Car Carrier Trade & Transport Report

The car carrier sector is experiencing exceptionally firm market conditions, with operator profits strong and charter rates having surged to the highest levels on record. Support has been provided by the ‘post-Covid’ car trade rebound gathering pace through 2022, a boost to vessel demand from shifting trade flows, and congestion and inefficiencies continuing to soak up vessel capacity, all against a backdrop of extremely limited supply growth.

 

Seaborne car trade volumes started 2022 well below ‘pre-Covid’ levels amid significant dis- ruption to car production as a result of severe supply chain disruption and component short- ages in key regions, but have taken clear steps forward in recent months as these issues have started to ease. Our Monthly Global Seaborne Car Trade Indicator was up 7% y-o-y across the first 10 months of 2022, and stood 3% above ‘pre-Covid’ (2019) levels by October.

 

Global ‘deep sea’ car trade is currently projected to grow by 8% to 20.3m cars in 2022 (excl. short-haul intra Europe trade), still 5% below the 2019 total. Taking into account changing trade patterns, seaborne car trade is projected to grow by a robust 14% in car-miles this year (average haul increase of 6%), rising 2% above pre-Covid levels, with surging long-haul Chi- nese exports accounting for over 50% of this growth. Strong ‘high and heavy’ trade, as well as increasing EV/hybrid uptake (now c.25% of car trade), have also been positive drivers.
 

Port congestion and other inefficiencies have generated significant ‘disruption upside’ for car carrier markets in recent years; our Car Carrier Port Congestion Index (SIN TSID 547543) shows an average of 27% of fleet capacity ‘at port’ globally across 2022 so far, up from a ‘pre- Covid’ (2016-19) average of 23%. There were some signs of easing in disruption in Q4, though as at early December our Port Congestion Index was still clearly above the ‘pre-Covid’ level.
 

Stronger demand trends this year have followed on from a particularly volatile period for car trade; after a 21% fall in 2020 due to the Covid-19 pandemic, global ‘deep sea’ seaborne car trade saw only a 12% rebound to 18.8m cars in 2021. There was significant month-to- month volatility; our monthly trade indicator was down 63% y-o-y in May 2020 at the ‘peak’ of the Covid pandemic, then rebounded quickly to just -1% y-o-y by October 2020, before slipping backwards again in 2021, averaging -14% vs 2019 levels in 2H 2021.
 

Japan is on track to remain the world’s largest car exporter in 2022, albeit with volumes still almost 20% below 2019 at 4.4m cars given lingering supply chain disruption, while Chinese exports are projected to hit 2.6m cars after recent remarkable growth (2019: 0.9m), closing in on South Korean volumes (2022f: 2.8m cars). EU/UK and North American exports are project- ed to total 6.6m cars in 2022, little improved vs 2019, but have seen firmer trends recently.
 

The US is on track to remain the world’s largest seaborne car importer in 2022, albeit with vol- umes set to rise only marginally and remain c.15% below the 2019 level, while imports into the EU/UK are on track to see a c.7% increase in 2022 after recent improvements (+27% y-o-y in Q3). Elsewhere, imports into a range of developing regions have seen clear improvements recently, on the back of rebounding demand ‘post-Covid’ and economic support to some raw material exporters from higher commodity prices; combined imports into S. America, the Middle East and Africa are on track to grow by 10% in 2022 to the highest level since 2015.
 

Macroeconomic headwinds have clearly built in 2022, which typically poses a challenge for car demand and seaborne car trade, but car manufacturers’ long orderbooks and unful- filled ‘pent-up’ demand appear to offer some ‘buffer’ against a major downturn for now. Our ‘base case’ outlook for seaborne car trade for 2023 currently assumes that recent gains are maintained, but further growth is more limited, resulting in a c.5% increase in trade to c.21.4m cars, around ‘pre-Covid’ levels. In 2024, potentially easing global macroeconomic headwinds could see some gains in trade, with c.6% growth to 22.7m cars initially projected.

 

Car carrier fleet growth remains very limited; by start November, the fleet stood at 757 vessels of a combined 4.0m ceu, up just 0.4% from the start of the year. Extremely limited ordering in the late 2010s has led to very few deliveries in recent years; total fleet capacity is essentially still in line with the start 2018 level.
 

The car carrier fleet is currently projected to grow by 1.3% in 2023, with deliveries and demoli- tion projected to be limited again. Looking to 2024, growth of 6.1% is currently projected, with deliveries picking up following a ‘wave’ of ordering in 2021/22, but demolition could also start to increase from recent lows (also watch for “slow steaming”, see below), as fleet renewal continues and environmental regulations (e.g. CII) tighten.
 

Car carrier newbuild ordering has increased significantly in 2021 and 2022 on record markets and the resumption of owners’ fleet renewal programmes, including efforts to support manu- facturers to become ‘green through the supply chain’. 48 vessels of 375,000 ceu were or- dered in Jan-Oct 2022, already the firmest year since 2007. By start November, the orderbook stood at a more than 10 year high of 86 vessels of 641,000 ceu (16% of fleet capacity, though most for delivery 2024 on), with further orders reported since. 93% of capacity will be LNG ca- pable, and 23% ammonia/methanol ‘ready’ as owners seek fuel optionality. By November, the guideline newbuilding price for a c.7,000 ceu LNG dual-fuel ship stood at c.$91m.
 

Ownership in the car carrier sector is fairly consolidated vs other shipping sectors, with the top 10 owner groups owning 67% of fleet capacity. Major operator Wallenius Wilhelmsen is the largest owner group (0.53m ceu), followed by Ray Car Carriers (0.36m ceu), with Japa- nese operators NYK (0.34m ceu), MOL (0.31m ceu) and K-Line (0.28m ceu) completing the top 5. Operator owners own 61% of the fleet, vs 39% by charter owners (‘tonnage providers’).
 

The majority of car carrier vessels operate on liner-style services and are controlled by major operators, many of whom have contracts of affreightment with vehicle manufacturers. Op- erators have generally reported strong earnings this year, while charter market conditions are the hottest on record. The guideline 1 year timecharter rate for a c.6,500 ceu PCTC surpassed.
 

$100,000/day by October (almost double the previous record level), with much of the charter fleet now ‘fixed forwards’ and fixtures now typically being concluded for multiple years.
 

Secondhand sales activity generally remains limited relative to other shipping sectors (just c.1% of start-year fleet capacity has changed hands so far in 2022) but strong market condi- tions have seen asset valuations firm notably; the guideline 5 year old price for a c.6,500 ceu PCTC stood at $90m by November, up from $57m a year earlier.
 

Shipping’s Green Transition continues to accelerate. Upcoming environmental regulations are likely to have a range of impacts on the car carrier sector, including slower speeds (+3% vs start-21 recently, but still 13% below 2008 levels), EST retrofitting (gaining traction; ESTs now fitted on >14% of fleet capacity) and potentially increased recycling. It is estimated, for ex- ample, that c.80% of car carrier fleet capacity would theoretically be D or E rated under CII if still trading by 2026 without altering speeds or specifications (and c.45% in 2023).
 

For the moment, the car carrier market outlook appears positive. Supply/demand funda- mentals seem supportive, with base case trade volume growth projected at c.5% in 2023 and 6% in 2024, vs fleet growth in 2023 of 1%, and 6% in 2024. A ‘lower case’ outcome re- mains a possibility in case of a more severe global economic downturn, but ‘pent-up’ de- mand and the steady resolution of supply chain disruption currently appear likely to provide some protection for trade. While some ‘normalisation’ in market conditions from current ex- ceptional highs is natural eventually, especially once congestion and inefficiencies ease and/or supply growth picks up in 2024, underlying positive drivers including the shift to EVs, the evolving trade matrix, and potential for supportive supply impacts from environmental regulations suggest potential for a continued positive phase in the car carrier market.

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