Clarksons says alternative fuel ships account for 47 pct of orderbook, projects another 100 LNG carrier orders

Alternative fuel ships have accounted for around 60% of new orders since the start of 2022 in GT, primarily driven by LNG dual-fuel vessel orders, and increasingly methanol, and now account for 5% of fleet GT and 47% of orderbook, data from Clarksons shows.

Illustration. Courtesy of Jiangnan Shipbuilding

Looking at the fleet profile, the shipbroker said that ECO ships constitute 30 percent of the global fleet capacity, with less than 25% fitted with energy-saving technology (EST).

“The market impacts are complex and uncertain but there is potential for market upside volatility and increasingly ‘tiered’ charter and S&P markets; supply impacts may include slow steaming, EST retrofitting, and increased (and potentially uneven) fleet renewal as 29% of the fleet is now 15+ years old,Steve Gordon, Managing Director of Clarksons Research, said, adding that in the longer term energy transition is expected to impact trade together with geo-politics.

Clarksons estimates that shipping’s 2.3% share of global CO2 emissions would trend down to 2.1% in 2023, with the entry into force of the IMO’s EEXI and CII along with the EU ETS from 2024.

“Impacted by the economic headwinds such as inflation, escalating interest rates, slow Chinese growth, seaborne trade fell 0.5% in 2022 to 11.9bt. While some of the negative data points had begun to moderate in early 2023 (e.g. we estimate global trade returned to 1% y-o-y growth in Q1) the world economy retains vulnerabilities (e.g. recent concerning banking sector problems). For the moment we are projecting trade will reach 12.1bt in 2023 and 12.5bt in 2024,” Gordon added.

The divergence between energy-related trade (2022: +4%, 2023: +3%) and non-energy trade (2022: -3%, 2023:+1%) continues, although there is now more optimism around increasing Chinese economic activity, traditionally a good signal for dry bulk.

The redistribution of oil flows in response to the Ukraine conflict has introduced a fundamental distance “kicker” for shipping demand, and for this year Clarksons projects crude tanker demand to grow by 3% by volume and 7% by tonne miles, and for oil products even more dramatic 4% vs 11%.

Containers aside, market sentiment across the shipping segments is positive. With recovering trade and a shift to longer haul combining with low fleet growth (orderbook just 4% of fleet) and operational complexities (sanctions, a “dark” fleet possibly 10% of capacity), tankers are in very strong territory with a positive outlook.

The LPG market has performed better than expected (US exports / Panama congestion helping) but one should “keep an eye” on the newbuilding program for VLGCs, according to Clarksons.

In the LNG space, market forecasts suggest 650mt of trade by 2030. Term rates remain strong and Clarksons expects the newbuild order run to continue this year, with an estimated another 100 orders, driven by a focus on energy transition and energy security.

Offshore oil and gas vessel markets are improving (to 9-year highs) and offshore wind grows rapidly. Car carrier rates have surged to record highs on congestion, long-haul demand and electric vehicle volumes. Cruise and ferry activity continues to rebound, approaching pre-Covid levels, the market outlook from the shipbroker shows.

Bulk carrier rates are now improving after the impacts of demand weakness, seasonal trends and reduced congestion, with a low orderbook (6% of fleet) and a (hopefully) improving Chinese economy.

In sharp contrast to a year ago, container markets have corrected (freight down 80% vs start-22, 10% below pre-Covid, charter rates down 80% but showing some resilience, still above 2019), and our supply (2023: +7%) / demand (2023: -1%) projections suggest this market is yet to “bottom out”, Gordon estimates.

“Shipping’s supply side generally remains “encouraging”. The overall orderbook is close to historical lows (10% of fleet vs >50% in 2008), and shipyard capacity, though now increasing slightly with some reactivations reported, is 40% below the peak (133 active “large” yards vs 320 in 2009),” he said.

“Yards are generally fully booked for 3 years and the delivery program is dominated by container (29% of fleet on order) and LNG (49% vs 31% “steam” ships). We project fleet growth of just 2.5% in 2023 and ~1% in 2024 (significant expansion in container/gas, minimal in tanker/bulkers). Despite an ageing fleet and renewal needs, recycling has been low. With limited yard availability and high newbuild prices, owners have been active in S&P (and in early debt repayments). Tanker pricing is up 51% on start-22 (bulkers: down 6% now increasing again, containers down 52%).”

Overall, the market sentiment is positive, despite vulnerabilities of the global economy. But, for the moment, these are being mitigated by trends that are supportive for shipping including redistribution of oil flows and China’s ‘re-opening’, Gordon concluded.