What is the magic of the shipping industry that attracts a PhD in theoretical population ecology to become a top analyst? What are the qualities of a good shipping analyst?
And this interview contains an overall forecast for each sector of the shipping market this year.
And this interview contains an overall forecast for each sector of the shipping market this year.
The interview with Dr. Adam Kent started 9:00 sharp London time, and Dr. Adam Kent was sitting in the conference room waiting for my connection. Dr. Adam Kent was wearing a black suit with a laptop and a notebook at hand. A large painting of ocean waves hangs on the wall behind him, which is a perfect complement to what we're about to discuss in a shipping market with volatility that can daunt even professional gamblers.
Who is Adam Kent?
Who is Adam Kent?
If you ask a shipping novice born in the early 21st century, he may look blank, but if you ask a middle-aged shipping man who started working in the early 21st century, they may have an impression of this person.
Adam Kent joined Maritime Strategies International Ltd (MSI), a UK and Singapore-based shipping consultancy in 2002, and became a principal member of the Baltic Exchange in London in 2008. He is currently the Managing Director and Shareholder of MSI. During his first decade at MSI, he helped develop and expand MSI's vessel valuation methodology, providing current and future vessel valuations, earnings and operating cost analysis for the Merchant Marine and Offshore sectors. In addition, Adam has also provided supply side market analysis for tanker, container and bulk carriers as part of MSI's product offering. Additionally, he has been retained as an expert witness for a number of banks and law firms in the UK and the US. Since June 2011, he has given lectures in various shipping centers around the world. He has given over 50 lectures and conference presentations. He was included in Tanker Shipping and Trade's top 50 industry leaders for three consecutive years from 2018 to 2020.
“A core element for any analyst or consultant in the marine field, is a genuine interest in shipping. It is easier to engage and learn and embrace the subject if the individual finds the business interesting.” Dr Adam, who has been in shipping consulting for 20 years, said he has always loved shipping, including the complexity and the range of ships and cargos. Ship valuation is a task that he has been striving to optimize for many years at MSI. Adam believes that understanding current and forecast second-hand values and the new shipbuilding market require a holistic understanding of the markets across all sectors. A love of the industry should be in the hearts of every shipping professional..
The age of mathematical modeling
What attracted you to the shipping industry?
When he was a child, he grew up seeing all kinds of ships by the sea living on the Isle of Wight, an island off the south coast of England. "It's a small island about the size of Singapore, and my house overlooked the busy waters of the Solent and the entrance to the port of Southampton, so I would see a wide range of vessels including oil tankers, LPG carriers, LNG carriers, car carriers, cruise ships and container ships, I've always liked ships and sea."
On the other hand, the rise of mathematical modeling and the Internet and the Chinese economy has brought opportunities to a young man who likes research and challenges. Adam's Ph.D. is in Theoretical Population Ecology, and his bachelor's degree is Applied Biology, which on first inspection seems to have nothing to do with the shipping industry. “A lot of people have asked me why my PhD was in biology and why I switched to shipping as soon as I graduated, and of course I can explain. My PhD research involved both marine biology and mathematical modelling. As part of my qualification, I built models similar to models used in economics with a consumer and a resource. So when I saw a position for a shipping analyst in MSI, I felt it was a good opportunity to combine my interests with my abilities, so I applied for an interview.”
Mathematical modeling began to flourish in the second half of the 20th century, giving many researchers the opportunity to work across industries. As the shipping industry entered the 1990s, digital technologies were changing the collection and distribution of data. Database programs, personal computer networks, spreadsheets, and database technology have all evolved to the point of display applications. In 2000, the Internet was at the height of its prosperity.
"When I started working at MSI, I spent a lot of time analyzing the supply side of the industry, assessing and forecasting the future development of the global shipping fleet. This has exposed me to all areas of the industry and also to MSI's customer base, including shipyards, ship owners, financing institutions, suppliers and major classification societies, etc. With experience in the industry and knowledge of the ships themselves, coupled with a strong interest in ship price dynamics and drivers, providing ship valuation and forecasting services became natural. All fluctuations in the shipping industry will ultimately be reflected in changes in the value of ships, whether it is demand, supply, regulations, shipbuilding, technological changes or operational considerations, they will affect the value of a ship."
Another challenge when starting in shipping is the use of the industries jargon and terminology . Despite the rapid development of computer technology in the early 21st century, it was originally difficult for shipping analysts to obtain all the data required. Today there is a lot of data but in can be accompanied by noiseid the data, or data that is just wrong , lots of analysts had a headache either originally dealing with a lack of data or today interpreting the data through the noise, "Bringing together the data and the narrative behind the trends is the interesting and fundamental task required of an analyst." Adam said.
As a result, ship valuation became Adam's top priority. It is the crystallization of knowledge that he has been perfecting and proud of for 20 years. "Our forecast data is a key component of what we deliver to our clients, providing an independent perspective, understanding key market drivers, and designing MSI's ship price database laid a good foundation for me to provide expert witness services in court on behalf of MSI." He told me proudly.
The globalization of information and the development of communication technologies over the past 20 years have given shipping analysts access to more and more data, which is a key reason for his fascination with the industry.
When asked if he chose to be a shipping analyst because of its high paying at that time, Adam smiled and said: "Of course it would be nice to make lots of money, although being an analyst isn't the best paid job it is rewarding and does present other opportunities whilst being fascinating... Shipping is a global business, and shipping analysts have the opportunity to go all over the world and deal with a wide variety of clients, it is very interesting job.”
Keep Learning and Facing Challenges
"If you like learning, if you like challenges, if you want to keep an eye on what's going on around the world every day, shipping is a great choice," he said when asked what it takes to become a shipping analyst, "I continue to learn every day, my colleagues, my peers, no one is not learning in this industry."
"The consultancy projects we receive are varied, sometimes these are completed in days, sometimes in months. We need to understand the customer's business model and provide consulting services according to their requirements, So being a qualified shipping analyst requires a broad range of both hard and soft skills.”
“The first key requirement is a genuine interest in shipping, which is a core element for any analyst or consultant in the marine sector. The shipping industry is really complex and if the individual finds it interesting, theywill find it easier to engage and study in-depth.” As someone like Adam who switched to the field of shipping analysis, the form of work is completely new, the content of the work is unfamiliar, and the results of the work can be obscured – only the yearning is real.
Next is the ability to listen to customers and communicate with them. “Understanding what your client wants, not just providing what you think they want, but listening to exactly what they need and why.” It is not enough to give a report, they will also require something additional.
Professional experience and industry knowledge are the third key element for Adam. “At MSI, each of the core experts responsible for research on a specific sector has at least a decade of experience in the industry, and they not only understand today's market, but are able to predict future reactions in light of changing markets and gain insight into how various ship types operate，this helps them better understand the needs of our clients and why they require our consulting services .”
“At MSI, we also think the intersection of ideas and concepts is important as we cover all areas of shipping. An idea that works in one market may work in another, so we are able to share and learn across the company.” Teamwork and communication should also be engraved in a shipping analyst's career.
“Is there anything special about self-confidence in this profession?” I asked, “Self-confidence is important, but self-confidence can be cultivated,” he said. "The conclusions and outcomes to our projects can be worth millions of dollars to our clients, many of who are multinational companies. We need to give presentations at the end of the project and communicate our findings and conclusions, and confidence is very important at this time. But at MSI, we train our shipping analyst gradually through learning and experience.”
Is there right and wrong in consulting?
"Shipping is very complicated. When making forecasts out 10 years, we focus on the development of the market, the macroeconomic cycle, changes in cargo demand and routes, as well as changes in the supply of ships, we will also try to identify possible risk points. If you are a ship investor, and you plan to assess the earnings of the investment over 10 years, hoping that we will give a specific return on investment or cash flow data is normal, but there are various risks associated with that investment. Therefore, our consulting service will not only conclude the forecast results of the ship's investment, but also point out where are the possible risks and concerns. Taking the container shipping industry as an example, the technology and size evolution of container ships has developed rapidly in recent years. 20 years ago, the largest container ship was 8,000 TEU, while the current largest container ship is around 24,000 TEU, the risk of changes in ship sizes, , trade flows, vessel deployment opportunities, earnings and residual value are what we will advise out investor clients on."
be a listener
"The skill necessary to be in the service industry is listening to what customers want," Adam said. The pandemic has brought one black swan after another to the shipping industry, which has introduced both challenges and opportunities to many shipping companies. It surprised me a bit when I asked him who had consulted with MSI during this time. It was not the shipping companies of all sizes who came, but the majority of inquiries in the first quarter of 2020 were banks and financial institutions.
“They asked us to predict the changes in the global economy and trade to judge the impact of the pandemic on the shipping industry. There was very little investment in new ships in the first half of 2020, and everyone was concerned about their investments. We spent a lot of time supporting our financial clients, helping to assess the potential risks and market outlook for their portfolios, while dealing with the macroeconomic backdrop that changed daily. In the third quarter of 2020, freight rates exploded for some sectors and the shipping industry suddenly became attractive by both people inside and out of the industry. With container shipping rates so high, shipping costs rose from a small percentage to shippers and cargo manufacturers' bills over the past 18 months to a non-trivial fraction so there was a lot of collaboration between us to help them better understand the market dynamics and the supply chain solutions to help them deflect record high shipping costs. There was also a lot of IPO-related inquiries as global investors were optimistic about the shipping market. We also met many new customers during this period, which has greatly helped our business expansion.”
Although some customers are shippers and a cargo owner companies, Adam still looks at container shipping objectively. When I asked him if he thinks there is a competition problem within the liners (because the US FMC is investigating this recently), “Liner companies have done the best they can.” he said. “When the trade volume increased, they fully mobilized their supply. The increase in freight rates was more a disconnect in market imbalance caused by port congestion and uneven distribution of empty containers and supply chain bottlenecks as well as a demand side boost driven by financial stimulus and a change in consumers spending behaviors.”
When we talked about China's shipping industry, Adam said that China has developed fast in recent years. In the past two decades, China has gone from having a small share of the global shipbuilding market to being the largest shipbuilding country in the world by some measures, “I am lucky to have seen the development of the Chinese shipbuilding market. During this time, many shipyards have been able to develop their maritime offerings, expertise and track record and are now accepting high value newbuilding orders from a wider range of international customers. As the marine industry transitions to new fuels and reduces emissions, demands for new designs and new technologies can be fully exploited, cementing the advantageous position”. He also mentioned China's rapid development in shipping finance. From traditional oil tankers to dry bulk carriers, to container ships, Chinese investors are playing an increasingly important role in the shipping finance and shipbuilding markets, and China has become a very important market in international shipping.
Is there any difference between Chinese ship owners and Western ship owners? "It isn't as black and white as that, but you can perhaps say that there is a difference between traditional Chinese shipowners and traditional Greek shipowners," Adam smiled. The Chinese shipping industry is like a growing teenager, the hazy years of love have passed quietly. In the past 20 years, practitioners in the shipping industry have experienced the unexpected applause of flowers, and also experienced the unexpected blow to the head. Although the shipping industry is currently undergoing tremendous changes, and traditional shipowners are under pressure and tests of transformation, these people exude a unique light in a specific age.
"Actually, shipowners are all acting according to their own needs, the business model may be a little different, but in general many are pushing for the same goals regardless of nationality. But the Chinese fleet has changed significantly over the past 20 years. At first, the fleet was more focused on the domestic or nearby markets, but they have become more and more international and are key to the global shipping market.”
Due to the time difference between China and the UK, our interview ended like this. The senior shipping analyst's smile shows his expectations for future's shipping market. Maybe this is the "engagement" needed to be a good shipping analyst.
——Fans Welfare Time——Here is the newly released exclusive market analysis from XINDE MARINE NEWS
XINDE MARINE NEWS: For the container shipping market, what will be the trend of freight rates in 2022? When will freight rates back to pre-pandemic steady levels? For major lines, should they continue to invest in second-hand ships and newbuildings as they did in 2021?
Adam: So far in 2022 containership markets have started where they left 2021 off at elevated levels driven by robust underlying demand trends coupled with supply chain and port disruptions. Freight rates have, on some routes, begun to show some signs of softening but, nevertheless, they remain strong when compared to historical averages.
Looking ahead, easing consumer demand amid inflationary pressures in the US and Europe will see freight rates soften further into H1 22 although we do not expect a significant market correction given ongoing cargo backlogs and liners' learnt capacity management skills. It is now a race against time to unclog ports before the start of the next peak season in August failing which will give already-elevated freight rates additional upside.
Locked-in contract freight rates revenues and the unwinding of the inefficiencies in the supply chain, which have built up since H2 2020 will keep freight rates elevated into 2023. The shadow of the containership orderbook which now stands at over 6MnTEU or 24% of the current fleet will force a downward correction in the markets and freight rates mid 2023 onwards when the new tonnage begins to hit the water with force.
Investment in containerships over the course of 2021 was at an unprecedented level, both in terms of newbuildings and secondhand transactions. S&P volumes have already declined from the levels seen midway through last year, this is in part due to a lack of suitable and available sales candidates that aren't already on long term charter and the elevated prices sellers are demanding. Although there has been a continuation of large enbloc new orders into early 2022, we also expect to see this tail off over the course of the year as prices and berth availability along with the volume of orders already at the shipyards dissuades owners from placing yet more additional contracts.
XINDE MARINE NEWS: After the resumption of work and production after the Spring Festival holiday in Asia, the BDI continued to rise. Which factors were the main driving? How long might it last?
Adam: The first quarter of the calendar year always starts slowly with a cargo demand hiatus, driven by the Spring Festival holiday break, disrupted cargo supply due to seasonal weather issues and an uptick in vessel deliveries combining to put pressure on earnings. This year the pressure was further magnified by an Indonesian coal export ban in January. Earnings did, however, not fall as far as the pure fundamentals would have suggested, as port congestion remained high and fleet efficiencies low.
The market bounced back shortly after the holidays as Chinese industrial activity and commodity purchases returned to normal levels faster than in previous years as the Chinese government encouraged people to celebrate the Lunar New Year locally to minimize the spread of COVID. China's introduction of several stimulus packages, supporting infrastructure spending, and a reduction in interest rates also gave the dry bulk market a further boost.
The events taking place in the Ukraine have disrupted the dry bulk sector with market uncertainty and the repositioning of vessels pushing up rates in the immediate short term. However, with commodity prices now on the rise this will soon start impacting dry bulk trade, as consumer demand suffers with lost cargoes from the Ukraine and Russia also difficult to replace, particularly grains.
We consequently expect to see a softening in the dry bulk market in the middle of the year before a seasonal improvement kicks in towards the back end of 2022.
XINDE MARINE NEWS: The tanker market has been in recession for a while, is there any hope of recovery this year?
Adam: During the start of 2022 the tanker markets witnessed further declines across both crude and product tanker markets. OPEC+ production growth slowed, oil product trade volumes began to decline, oil prices climbed, and net fleet additions spiked all factors having a detrimental impact on tanker earnings.
The situation in the Ukraine has momentarily given tanker earnings a huge boost although this will partially unwind over the coming weeks, as uncertainty and price hikes reduce cargo volumes.
However, we do expect to see a reshuffling of cargoes and trade routes as a result of these events, with Europe sourcing potentially more Middle Eastern longer-haul crude, whilst reducing short-haul Russian volumes, which could move eastwards, again driving long-haul trade. OPEC production is forecast to continue to rise implying higher overall annual trade volumes in 2022, helping push rates higher at the end of 2022 than where they started the year. This improvement in market balances will be further supported by stagnant tanker fleet growth with demolitions forecast to offset new deliveries.
XINDE MARINE NEWS: The cost of shipyards is rising globally, what are the main drivers? Some shipyards may still have early berth slots to offer, but the majority will not be able to build the ships due to the short supply of main engines and crankshafts. What factors do you think contributed to the shortage?
Adam: Prices at shipyards are driven by two principal factors shipyard costs and shipyard forward cover. Shipyard costs have come under a lot of upward pressure during the last couple of years due to the mini super-cycle in commodity prices which has had a significant impact on steel plate prices, energy prices, equipment prices and material prices more generally. The Yuan and the Won also saw appreciation in 2021 pushing costs up further in USD$ terms. Yard forward cover assesses the interplay between yard capacity and the orderbook. The greater the yard forward cover, measured in years, the higher the newbuilding price.
The successful rationalization in shipyard capacity over the last decade coupled with an ordering boom in H2 2020 which lasted throughout 2021 has pushed global shipyard forward cover back up towards 2.5 years for the first time since 2015. This has firmly put pricing power back into the hands of the shipyards with newbuilding prices posting significant gains through 2021.
The scale of the contracting hike in 2021 has caught many off guard, including the yards and equipment manufacturers with delivery slots this side of 2024 almost nonexistent in both China and Korea. The broader supply chain disruptions and bottlenecks, driven by COVID-19, have also hit equipment providers and suppliers of machinery to shipbuilding.
XINDE MARINE NEWS: The crisis in Ukraine is intensifying, many Western countries have imposed sanctions on Russia, which will inevitably have an impact on the shipping industry. What directions will Russia-Ukraine tensions push the dry bulk sector and the oil tanker sector?
Adam: Events in Ukraine have unfolded at extreme pace and are impacting a wide range of shipping sectors and the markets more generally, given the inherent uncertainty.
Russian oil production is equivalent to over 11 Mn b/d, more than 10% of global supply with Russia accounting for between 25-35% of total European oil imports via pipelines and seaborne routes. Geopolitical shocks are typically positive for the oil tanker market and we have already seen a spike in vessel earnings. The near-term outlook has improved for the sector as energy security becomes a critical concern for many European governments and the re-rerouting of Russian exports and new sources of European imports puts further pressure on tonne miles. The duration of the upside will be limited, however, if any lost Russian production and exports aren't replaced by higher OPEC production as this scenario will result in yet higher crude prices impacting oil trade ultimately restricting tanker cargoes.
Russia and Ukraine are significant exporters of dry bulk cargoes, especially grains. Combined they produced 14% of global wheat and supply 29% of all wheat exports, as well as supplying 17% of worldwide exports of corn with exports out of the Black Sea in smaller geared vessels. Consequently, with exports from this region unlikely more grains will be sourced from the Americas to meet demand requirements in Europe and the Far East, this will benefit Panamax bulkers over smaller geared tonnage.
Russia exports 210 MnT of coal per annum with the Ukraine exporting 20 MnT. More Russian exports will head east, given western sanctions and this will push up coal prices more generally. Europe imports around 50% of its coal from Russia so these cargoes will need to be sourced more from further afield destinations such as South Africa, Australia and the US benefiting the larger bulker size segments.
However, it is unlikely that commodity supply from elsewhere will make up for all lost cargoes in the Black Sea/Russia, with commodity markets and supply chains already extremely tight.
Adam Kent joined Maritime Strategies International Ltd (MSI), a UK and Singapore-based shipping consultancy in 2002, and became a principal member of the Baltic Exchange in London in 2008. He is currently the Managing Director and Shareholder of MSI. During his first decade at MSI, he helped develop and expand MSI's vessel valuation methodology, providing current and future vessel valuations, earnings and operating cost analysis for the Merchant Marine and Offshore sectors. In addition, Adam has also provided supply side market analysis for tanker, container and bulk carriers as part of MSI's product offering. Additionally, he has been retained as an expert witness for a number of banks and law firms in the UK and the US. Since June 2011, he has given lectures in various shipping centers around the world. He has given over 50 lectures and conference presentations. He was included in Tanker Shipping and Trade's top 50 industry leaders for three consecutive years from 2018 to 2020.
“A core element for any analyst or consultant in the marine field, is a genuine interest in shipping. It is easier to engage and learn and embrace the subject if the individual finds the business interesting.” Dr Adam, who has been in shipping consulting for 20 years, said he has always loved shipping, including the complexity and the range of ships and cargos. Ship valuation is a task that he has been striving to optimize for many years at MSI. Adam believes that understanding current and forecast second-hand values and the new shipbuilding market require a holistic understanding of the markets across all sectors. A love of the industry should be in the hearts of every shipping professional..
The age of mathematical modeling
What attracted you to the shipping industry?
When he was a child, he grew up seeing all kinds of ships by the sea living on the Isle of Wight, an island off the south coast of England. "It's a small island about the size of Singapore, and my house overlooked the busy waters of the Solent and the entrance to the port of Southampton, so I would see a wide range of vessels including oil tankers, LPG carriers, LNG carriers, car carriers, cruise ships and container ships, I've always liked ships and sea."
On the other hand, the rise of mathematical modeling and the Internet and the Chinese economy has brought opportunities to a young man who likes research and challenges. Adam's Ph.D. is in Theoretical Population Ecology, and his bachelor's degree is Applied Biology, which on first inspection seems to have nothing to do with the shipping industry. “A lot of people have asked me why my PhD was in biology and why I switched to shipping as soon as I graduated, and of course I can explain. My PhD research involved both marine biology and mathematical modelling. As part of my qualification, I built models similar to models used in economics with a consumer and a resource. So when I saw a position for a shipping analyst in MSI, I felt it was a good opportunity to combine my interests with my abilities, so I applied for an interview.”
Mathematical modeling began to flourish in the second half of the 20th century, giving many researchers the opportunity to work across industries. As the shipping industry entered the 1990s, digital technologies were changing the collection and distribution of data. Database programs, personal computer networks, spreadsheets, and database technology have all evolved to the point of display applications. In 2000, the Internet was at the height of its prosperity.
"When I started working at MSI, I spent a lot of time analyzing the supply side of the industry, assessing and forecasting the future development of the global shipping fleet. This has exposed me to all areas of the industry and also to MSI's customer base, including shipyards, ship owners, financing institutions, suppliers and major classification societies, etc. With experience in the industry and knowledge of the ships themselves, coupled with a strong interest in ship price dynamics and drivers, providing ship valuation and forecasting services became natural. All fluctuations in the shipping industry will ultimately be reflected in changes in the value of ships, whether it is demand, supply, regulations, shipbuilding, technological changes or operational considerations, they will affect the value of a ship."
Another challenge when starting in shipping is the use of the industries jargon and terminology . Despite the rapid development of computer technology in the early 21st century, it was originally difficult for shipping analysts to obtain all the data required. Today there is a lot of data but in can be accompanied by noiseid the data, or data that is just wrong , lots of analysts had a headache either originally dealing with a lack of data or today interpreting the data through the noise, "Bringing together the data and the narrative behind the trends is the interesting and fundamental task required of an analyst." Adam said.
As a result, ship valuation became Adam's top priority. It is the crystallization of knowledge that he has been perfecting and proud of for 20 years. "Our forecast data is a key component of what we deliver to our clients, providing an independent perspective, understanding key market drivers, and designing MSI's ship price database laid a good foundation for me to provide expert witness services in court on behalf of MSI." He told me proudly.
The globalization of information and the development of communication technologies over the past 20 years have given shipping analysts access to more and more data, which is a key reason for his fascination with the industry.
When asked if he chose to be a shipping analyst because of its high paying at that time, Adam smiled and said: "Of course it would be nice to make lots of money, although being an analyst isn't the best paid job it is rewarding and does present other opportunities whilst being fascinating... Shipping is a global business, and shipping analysts have the opportunity to go all over the world and deal with a wide variety of clients, it is very interesting job.”
Keep Learning and Facing Challenges
"If you like learning, if you like challenges, if you want to keep an eye on what's going on around the world every day, shipping is a great choice," he said when asked what it takes to become a shipping analyst, "I continue to learn every day, my colleagues, my peers, no one is not learning in this industry."
"The consultancy projects we receive are varied, sometimes these are completed in days, sometimes in months. We need to understand the customer's business model and provide consulting services according to their requirements, So being a qualified shipping analyst requires a broad range of both hard and soft skills.”
“The first key requirement is a genuine interest in shipping, which is a core element for any analyst or consultant in the marine sector. The shipping industry is really complex and if the individual finds it interesting, theywill find it easier to engage and study in-depth.” As someone like Adam who switched to the field of shipping analysis, the form of work is completely new, the content of the work is unfamiliar, and the results of the work can be obscured – only the yearning is real.
Next is the ability to listen to customers and communicate with them. “Understanding what your client wants, not just providing what you think they want, but listening to exactly what they need and why.” It is not enough to give a report, they will also require something additional.
Professional experience and industry knowledge are the third key element for Adam. “At MSI, each of the core experts responsible for research on a specific sector has at least a decade of experience in the industry, and they not only understand today's market, but are able to predict future reactions in light of changing markets and gain insight into how various ship types operate，this helps them better understand the needs of our clients and why they require our consulting services .”
“At MSI, we also think the intersection of ideas and concepts is important as we cover all areas of shipping. An idea that works in one market may work in another, so we are able to share and learn across the company.” Teamwork and communication should also be engraved in a shipping analyst's career.
“Is there anything special about self-confidence in this profession?” I asked, “Self-confidence is important, but self-confidence can be cultivated,” he said. "The conclusions and outcomes to our projects can be worth millions of dollars to our clients, many of who are multinational companies. We need to give presentations at the end of the project and communicate our findings and conclusions, and confidence is very important at this time. But at MSI, we train our shipping analyst gradually through learning and experience.”
Is there right and wrong in consulting?
"Shipping is very complicated. When making forecasts out 10 years, we focus on the development of the market, the macroeconomic cycle, changes in cargo demand and routes, as well as changes in the supply of ships, we will also try to identify possible risk points. If you are a ship investor, and you plan to assess the earnings of the investment over 10 years, hoping that we will give a specific return on investment or cash flow data is normal, but there are various risks associated with that investment. Therefore, our consulting service will not only conclude the forecast results of the ship's investment, but also point out where are the possible risks and concerns. Taking the container shipping industry as an example, the technology and size evolution of container ships has developed rapidly in recent years. 20 years ago, the largest container ship was 8,000 TEU, while the current largest container ship is around 24,000 TEU, the risk of changes in ship sizes, , trade flows, vessel deployment opportunities, earnings and residual value are what we will advise out investor clients on."
be a listener
"The skill necessary to be in the service industry is listening to what customers want," Adam said. The pandemic has brought one black swan after another to the shipping industry, which has introduced both challenges and opportunities to many shipping companies. It surprised me a bit when I asked him who had consulted with MSI during this time. It was not the shipping companies of all sizes who came, but the majority of inquiries in the first quarter of 2020 were banks and financial institutions.
“They asked us to predict the changes in the global economy and trade to judge the impact of the pandemic on the shipping industry. There was very little investment in new ships in the first half of 2020, and everyone was concerned about their investments. We spent a lot of time supporting our financial clients, helping to assess the potential risks and market outlook for their portfolios, while dealing with the macroeconomic backdrop that changed daily. In the third quarter of 2020, freight rates exploded for some sectors and the shipping industry suddenly became attractive by both people inside and out of the industry. With container shipping rates so high, shipping costs rose from a small percentage to shippers and cargo manufacturers' bills over the past 18 months to a non-trivial fraction so there was a lot of collaboration between us to help them better understand the market dynamics and the supply chain solutions to help them deflect record high shipping costs. There was also a lot of IPO-related inquiries as global investors were optimistic about the shipping market. We also met many new customers during this period, which has greatly helped our business expansion.”
Although some customers are shippers and a cargo owner companies, Adam still looks at container shipping objectively. When I asked him if he thinks there is a competition problem within the liners (because the US FMC is investigating this recently), “Liner companies have done the best they can.” he said. “When the trade volume increased, they fully mobilized their supply. The increase in freight rates was more a disconnect in market imbalance caused by port congestion and uneven distribution of empty containers and supply chain bottlenecks as well as a demand side boost driven by financial stimulus and a change in consumers spending behaviors.”
When we talked about China's shipping industry, Adam said that China has developed fast in recent years. In the past two decades, China has gone from having a small share of the global shipbuilding market to being the largest shipbuilding country in the world by some measures, “I am lucky to have seen the development of the Chinese shipbuilding market. During this time, many shipyards have been able to develop their maritime offerings, expertise and track record and are now accepting high value newbuilding orders from a wider range of international customers. As the marine industry transitions to new fuels and reduces emissions, demands for new designs and new technologies can be fully exploited, cementing the advantageous position”. He also mentioned China's rapid development in shipping finance. From traditional oil tankers to dry bulk carriers, to container ships, Chinese investors are playing an increasingly important role in the shipping finance and shipbuilding markets, and China has become a very important market in international shipping.
Is there any difference between Chinese ship owners and Western ship owners? "It isn't as black and white as that, but you can perhaps say that there is a difference between traditional Chinese shipowners and traditional Greek shipowners," Adam smiled. The Chinese shipping industry is like a growing teenager, the hazy years of love have passed quietly. In the past 20 years, practitioners in the shipping industry have experienced the unexpected applause of flowers, and also experienced the unexpected blow to the head. Although the shipping industry is currently undergoing tremendous changes, and traditional shipowners are under pressure and tests of transformation, these people exude a unique light in a specific age.
"Actually, shipowners are all acting according to their own needs, the business model may be a little different, but in general many are pushing for the same goals regardless of nationality. But the Chinese fleet has changed significantly over the past 20 years. At first, the fleet was more focused on the domestic or nearby markets, but they have become more and more international and are key to the global shipping market.”
Due to the time difference between China and the UK, our interview ended like this. The senior shipping analyst's smile shows his expectations for future's shipping market. Maybe this is the "engagement" needed to be a good shipping analyst.
——Fans Welfare Time——Here is the newly released exclusive market analysis from XINDE MARINE NEWS
XINDE MARINE NEWS: For the container shipping market, what will be the trend of freight rates in 2022? When will freight rates back to pre-pandemic steady levels? For major lines, should they continue to invest in second-hand ships and newbuildings as they did in 2021?
Adam: So far in 2022 containership markets have started where they left 2021 off at elevated levels driven by robust underlying demand trends coupled with supply chain and port disruptions. Freight rates have, on some routes, begun to show some signs of softening but, nevertheless, they remain strong when compared to historical averages.
Looking ahead, easing consumer demand amid inflationary pressures in the US and Europe will see freight rates soften further into H1 22 although we do not expect a significant market correction given ongoing cargo backlogs and liners' learnt capacity management skills. It is now a race against time to unclog ports before the start of the next peak season in August failing which will give already-elevated freight rates additional upside.
Locked-in contract freight rates revenues and the unwinding of the inefficiencies in the supply chain, which have built up since H2 2020 will keep freight rates elevated into 2023. The shadow of the containership orderbook which now stands at over 6MnTEU or 24% of the current fleet will force a downward correction in the markets and freight rates mid 2023 onwards when the new tonnage begins to hit the water with force.
Investment in containerships over the course of 2021 was at an unprecedented level, both in terms of newbuildings and secondhand transactions. S&P volumes have already declined from the levels seen midway through last year, this is in part due to a lack of suitable and available sales candidates that aren't already on long term charter and the elevated prices sellers are demanding. Although there has been a continuation of large enbloc new orders into early 2022, we also expect to see this tail off over the course of the year as prices and berth availability along with the volume of orders already at the shipyards dissuades owners from placing yet more additional contracts.
XINDE MARINE NEWS: After the resumption of work and production after the Spring Festival holiday in Asia, the BDI continued to rise. Which factors were the main driving? How long might it last?
Adam: The first quarter of the calendar year always starts slowly with a cargo demand hiatus, driven by the Spring Festival holiday break, disrupted cargo supply due to seasonal weather issues and an uptick in vessel deliveries combining to put pressure on earnings. This year the pressure was further magnified by an Indonesian coal export ban in January. Earnings did, however, not fall as far as the pure fundamentals would have suggested, as port congestion remained high and fleet efficiencies low.
The market bounced back shortly after the holidays as Chinese industrial activity and commodity purchases returned to normal levels faster than in previous years as the Chinese government encouraged people to celebrate the Lunar New Year locally to minimize the spread of COVID. China's introduction of several stimulus packages, supporting infrastructure spending, and a reduction in interest rates also gave the dry bulk market a further boost.
The events taking place in the Ukraine have disrupted the dry bulk sector with market uncertainty and the repositioning of vessels pushing up rates in the immediate short term. However, with commodity prices now on the rise this will soon start impacting dry bulk trade, as consumer demand suffers with lost cargoes from the Ukraine and Russia also difficult to replace, particularly grains.
We consequently expect to see a softening in the dry bulk market in the middle of the year before a seasonal improvement kicks in towards the back end of 2022.
XINDE MARINE NEWS: The tanker market has been in recession for a while, is there any hope of recovery this year?
Adam: During the start of 2022 the tanker markets witnessed further declines across both crude and product tanker markets. OPEC+ production growth slowed, oil product trade volumes began to decline, oil prices climbed, and net fleet additions spiked all factors having a detrimental impact on tanker earnings.
The situation in the Ukraine has momentarily given tanker earnings a huge boost although this will partially unwind over the coming weeks, as uncertainty and price hikes reduce cargo volumes.
However, we do expect to see a reshuffling of cargoes and trade routes as a result of these events, with Europe sourcing potentially more Middle Eastern longer-haul crude, whilst reducing short-haul Russian volumes, which could move eastwards, again driving long-haul trade. OPEC production is forecast to continue to rise implying higher overall annual trade volumes in 2022, helping push rates higher at the end of 2022 than where they started the year. This improvement in market balances will be further supported by stagnant tanker fleet growth with demolitions forecast to offset new deliveries.
XINDE MARINE NEWS: The cost of shipyards is rising globally, what are the main drivers? Some shipyards may still have early berth slots to offer, but the majority will not be able to build the ships due to the short supply of main engines and crankshafts. What factors do you think contributed to the shortage?
Adam: Prices at shipyards are driven by two principal factors shipyard costs and shipyard forward cover. Shipyard costs have come under a lot of upward pressure during the last couple of years due to the mini super-cycle in commodity prices which has had a significant impact on steel plate prices, energy prices, equipment prices and material prices more generally. The Yuan and the Won also saw appreciation in 2021 pushing costs up further in USD$ terms. Yard forward cover assesses the interplay between yard capacity and the orderbook. The greater the yard forward cover, measured in years, the higher the newbuilding price.
The successful rationalization in shipyard capacity over the last decade coupled with an ordering boom in H2 2020 which lasted throughout 2021 has pushed global shipyard forward cover back up towards 2.5 years for the first time since 2015. This has firmly put pricing power back into the hands of the shipyards with newbuilding prices posting significant gains through 2021.
The scale of the contracting hike in 2021 has caught many off guard, including the yards and equipment manufacturers with delivery slots this side of 2024 almost nonexistent in both China and Korea. The broader supply chain disruptions and bottlenecks, driven by COVID-19, have also hit equipment providers and suppliers of machinery to shipbuilding.
XINDE MARINE NEWS: The crisis in Ukraine is intensifying, many Western countries have imposed sanctions on Russia, which will inevitably have an impact on the shipping industry. What directions will Russia-Ukraine tensions push the dry bulk sector and the oil tanker sector?
Adam: Events in Ukraine have unfolded at extreme pace and are impacting a wide range of shipping sectors and the markets more generally, given the inherent uncertainty.
Russian oil production is equivalent to over 11 Mn b/d, more than 10% of global supply with Russia accounting for between 25-35% of total European oil imports via pipelines and seaborne routes. Geopolitical shocks are typically positive for the oil tanker market and we have already seen a spike in vessel earnings. The near-term outlook has improved for the sector as energy security becomes a critical concern for many European governments and the re-rerouting of Russian exports and new sources of European imports puts further pressure on tonne miles. The duration of the upside will be limited, however, if any lost Russian production and exports aren't replaced by higher OPEC production as this scenario will result in yet higher crude prices impacting oil trade ultimately restricting tanker cargoes.
Russia and Ukraine are significant exporters of dry bulk cargoes, especially grains. Combined they produced 14% of global wheat and supply 29% of all wheat exports, as well as supplying 17% of worldwide exports of corn with exports out of the Black Sea in smaller geared vessels. Consequently, with exports from this region unlikely more grains will be sourced from the Americas to meet demand requirements in Europe and the Far East, this will benefit Panamax bulkers over smaller geared tonnage.
Russia exports 210 MnT of coal per annum with the Ukraine exporting 20 MnT. More Russian exports will head east, given western sanctions and this will push up coal prices more generally. Europe imports around 50% of its coal from Russia so these cargoes will need to be sourced more from further afield destinations such as South Africa, Australia and the US benefiting the larger bulker size segments.
However, it is unlikely that commodity supply from elsewhere will make up for all lost cargoes in the Black Sea/Russia, with commodity markets and supply chains already extremely tight.
About Maritime Strategies International Ltd. (MSI):
Over the last 37 years MSI has gone from providing a limited number of European client's independent market forecasts for oil tankers and bulkers to a Company today covering all sectors of merchant shipping, offshore, offshore renewables, ports and maritime logistics. Not only does MSI provide the industry and its stakeholders with transparent forecasting models, sector reports and asset valuations but also strategic advisory and consultancy support. In 2016 we launched MSI HORIZON an online platform which provides data and forecasts not only for the individual markets but also individual ships and portfolios. In 2019 we opened our Singapore office in order to better service our Asian client base.
MSI's customer base is very broad and deep and includes banks, leasing companies, ship owners, shipyards, brokers, investors, shippers, insurers, equipment providers and classification societies to name but a few.
Not only are we supporting our clients with independent forecasts of the markets (demand, supply etc) and vessel future cash flows (earnings, values and operating costs) but also assessing market risks and opportunities. These are key considerations for any industry stakeholder. The sector knowledge and expertise that MSI is also able to impart both in our products and directly in discussions with our clients is an additional key component of our business model and one that our clients value.
Source: Xinde Marine News
Over the last 37 years MSI has gone from providing a limited number of European client's independent market forecasts for oil tankers and bulkers to a Company today covering all sectors of merchant shipping, offshore, offshore renewables, ports and maritime logistics. Not only does MSI provide the industry and its stakeholders with transparent forecasting models, sector reports and asset valuations but also strategic advisory and consultancy support. In 2016 we launched MSI HORIZON an online platform which provides data and forecasts not only for the individual markets but also individual ships and portfolios. In 2019 we opened our Singapore office in order to better service our Asian client base.
MSI's customer base is very broad and deep and includes banks, leasing companies, ship owners, shipyards, brokers, investors, shippers, insurers, equipment providers and classification societies to name but a few.
Not only are we supporting our clients with independent forecasts of the markets (demand, supply etc) and vessel future cash flows (earnings, values and operating costs) but also assessing market risks and opportunities. These are key considerations for any industry stakeholder. The sector knowledge and expertise that MSI is also able to impart both in our products and directly in discussions with our clients is an additional key component of our business model and one that our clients value.
Source: Xinde Marine News
The opinions expressed herein are the author's and not necessarily those of Xinde Marine News.
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