Will 2013 be better or worse than 2012? It is again time to try to figure out what we may expect to face over the next twelve months. Marconâ€™s quarterly market reports regularly delve into financial reports from respected companies, such as Caterpillar, WÃ¤rtsilÃ¤ and Tidewater, looking for insight.
Then we mix in predictions from the International Monetary Fund, World Bank, International Energy Agency, International Chamber of Commerce, and US Energy Administration and then toss in a sampling of cargo throughput from ports around the world for good measure. After all this we still end up wondering what the future may hold. There are many variables and many paths ahead. All we can do is give it our best shot and move forward.
According to the Chinese Zodiac, 2013 will be the "Year of the Snake". This New Year begins on February 10, 2013, and ends on January 30, 2014. Ancient Chinese wisdom says a snake in the house is a good omen because it means your family will not starve. Try telling that to my wife.
People born in the "Year of the Snake" are reportedly keen, cunning, intelligent and wise. They are also great mediators and good at business. I missed being a snake by six years. Considering that the zodiac contains 12 signs, I am at the exact opposite side and reportedly according to one internet site a â€œGreen Dog born in the Year of a Red Pigâ€, whatever that may mean.
Not only is 2013 the "Year of the Snake", but appropriately for those in the marine industry, it is the "Year of the Water Snake". Feng Shui experts say that the industries that may benefit from the zodiac in 2013 are those related to water and metal elements. These include metal and mineral related industries, which I presume would include those of us in the maritime world.
While the future does look slightly better for water-based maritime industries, many shipyards may find themselves not benefiting much in 2013. Feng Shui experts are very much like economists in their predictions - always saying â€œon one handâ€¦ and on the otherâ€ to leave themselves a little wiggle room. Industries related to earth and fire, such as construction, may not do as well in the "Year of the Water Snake", especially many who have been building larger dry cargo and container ships. Fairplay Newbuildings Online starts off the New Year with 557 towing/pushing vessels, 722 offshore supply vessels, 269 other offshore and 55 research vessels on order out of a total of 6,574 vessels and other marine structures being built worldwide. This is the lowest total number on the World Orderbook since Marcon started tracking newbuildings over five years ago and is likely to decline further. In October 2008, there were 12,655 total vessels of all types on order.
It is also said that if your lucky element is water and you did well in 2012 - the "Year of the Dragon" - then your luck will most likely continue during the "Year of the Snake (small dragon)". Even forgetting the zodiac, the majority of companies surviving 2008 â€“ 2012 will most likely survive the challenges of 2013 - but not all. The 1.5 year-long US Great Recession officially ended three and a half years ago in October 2009.
Five years after the one year-long early-1980s recession ended there still was a lot of fallout among OSV and tug owners, shipyards and others in the United States and abroad. I periodically look into the historical directories and shipping lists on the bookshelf behind my desk for background on one vessel or another and still shake my head at the number of companies and fleets named that today are just part of history. It is no wonder that one of the most popular quotes and one-liners is â€œchange is inevitableâ€.
In 2012, we saw many noteworthy mergers, acquisitions and bankruptcies take place in the corporate arena, and more storms, droughts and fires in the natural world also affecting the maritime industry. There is no reason to think that 2013 will be any different, except to consider the possibility that it might be even more active. The next year, month or even day will not necessarily go as predicted, whether forecast by zodiacs, tea leaves, a Mayan calendar or bevy of economic analysts, so it is a good time to remain flexible and ready to meet whatever challenges or opportunities appear.
World economic recovery continued throughout 2012, but the 3.3 per cent estimated growth was weaker than experienced in 2010 and 2011. Last yearâ€™s growth was even below the 1994 â€“ 2003 average world growth of 3.4 per cent and it was not felt equally across the world. The United States lived through between 1.8 - 2.2 per cent growth in 2012 and real GDP actually declined in the Euro zone.
A 3.6 per cent slight improvement in global growth forecast for this new year will most likely start out weak as problems in advanced economies, including baggage left over from the US â€œfiscal cliffâ€ negotiations, still weigh down the averages. There should be more growth during the second half of 2013 when even the Euro zone may see itself climbing out of a triple-dip recession and 11.8 per cent unemployment. A brighter light is seen in the emerging markets and developing countries, which are expected to end 2012 with 5.3 per cent growth, 5.6 per cent in 2013 and continue on to a 6.4 per cent annual growth in 2017.
Developing Asia is forecast at around 7.2 â€“ 7.9 per cent growth in 2013, depending on who you listen to, and 7.7 per cent plus in 2017. Asia is followed by the Commonwealth of Independent States at 4.0 per cent (2013) and 4.1 per cent (2017) respectively. Latin America and the Caribbean, which saw a 50 per cent growth in the number of people joining the middle class in the last decade, is projected to grow 3.9 per cent and 4.0 per cent for the 2013 and 2017 periods.
Growth in world trade volume in goods â€“ and it is trade that is always the backbone of and primary reason for the existence of a maritime industry - is expected to end up at 3.4 per cent in 2012. 2013 trade growth is forecast to improve to 4.6 per cent with most of that occurring towards the second half of this upcoming year. To put those numbers in perspective, average growth in the periods of 1994 â€“ 2003 and 2004 â€“ 2013 were 7.1 per cent and 5.2 per cent respectively. World exports in US dollars are projected to total USD18.9trillion (up an anemic 0.37 per cent) in 2013, after a projected USD18.3 trillion in 2012 and USD18.17 trillion in 2011.
Of course, this projection may also reflect the weakness in the US dollar and actual trade volume in tonnes will be actually be higher. Another indicator of weak trade, the Baltic Dry Index, started out the new year trading at just under 700, only slightly above the 52 week lows of 661 on September 12 and 647 on February 3, 2012, due to the overcapacity in shipping. Compare this to May 20, 2008, when the index reached its highest record of 11,793 points. This peak was regretfully followed by a six month plunge to 663 in December of that same year. According to Container Trades Statistics data, containerised goods exported from all overseas ports also fell 3.6 per cent in November 2012 compared to October and 4.32 per cent compared to the same month in 2011. The CTS team believes that this decline indicates that any global cargo growth for 2012 is unlikely, contrary to the many forecasts made during the beginning of the year of between five per cent and eight per cent growth.
The United States also continued its slow pace of recovery â€“ like many other of the so-called advanced economies - unevenly and with mixed signals. US labour and housing markets strengthened. Non-farm payroll employment rose by 155,000 in December, but the unemployment rate stayed unchanged at 7.8 per cent (down from 10 per cent in November, 2009). This is a difficult statistic to improve upon. After the early-1980s recession it took 14 months to get back down to 7.8 per cent and yet another 22 months to even briefly break the 7.0 per cent unemployment level. The early 80s recession was only (approximately) half as severe in decline of GDP (-2.7 per cent vs. -5.1 per cent) and slightly shorter compared to our latest â€œGreat Recessionâ€. There is still a long way to go.
Construction did add 30,000 US jobs in December, led by employment increases in construction of buildings (+13,000) and in residential specialty trade contractors (+12,000). Some of the gain in construction was due to Superstorm Sandy and may have been just short-term, but house prices do seem to be bottoming-out, which may bode well for future residential construction. Manufacturing employment rose by 25,000, with small gains in a number of component industries. Employment in other major industries, including mining and logging (+4,000), transportation and warehousing (-600), and government (-13,000), showed little change over the month.
After a lackluster 2012 growth, the economy in the United States is forecast to grow about 2.1 per cent in 2013 and increase to 3.3 per cent by 2017. Uncertainty about the future continues to weigh heavily on everyoneâ€™s shoulders, not only in the US, but abroad. Itâ€™s not like Vegas. What happens in the United States does not just stay in the US. The United States represents 37.4 per cent of advanced and 19.1 per cent of all world economies. The effects of decisions or indecisions coming out of Washington DC very quickly ripple across global markets, having either a positive or negative effect. The US did manage to avoid a â€œfiscal cliffâ€ with Congress coming to agreement at the last minute on what will probably be some of the easier points of contention, but there is still much that needs to be done to reduce the US deficit and get back on a stable financial path. Some cuts do have to be made to entitlements and the debt ceiling needs to be raised to remove some of the uncertainty ahead. Politicians on both sides will be walking a fine line between what is best for the country and what they told their constituents in order to get voted into office.
Two of the biggest risks to US and global recovery during the first half of 2013 may be a haphazard sequestration and over-zealous government austerity. Stay tuned for more heated budgetary battles, political games and potential pitfalls which could still derail our fragile recovery. Having confidence in our economy, our government and a feeling of certainty about the future will go a long way to increase domestic economic growth and in itself help at least in a small part to reduce the deficit. The US does have the ability to not only solve its financial problems, but to beat current projected growth forecasts. Does it have the will?
One thing that United States cannot grow without is infrastructure and construction. Infrastructure is the key to driving both productivity and competitiveness in the modern world. As Superstorm Sandy and Hurricanes Irene and Katrina have shown, we need to spend on repairs and improvements to our aging infrastructure to just maintain what we have â€“ or appropriately in these circumstances to just â€œtread waterâ€. This is not just stimulus spending for the economyâ€™s sake and lower unemployment. Taking care of problems after-the-fact is more expensive than looking ahead and correcting the problems before they occur. According to the American Society of Civil Engineers (ASCE), in the post-World War II years of the last century, the United States was recognised globally as having the greatest infrastructure in the world. Since 1998, the ASCE released numerous â€œreport cardsâ€ assessing Americaâ€™s infrastructure. During that time the best overall grade received was a D+ in 2001. The ASCE 2009 report placed the estimated five-year investment needed to upgrade the nationâ€™s infrastructure to a â€œsatisfactoryâ€ level at USD2.2 trillion.
The latest World Economic Forumâ€™s â€œGlobal Competitiveness Index 2012 â€“ 2013â€ ranks the United States in 25th place in world overall infrastructure â€“behind countries such as Canada, Finland, The Netherlands, and Germany. The US is in 20th place for the quality of roads and 19th place in quality of port infrastructure. The United States also has seventh-place rankings for capacity of innovation, sixth for quality of scientific research institutions, seventh place for company spending on R&D, third place for University-Industry collaboration in R&D, fifth place for availability of scientists and engineers, first place for domestic market size and second place for foreign market size, although there is always room for improvement. We have a lot of smart people in this country and a very good potential for innovation. We need to put these resources to work for the countryâ€™s future. The United States is also in the 68th rank for extent and effect of taxation, 124th rank for business costs of terrorism, 76th rank for wastefulness of â€œpork barrelâ€ government spending (do I hear the case for a line-item veto), 59th place for favoritism in decisions of government officials and 54th rank for public trust in politicians. Can we also improve on those last five ratings? Just like a small business, the country cannot be competitive in the world without having a decent infrastructure. Even in a bad year, a small business like Marcon spends on its infrastructure. The country needs to do the same.
One idea that has been proposed, considered, sat on, ignored and re-proposed numerous times over by politicians on both sides of the aisle in the Senate and House of Representatives has been a national infrastructure bank leveraging federal funds with private monies to invest in replacing deteriorating infrastructure - from water and sanitation to ports to clean energy to roads and bridges. Properly managed, this would definitely give a well-needed boost to the maritime industry in the United States. Even though a national infrastructure bank would need bipartisan support and politics can never be totally eliminated, the key to success is keeping politicians out of the project decision-making process and avoid creating another trough for â€œporkâ€. 2013 would be a good year to see this bill finally passed.
Regardless of the uncertainty, confidence in the shipping industry did pick up very slightly in November from its lowest level for over four years. The likelihood of respondents to Moore Stephens latest â€œShipping Confidence Surveyâ€ making a major investment or significant development over the next twelve months was up from 5.3 to 5.4. Itâ€™s not much, but it was the highest level seen since May 2011. Demand trends, competition and finance costs again feature as the top three factors cited as most likely to significantly influence performance in 2013. There is talk of a shipping turn-around towards the middle or end of 2013. Any turn-around will be more of a final bottoming-out than any dramatic â€œVâ€ change. There is still a long, hard grind ahead to what might be considered a full recovery. We face a surplus of vessels in almost all sectors of shipping that need to slowly work their way out of the marketplace. After the early-eighties recession, many oil rig supply boats and crew boats were re-purposed to other trades. Between 1983 and 1990, Marcon sold 52 offshore supply vessels alone, with most of these vessels going to trades outside of the â€œoil patchâ€. Today, owners do not have the luxury of having alternative trades ready and willing to snap up surplus vessels. The only alternative for many older vessels and barges is scrapping.
The price of energy will continue to be an important factor over the coming years. Highlights of the mid-December 2012 International Energy Agency â€œOil Market Reportâ€ indicate persistent concerns about the global economy and the then-looming US â€œfiscal cliffâ€ eclipsing worries about political risks in Israel, Gaza, Syria and Iran. IEA projected global oil demand at around 90.5 million barrels/day for last quarter 2012 and relatively sluggish 2013 demand growth due to weak global expansion. The US Energy Information Administration expects oil markets to loosen in 2013 and 2014 as increasing global supply more than offsets higher global consumption. World liquid fuels consumption is expected to remain the same in 2013 as 2012 before picking up again in 2014 due to a modest recovery.
Brent crude oil, which averaged USD112 per barrel in 2012, will fall to an average of USD105 in 2013 and USD99 per barrel in 2014. The projected discount of West Texas Intermediate crude oil to Brent, which averaged USD18 per barrel in 2012, falls to an average of USD6.0 in 2013 and USD8.0 per barrel in 2014, as planned new pipeline capacity lowers the cost of moving mid-continent crude oil to US Gulf Coast refining centers.
According to Barclays 2013 Global E&P Spending Outlook, overall E&P spending is expected to increase in 2013 by seven per cent, which may be in the early stages of a multi-year, double-digit growth spending up-cycle. Most of the increase though will be outside of the US 2013 domestic spending is expected to be little changed compared to 2012.
Much of the increase will also will be for land-based exploration and production vs. offshore. Tidewater reports deepwater activity continues to be a significant segment of the global offshore crude oil and natural gas markets and is a source of growth. Reports published by IHS-Petrodata in mid-October 2012 indicate that the worldwide movable offshore drilling rig count (estimated at approximately 862, around 45 per cent designed to operate in deeper waters), will increase as up to 200 new-build offshore rigs on order and under construction come online, most of which will be delivered within the next three years. Of the estimated 862 movable offshore rigs worldwide, approximately 630 are currently working. It is further estimated that approximately 54 per cent of new-build rigs are being built for deepwater.
The number of rigs designed to operate in deeper waters could grow in the coming years to nearly 50 per cent of the market. Rowan, for example, is entering the ultra-deepwater market with four high-spec drill ships expected to be delivered starting in late 2013. Investment is also being made in the floating production unit market, with approximately 72 new floating production units currently under construction and expected to be delivered primarily over the next three years to supplement over 350 floating production units worldwide. The Baker Hughes international offshore rig count for December, 2012, was 299, down one from the 300 counted in November, 2012, and unchanged from the 299 counted in December, 2011. The average US offshore rig count for December, 2012, was 51, the same as was counted in November and up eight units from the 43 counted in December, 2011. The US Gulf started experiencing a resurgence of deepwater drilling activity in November, 2011, which grew through most of 2012.
The PSV market in the US Gulf is expected to remain relatively tight well into 2013 and some industry veterans predict demand will continue to outpace supply even into 2014. Those vessel companies able to get new tonnage in the water between now and 2014 can expect to command high day rates, with multiple operators offering medium to long term charters â€“ which in the US has buoyed new construction and retrofitting of existing OSVs. While increased deepwater activity and ever-increasing safety requirements have been a boon for deepwater PSVs with dynamic positioning, older conventional PSVs lacking any kind of dynamic position saw their day rates mostly languishing.
After all this â€“ what am I looking forward to in 2013 and beyond? As the eternal optimist I believe that the US, after a weak start, has the potential to achieve a stronger growth than initially forecast during the second half of 2013. If the United States is able to lay a secure foundation in 2013, this year could be a solid stepping stone to a healthy 2014. It will obviously be a challenge, but it can be done.
While I would enjoy seeing Marcon getting back to an average of one sale or charter concluded per week in 2013, I predict that we will end the year with a total of 49 sales and charters, after brokering 41 in 2012 and 35 in 2011. A possible weakening of the US dollar during 2013 may make US exports more attractive and specifically an opportunity for Marcon as more vessels and barges may be sold overseas to regions such as Canada and Latin America.
Selected niche markets will continue to do better than the mainstream average and it will be important to identify those niches and be in a position to take advantage of them. Marcon always does better in years of change â€“ whether it be up or down - and 2013 will definitely be one of those years.
Since our first sale, Marcon has brokered 1,293 vessels and barges sold or chartered. Several additional sales are currently pending and expected to close shortly. Hopefully we will be able to break the 1,300 mark during the first quarter of 2013, as we continue to chase opportunities for both ourselves and our clients.