Ship Market Trend

Summary:

Markets are always balanced by supply and demand. In shipping, cargo demand drives ship supply. When cargo demand growth overtakes ship (tonnage) supply growth, it will bring ship charter rate/earnings higher, and will then help to push up the asset price, bring up new building orders, and reduce scrap. When ship supply growth overtakes cargo demand growth, it will react in the opposite way. These two forces are acting and reacting, and influence other factors moving with them to form a typical shipping circle.

In this book, we have introduced some new terminologies:

1. NDG (net demand growth)

NDG = Demand growth (seaborne cargo growth) – supply growth (fleet growth)

When demand growth is quicker than supply growth, the NDG will positive; when demand growth is slower than supply growth, the NDG will negative. When demand growth equals supply growth, the NDG will be zero and the market comes to a dynamic equalization wherein it will be relatively stable.

When NDG is getting better, it means demand growth is faster than supply growth, and this creates the upside momentum to push the charter rate/earnings higher. When NDG is decreasing, it means demand growth is slower than supply growth, and this creates downside momentum to bring the charter rate/earnings down.

2. T/F ratio=(Annual world seaborne trade cargo volume tons)/(fleet size tonnage)

When the T/F ratio moves up, charter rate/earnings have a high possibility of moving up. When the T/F ratio moves down, charter rate/earnings have a high possibility of moving down. T/F ratio move with charter rate/earnings. T/F ratio mainly decides the level of charter rate/earnings rate. However, in the different market periods, the T/F ratio has a different scale of influence on the charter rate/earnings.

3. C/F ratio=(Annual new contract tonnage)/(fleet size tonnage)

The C/F ratio moves with the charter rate/earnings. When charter rate/earnings are moving up and ship owners are willing to commit to ordering new building, the C/F ratio has a high possibility of moving up. When the charter rate/earnings move down, ship owners are less interested in committing to ordering new building, and the C/F ratio has a high possibility of moving down.

4. D/F ratio=(Annual delivery tonnage)/(fleet tonnage)

When the charter rate/earnings are high, it will encourage owners to order new ships, resulting in a high C/F ratio. As there are a few years lead time between newly signed contracts and actual delivery, there is high delivery, resulting in a high D/F ratio in the future. Therefore charter rate/earnings will impact the newly signed contract directly and the newly signed contract will impact future delivery directly.

5. S/F ratio=(Annual scrap tonnage)/(fleet size tonnage)

The charter rate/earnings will reversely impact the scrap tonnage. When charter rate/earnings are high, owners are not willing to scrap their old tonnage, resulting in a low S/F ratio. When charter rate/earnings are low, owners are willing to scrap their old tonnage and this results in a high S/F ratio.

From new contract to delivery into the fleet will take about two to four years' lead time, depending on the ship type or shipyard. However, scrappage immediately impacts the fleet size. The S/F ratio is one of the quickest factors to rebalance the market. The new contract of the C/F ratio is a long-term factor reflecting the current year’s expectation for the future by the delivery of a new D/ F ratio.

Charter rate/earnings will impact second hand asset price directly. We found that when charter rate/earnings are high, it encourages owners to buy second hand assets, resulting in a high asset price. When charter rate/earnings are low, it will discourage owners from buying second hand assets, resulting in a low asset price.

When the charter rate/earnings are high, it will encourage owners to place new contracts, resulting in a high C/F ratio, and a high C/F ratio will push the new building price up. When charter rate/earnings are low, it will discourage owners from placing a new contract, resulting in a low C/F ratio, and a low C/F ratio will bring the new building price down.

We have used last three years average comparing their current year data for above study.

Last sector, we discussed market movement.

In most cases, when market moves up, the current market tends to move above their average. When market moves down, the current market tends to move below their average. When current data crosses its average data, and its average data is changing direction, there is high possibility that the market is going to change.

Market average is the signal of the trend of ship market movement.

This book was initiated at the time when M/V STELLAR DAISY sank in South Atlantic at the end of March 2017, taking with her the lives of 22 crew members. I would like to contribute all profits from the sales of this book to the Sailors’ Society in memory of those who lost their lives at sea. The international maritime charity, which supports seafarers and their families across the world, celebrates its 200th anniversary in 2018.