deal, assisted by Associate Brett Rieders. Michael commented: “We are very pleased to have acted for ABN on this headline loan facility for Team Tankers which raises its presence in the medium range sector and is further evidence of consolidation in the chemical tanker industry”. Mohammed added: “Real estate is one of WFW’s core industry specialisations and a key sector for major businesses operating in the Middle East region. The combination of a real estate practice together with the firm’s existing capabilities will significantly enhance the service we can offer to our clients particularly within the real estate finance space. I very much looking forward to working with my colleagues in Dubai and across WFW’s global network in supporting our clients both locally and internationally”. Source: Watson, Farley & Williams

Beast from the East

The difficult ice conditions have forced many shipowners and charterers to carefully review insurance contracts and charterparty ice clauses. In this Insight, we take the opportunity to review the treatment of ice under Hull and Machinery terms and charterer’s liability policies.

Hull and Machinery insurance has always paid attention to the hazards of ice and underwriters have regulated their exposure through different ice related warranties and exclusions. There are permanently excluded areas, such as Arctic and Antarctic areas, where ice and navigational risks are very high due to such factors as multi-year ice, remoteness, inadequacy of charts, limited emergency response and extreme weather variations. There are also “conditional area” such as Gulf of St. Lawrence, Alaska, Sakhalin area and Baltic Sea, including Gulf of Bothnia and Gulf of Finland, where policy terms allow trading on terms agreed by the underwriter. Below, we will be looking at the treatment of conditional areas. For more information about operating in the Arctic region see Gard’s article about the Polar Code.

Still waters at Ennore terminal rock Adani’s boat

Last year, when the Adani group invested ₹800 crore to set up a container terminal at the Kamarajar Port (KPL) in Ennore, it would never have visualised a predicament in which the terminal would be idle.

Although it is located just 30 km from the bustling Chennai port (ChPT), which has two busy container terminals run by DP World and PSA Singapore, demand for cargo was never expected to be an issue. Both ports tap into the vast hinterland, which spans parts of Andhra Pradesh, Karnataka and southern Tamil Nadu.

But today, the Adani Ennore Container Terminal (AECT), which can handle 1.4 million 20-foot equivalent units (TEUs) annually, sees virtually no activity as most shipping lines prefer to give it a miss.

That inactivity has arisen because of vessel-related charges. Kamarajar Port’s charges on shipping lines are far higher than those levied by Chennai port. The difference is as much as $23,000 (₹15.30 lakh) per call.

While both ports have a similar base tariff, what tilts the balance in favour of the Chennai port is the additional 40 per cent discount Chennai Port Trust offers mainline vessels over the 15 per cent cut most ports offer.

The Adani Group’s efforts to seek a similar additional discount from Kamarajar Port Ltd have not fructified. Even worse, the 15 per cent discount that KPL allowed as a promotional offer is set to end soon.

“KPL is unwilling to match ChPT’s discounted tariff, making it unviable for shipping lines to call on AECT,” said Ennarasu Karunesan, CEO, Southern Ports, Adani Ports and SEZ.

Wide berth

“Shipping lines across the world are struggling financially due to over-capacity. They prefer a port where charges are minimal, attractive and commercially viable,” he told BusinessLine.

Since October 2017, only six container vessel have called on Kamarajar port. But the port officials are unmoved. In April, they told AECT that the port is not obligated to match the concession offered by ChPT. They put the onus on AECT to offer discounts, if required.

“A terminal operator cannot offer discounts on vessel-related charges,” countered Karunesan.

Interestingly, in the adjoining Katupalli minor port, where Adani operates another container terminal, it has been able to match ChPT’s tariffs. Ships call on the port regularly.

The difference in tariff is puzzling, given that both the ports are under the Shipping Ministry. Chennai Port Trust, in fact, has a 33 per cent stake in the Kamarajar Port.

“Shipping lines have made it clear that we should match vessel-related charges at Kamarajar port in line with Chennai port, saying they will not be in a position to absorb additional charges to carry cargo from the same hinterland. There has to be a fair-trade practice and a level playing field to induce business to Kamarajar port and we should be extended the required support,” said Karunesan.

Left with little option, Adani group has now approached the Shipping Ministry, seeking that level playing field. If the issue is not resolved quickly and AECT continues to remain idle, the project could become unviable and end up as a non-performing asset, warn experts.
Source: The Hindu Business Line

Baltic Exchange launches Escrow Service for vessel sales

The Baltic Exchange will be launching an Escrow Service for its members to hold deposits for ship sale transactions. The move will allow Baltic Exchange members to take advantage of the Exchange’s trusted position in the marketplace when undertaking the sale or purchase of a vessel. Announcing the initiative today (25 April) at its Freight & Commodities Forum during Singapore Maritime Week, the paid-for service will be available for use in transactions where the buyer of the vessel is a Baltic Exchange member. The service is likely to be extended to disputes related payments. The Escrow Service will be run by the Baltic Exchange’s Asia office in Singapore and will be subject to the Singapore Exchange’s (SGX) detailed compliance and money laundering procedures. OCBC Bank will be providing the joint deposit account. Headed up by the Baltic Exchange’s Head of Asia-Pacific, Chris Jones, a sale & purchase broker with over 40 years of experience, the service will initially be offered from Singapore with a view to further expansion to other Asian shipping centres. Chris Jones said: “Having the Baltic Exchange provide this service solves the problem as to where the deposit should be held in a vessel transaction. Buyer and seller alike can be certain that the Baltic Exchange will apply its high standards of compliance as well as have a full understanding of the complexities of any maritime transaction.” He added: “This service will add real value to the many sale & purchase brokers who are Baltic members and are currently expected to provide this service to clients. It will allow them to undertake the highest level of due diligence and compliance checks, reduce the administrative burden of organising a client escrow account and allow them to focus on adding value to the transaction.” The service will go live in May 2018 and will cost US$ 5,000 per side. Source: Baltic Exchange