At this time of year, icy conditions are not uncommon, but the warmth of the festive season is usually enough to melt even the coldest of hearts. Going into this year, shipping market activity might have still felt pretty iced up for many, but increased activity in a number of core areas in 2017 has seen the shipping market temperature rise a little.
Checking The Thermometer
In general, our ClarkSea Index provides a helpful way to take the temperature of industry earnings, measuring the performance of the key ‘volume’ market sectors (tankers, bulkers, boxships and gas carriers). Since the start of Q4 2008 it has averaged $11,816/day, compared to $23,667/day between the start of 2000 and the end of Q3 2008. However, earnings aren’t the only thing that can provide ‘heat’ in shipping. Investor appetite for vessel acquisition has often added ‘heat’ to the market in the form of investment in newbuild or secondhand tonnage, even at times when earnings have remained challenged. To examine this, we revisit the quarterly ‘Shipping Heat Index’, which reflects not only vessel earnings but also investment activity, to see how much hotter or colder 2017 has really been.
Not Quite So Cold Now?
This year, the Shipping Heat Index (see graph description) shows us that things, though still chilly, have been warming up a little. In 2016 the quarterly index averaged 37.4. This year it has averaged 49.4, an increase of 32% on 2016, and in Q4 stands at 46.1, up 25% year-on-year. Q3 2016 saw the lowest reading in the featured period. This year’s peak at 55.0 in Q2 was still some way below ‘hotter’ levels seen sporadically since the financial crisis, with newbuild investment in particular still limited, but was much closer to the average since Q4 2008 of 59.6.
Thaw Goodness Sake
One factor behind this has been that, on a broad basis, earnings have started to improve this year. The ClarkSea Index has averaged $10,718/day, up 14% on its average level in 2016 (the lowest since the 1980s); there have been marked improvements away from the bottom of the cycle in the bulker and boxship markets.
Meanwhile, the investment side has seen an even more positive, if still mixed, picture. Contracting, although more than 40% up on full year 2016 in value terms, remained limited at $53bn in the first eleven months of 2017. S&P investment meanwhile has seen an active year. Around $19bn so far is an improvement of nearly 55% on 2016 (and the fourth highest annual level since 2008), reflecting that, albeit with many distressed assets out there, investors perhaps harbour warmer feelings towards the markets.
Still Wintry, But Warmer
So, the shipping markets still look like a chilly environment. However, although earnings alone suggest a slight thawing in conditions, a wider view of the temperature of the shipping markets points towards a greater degree of heat, with S&P investors in particular helping to bring back some much-needed warmth. Have a nice holiday season.