Global Ferry Market Surges
Last month I participated in the Interferry conference in Split, Croatia, as a presenter, panel member and very interested observer and networker.
Over the past twenty-seven years I have attended nearly half the Interferry conferences and have invariably found them to be interesting, stimulating and very useful.
Indeed, I was the one who persuaded the then board of the International Marine Transit Association to change its name to the much more manageable and appropriate Interferry that I had previously reserved as a domain name. I was pleased to give it to the association. That was in Cebu in the Philippines in 1999.
Since 1990, the association has progressed from being very North American focused to truly international in outlook and approach. This has improved its utility and appeal enormously.
The great and good of the global ferry industry, plus a couple of others, are regular attendees at Interferry. This year was the biggest yet with more than 370 delegates plus about 80 “accompanying persons". The programme is tight with two full days of conference deliberations lightened somewhat by breakfasts, lunches, dinners, a “technical tour", a golf day and a sailing regatta.
The conference offers a really good mix of serious and social activities that facilitate knowledge sharing and networking. Deals are done and almost all attendees return home looking forward to the next event.
So, you get to talk, eat and socialise with a wide range of ferry owners, ship builders, naval architects, financiers, lawyers, bureaucrats, classification society people, ship brokers and engine and equipment suppliers from all over the world. That enables the enthusiastic participant to gain an unusually wide perspective of the state of the global ferry market that would be unobtainable elsewhere.
Flourishing ferries
So, what did I learn? First and foremost, the global ferry market is in good and improving shape. I won't say it is booming but it is flourishing and appears likely to improve further. The tourist industry is strong, marine tourism, particularly, is very strong and the commuter ferry market is being encouraged by ever increasing road traffic congestion in the world's major cities.
The last ferry boom took place about twenty years ago. Many of the vessels launched then are up to their second refurbishments and some are being replaced. The previous ferry flurry was about fifteen to twenty years before that, in the early 1980s. While many vessels from that period are still happily and economically operating, many others require substantial upgrading or replacement.
Technical developments, as with cars and aircraft, mean that it is often more economical to replace a ferry than to refurbish it. Newer vessels are usually significantly more fuel and environmentally efficient; safer; more economical; and, more comfortable. Design, construction, engines, propulsion systems, electronics, seating, air-conditioning, berthing arrangements, and passenger handling systems all continue to improve as many of the Interferry presenters advised us.
Operating methods and procedures are changing, too. As Incat Chairman, Robert Clifford, in his comedy duo presentation with his competitor, Austal's Mike Wake, informed us.
Faster turnarounds, such as he showed us at Denmark's Mols Linien, reduce the need for flat-out speed. Mr Clifford has been saying for years that his ferries do not always need to run at 35 knots plus. Often they could be operated very effectively and much more economically at half that speed.
The other attributes of catamarans and trimarans, their great stability and safety, remain whatever their operating speeds, both members of the duo agreed.
Mr Clifford's biggest complaint was that so many of his early ferries built around 35 years ago are still going strong. He has been hoping to build their replacements for years but their owners are perfectly happy to keep them operating.
On demand
However, demand for both commuter and tourist ferry travel is increasing practically everywhere. In London, for example, Thames Clippers has grown from one primitive 54-passenger boat in 1999 to a fleet of sophisticated 180 passenger ferries less than twenty years later. Bangkok's Chao Phraya Express Boat Company continues to grow its fleet with an increasing proportion being devoted to tourists.
A quick examination of the Passenger Vessel World news section of www.bairdmaritime.com reveals an ever and rapidly growing list of ferry orders and launchings. In almost every case their quality, efficiency, comfort and safety is significantly better than the vessels they replace.
Interferry certainly had a strongly positive atmosphere. I can't remember anyone I spoke to harbouring any negative thoughts about the global ferry industry or market. I have a very strong feeling that we are in for a few very good years.
Plan ahead. The next three Interferry conferences will be held in October 2018 and October 2019 in Cancun, Mexico and London respectively. Hobart, Tasmania will follow in 2020.
Neil Baird
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LNG ship orders pour in
33 new LNG ships have been ordered so far this year, compared to 19 in the whole of 2017 and just six in 2016. Owners have been tempted by higher spot/short-term charter rates, still-low newbuilding prices and rapidly growing LNG trade.
New LNG supply is being absorbed far more easily than many expected by booming demand in Asia. A new wave of FIDs on new supply projects is expected to create even more demand for shipping. But owners need to be careful they don't over order.
There is still a huge number of ships ordered in the 2011-2014 LNG newbuilding boom to be delivered to the fleet and there is a long history of new ships arriving before new supply.
New LNG supply is creating new trade routes
LNG shipping is benefiting from an unprecedented wave of new LNG supply projects coming on stream in a relatively short period. Between 2015 and 2020 LNG production is forecast to increase by over 150 mmtpa; in comparison, supply rose by just 20 mmtpa in the five year prior to 2016.
For LNG shipping this supply boom is particularly beneficial, as much of it is coming from the US Gulf which is a long way from the largest LNG markets in Northeast Asia. To move one mmtpa of LNG from the US Gulf to Japan requires 1.9 ships, compared to 0.7 to move the same amount of LNG from an Australian project.
Record demand from China
The huge increase in LNG supply has so far been comfortably absorbed by rapid growth in demand. China has been at the forefront of demand growth with imports in the first half of 2018 up 50 per cent, following 46 per cent growth in 2017.
Chinese LNG demand is also taking a more pronounced seasonal shape as new terminals have opened up in the north of the country requiring more LNG in the winter months.
FIDs imminent on next wave of LNG supply
The apparent ease by which the current wave of new LNG supply is being absorbed by markets has turned attention to who will develop the next wave of LNG supply. Wood Mackenzie currently forecast that 114 mmtpa of new LNG capacity will take FID between 2018 and 2021.
These pre-FID projects will not provide any new LNG to the market until at least 2023 and most of it is unlikely to be available to ship before 2025. Between the current wave of new LNG supply and the anticipated pre-FID wave there will be a period of low LNG supply growth. Ships being ordered now will deliver just in time for the start of the period of low supply growth.
Still low yard prices
In real terms newbuilding prices for LNG ships have never been lower. Elsewhere in the shipping industry newbuilding prices have begun to creep up and prices for LNG ships will eventually follow the trend. The newbuilding prices look even more attractive when you consider how much more you get for your money with the latest ship designs. The temptation for owners is to order sooner rather than later whilst the newbuilding price remains low.
New ships versus old
Vessel design and technology advances have seen the typical new order LNG ship become larger and more efficient, making ships ordered even three or four years ago outdated. Ship orders now are typically sized at 170-180,000m³, compared to 155,000m³, dues to design advances and to maximise carrying capacity through the newly expanded Panama Canal.
In addition, the introduction of gas-injection slow-speed engines has offered fuel savings of over 20 tonnes per day even against modern DFDE/TFDE engines and 75 tonnes per day against older steam ships.
Huge orderbook to be delivered
So far this year 36 new vessels have been added to the fleet and three have been scrapped. A further 22 are scheduled for delivery before the end of the year – if these vessels are delivered on time and no further vessels are removed from the fleet, capacity will grow by 13.0 per cent in 2018 (up from 6.8 per cent in 2017). The 37 vessels currently scheduled for delivery in 2019 will grow the fleet another 7.6 per cent.
LNG trade is growing strongly but our forecast of an 8.2 per cent expansion in 2018 lags behind fleet capacity growth. More long-haul imports from the USA to Asia should see tonne-mile demand grow at a faster rate, leaving a delicate balance between supply and demand for LNG ships. But forecast trade growth of 13.7 per cent in 2019 should tip the balance in favour of ship owners.
US LNG exports are creating more seasonality in shipping
Swings in where US exports go are creating more volatility in spot/short-term LNG charter rates. Peak demand periods in Asia see more US exports attracted to long-haul destinations, taking ships out of the Atlantic basin. This drives up charter rates globally, but drives up rates even higher in the Atlantic basin.
In June charter rates in the Atlantic basin peaked at around US$90,000/day, whilst rates in the Pacific Basin at the same time were closer to US$70,000/day.
Industry outlook – too little too late or too much too soon?
LNG is one of the fastest growing sectors in shipping and design advances have made new ships more attractive compared to much of the existing LNG fleet. The market clearly wants more of these new ships and it could be said orders have been too little too late.
But looking at the wider picture there is a lot of new capacity still to be delivered from the current orderbook. There is under-used and laid-up older shipping capacity that could be more fully employed. The next pre-FID wave of LNG supply won't come on stream until mid next decade. If ordering activity continues at recent levels there is a high danger that it will be too much too soon!
By Andrew Buckland, Wood Mackenzie
