Influence of the Chinese New Year on Shipping


The Clarksea Index hit an all-time low last week when it fell $223/day to $7,111/day. Of course, shipping slows down each year with the arrival of the Chinese New Year, when the whole country closes down and everyone goes on holiday. Each year, as China’s influence on shipping has grown, so has the impact of the holiday. This year the difference between the last working week and the first week of the holidays was a drop of -2.74% in the Clarksea Index. This is a relatively small amount compared to the last five years (see chart), but then there is little fat left in the Clarksea Index, which has already lost nearly 20% of its value since the start of 2013.

Influence of the Chinese New Year on Shipping (Feb 2013)

This begs the question how low can the Clarksea Index go? The Clarksea Index is made up of the average weekly earnings of the main shipping sectors weighted by the number of vessels in those sectors. Generally, the diverse sectors tend to balance one another out. A bad week in VLCCs can be cancelled out by a good week for the Capesize or the VLGCs. This can lead to steep falls. During the Boom the Clarksea Index fell over $5,000/day in one week in early 2008, but this only brought it to $37,606/day and few heeded the warning sign.

 We are a long way from those heady days, and the Clarksea Index, which is the heart rate monitor of the industry, is now worryingly low. My gut feeling is that $6,000/day is the lowest it could possible go. However, it is not usual for individual routes to go into negative earnings, pulling down that sector. Last week, for instance, the VLCC route Middle East Gulf (MEG) to Europe and MEG to US Gulf fell to Worldscale (WS) 18.0 and WS 18.5, respectively. If any VLCC was to fix at these rates the equivelent earnings per day are a loss of around -$17,000/day. The tanker sector is not the only one showing negative earnings last week. Some of the Capesize routes and Panamax dry bulk routes went negative. Fortunatley this downward drag was halted by buoyancy from the gas sector (pun intended). But in theory it would be possible for enough routes to post negative earnings for the Clarksea Index itself to go negative. Then the Year of the Dead Duck will be upon us.

Impact of More Chinese-Owned VLCCs


The Chinese-owned VLCC fleet has reached 59 vessels, making it the third largest VLCC fleet after Japan and Greece. There are reports / rumours that Chinese owners are looking to order up to 40 VLCCs (one report was 80 VLCCs!) at Chinese yards. I thought I would look at the possible impact on VLCC fixtures, as presumably one of the aims of ordering up a large fleet is to reduce dependence on foreign owners. So far this year Clarksons has recorded 472 VLCC fixtures in 2012 with a discharge port in China. The first thing that is noticeable is the dominance of Chinese charterers. Only 21 472 (to mid-October 2012) were recorded as having a non-Chinese oil company or trader as the charterer.

The second interesting fact is the regular appearance in the fixture list of Chinese-owned VLCCs. Of the 472 China discharge fixtures, 188 (40%) are Chinese-owned VLCCs fixed to other Chinese oil companies and traders.

But not all Chinese-owned VLCCs have been captured or reported in the fixtures. Around ten VLCCs do not make an appearance, presumably because they are on work that does not allow them to dip into the spot market. By my estimation the 188 fixtures above have been serviced by 45 Chinese-owned VLCCs. If another 40 VLCCs are added to the Chinese fleet a simple extrapolation suggests that this would have covered 80% of the current level of China-bound VLCC fixtures (assuming demand stays the same).

The losers would be the independent cross-trading VLCC owners, who have no cargo to trade and whose ships mainly work the spot market.

The vast majority of the fixtures (80%) are AG – China, and Chinese VLCCs account for 52% of these. Therefore, an expanded Chinese VLCC fleet would dig deep into this trade. Non-Chinese VLCCs have been pioneering the West Africa – China trade, where there have been 88 non-Chinese VLCC fixtures, compared to 8 Chinese-owned. China is cementing relationships in this region, and some of this trade could also be absorbed by new Chinese-owned VLCCs.

So where can the independent cross-trading VLCC owners expect to do business with the Chinese once the fleet is expanded? In 2012 there were fixtures for loaded VLCC voyages to China from the Yemen, Caribbean, Brazil, Turkey, Iraq and Iran (last reported fixture in May). These trades are likely to be left to non-Chinese VLCCs, but this will not sustain the previous level of VLCC spot activity.

Several of the independent cross-trading VLCC owners that fixed ships to China so far this year have VLCCs on order. The expansion of crude oil imports to China is a good story and one that is often used to justify ordering newbuildings. But a 40-ship order of Chinese-owned VLCCs will quickly sweep away the main market, leaving the independents on the margins of the Chinese VLCC trade.

Copyright Craig Jallal. All Rights Reserved.

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