A slowdown in very large gas carrier (VLGC) fleet growth should begin the recovery cycle from the second half of 2018, although freight rates will not reach the levels seen during the bull run of 2014-15, according to Drewry.
In its latest edition of the LPG Forecaster, the global shipping consultancy has stated that 2017 was one of the toughest years in the history for VLGC shipping.
According to Drewry’s report, “ample vessel supply squeezed the freight market”, resulting in VLGC earnings in the spot market on the benchmark AG-Japan route averaging US$ 12,500 per day.
This is a vast difference in the break-even rate of $21,000 per day.
Shipowners are hoping for a better future as annual fleet growth is set to slow down from 16% in 2016-17 to a more manageable 5% over 2018-19.
However, new ordering is also picking up, with seven VLGCs ordered in the first month of 2018 as owners look to position themselves for the next upswing in the freight cycle.
Rahul Sharan from Drewry has written a technical paper which examines the dry bulk market
The above figure depicts Drewry’s freight rate forecast for VLGCs over the next three years, with rates improving from this year and strengthening further in 2019-20.
However, rates are unlikely to touch the highs seen in 2014-15 when the bull run was led by a sudden pick-up in propane demand from new propane dehydrogenation (PDH) plants in China.
China already has its eight PDH plants up and running, and only two more plants are due to come on line in 2019. That will prevent any sudden spike in the country’s imports.
You can hear more from Drewry at PTI's Container Terminal Automation Conference, where Neil Davidson, Senior Analyst at Drewry, will be speaking
Shresth Sharma, Senior Analyst for gas shipping at Drewry, said: “Our outlook for 2018-20 suggests an average freight rate of $23,400pd, below the $28,800pd that was recorded between 2011 and 2013.
“The reason for the difference between average historical and future rates is that VLGC fleet ownership has become more fragmented since 2013 as many new players entered the market during the boom period of 2014-15.
“For instance, at the end of 2017, there were 62 companies in the VLGC sector, 17% more than at the end of 2013.
“It goes without saying that fragmentation tends to reduce the bargaining power of shipowners with charterers.”
Read more: Chemical shipping freight rates will weaken through 2018 due to the depressed outlook on overtonnaged long-haul routes, according to the latest edition of the Chemical Forecaster, published by global shipping consultancy Drewry
