A very well attended fourth annual Institute of Chartered Shipbrokers Canada Branch Dry Bulk Commodities Conference was held on November 16 at the Vancouver Convention Centre West. This now annual event is specifically geared towards the dry bulk industry with focus on market outlook, demand versus capacity, commodity trends and terminal handling capacity.
With this in mind, we were again fortunate this year in recruiting a strong group of speakers, each of whom shared their perspectives on the dry bulk industry. The speaker line-up and summary of their main points was as follows:
Morten Ingebrigsten, Director Asset Management, Pacific Basin Shipping: Supported by detailed numbers related to prospects for growth in demand against the current and expected vessel supply side, Morten cautioned against anyone getting too carried away with the 2016 improvements in the dry bulk market. On the contrary, he expressed opinion that despite the tough times endured by owners since 2008, too rapid a market recovery would result in another bust. In addition, the major decisions faced by most owners relate to investment in Ballast Water Treatment Systems but also bearing in mind that deliveries after June 2020 must comply with Tier III engine requirements. These translate to more expensive construction costs and many yards are holding back or have yet to completed their designs.
Average capacity supply growth in the past 25 years is 5.5% against the lowest fleet growth since 1999 in 2016, a forecast of 3.2% growth in 2017, 1.2% in 2018 and as things stand today, only 1.8% in 2019. In the medium term, these numbers bode well for a sustained market recovery provided that owners do not succumb to prematurely fueling the appetite of ship yards which are offering heavily discounted new build prices in the short term.
Cliff Stewart, Vice President Infrastructure, Vancouver Fraser Port Authority: This was the first occasion for a Port Authority to speak at the conference and the participation of the Port of Vancouver was appreciated all round. At the outset, Cliff made the point that 52% of the port’s throughput is represented by dry bulk and this number is growing as the existing 13 bulk terminals continue to increase capacity to service demand. Future infrastructure growth as represented by the proposals of the Greater Vancouver Gateway 2030 Program and the Pacific Gateway Alliance is seen as a high priority if growth is to be sustained.
Cliff also stressed the importance being given by the port to supply chain visibility in order to best identify where pinch points are occurring, but also the work recently completed to provide clarity around the size of vessels that the port can accommodate. Given that the port sees the potential demand for grain handling at around 30 million MT/year by 2022, there is support for current terminal expansion and efficiency improvements, but also the new G3 Terminal and the proposed Parrish and Heimbecker Terminal at Fraser Surrey Dock which is currently under review.
Bruce McFadden, Director, Research and Analysis at Quorum Group of Companies: Bruce detailed a number of telling statistics for the 2017-17 crop year against a background of ever improving genetics and agricultural economics (agronomics).
- Primary Elevator Shipments 45.6m MT (7.7% greater than 2015-16 & 2014-15 (42.4m MT each year)
- Western Canada Originated Rail Traffic 50.7m MT (5.0% greater than 2015-16)
- West Coast grain shipments through Vancouver and Prince Rupert 36.8m MT (3.3% higher than 2015-16 & 8.2% higher than 2014-15)
- Q1 2017-18 Primary Elevator Shipments 11.7m MT (2.6% greater than Q1 2016-17)
Over the past five years, average crop year supply has been averaging 78 million tonnes including carry over from the previous year. Some 40% of the crop is exported through the west coast of which 65% is handled in Vancouver and 15% in Prince Rupert. This translates to total west coast volume of 37 million tonnes in crop year 2016-17 which is 3.3% higher than crop year 2015-16 and 8.2% higher than crop year 2014-15.
Bruce also referred to Bill C-49: An Act to amend the Canada Transportation Act and other Acts respecting transportation, in particular the proposal to introduce reciprocal penalties in service agreements and proposed long haul inter-switching between railways.
David Przednowek, Director of Grain Marketing, CN Rail: In a very informative presentation, David advised the audience that CN has made some $20 billion of capital investments in the system over the past ten years including $3 billion in western Canadian track infrastructure in the past three years. The company has also acquired approximately 500 new AC high horsepower locomotives over past 5 years, which provide improved reliability, support longer and more efficient trains and reduce GHG emissions. As a consequence, grain trains in 2016 hauled 20%+ more cars per train compared to 2013
Much of these investments are to the benefit of grain and fertilizer exports which represents some 17% of CN’s business. There was also coverage of CN’s Fleet Integration and Car Auction program which is designed to allow the market to determine the value of freight given that over 90% of CN’s western Canada grain freight book is contractual.
Eugene Lypnis, Director Marine Logistics, Pinnacle Renewable Energy: This was Eugene’s second time to present to the conference given the fast moving pace of the pellet industry and the level of interest for those involved. On a global basis wood pellet shipment are expected to reach 30 million tonnes this year, hence a significant minor bulk commodity which strong potential for growth. Pinnacle is currently shipping 1.5 million tonnes/year and this is forecast to grow to 3 million tonnes/year by 2019. The decision to invest in the $42 million Westview Wood Pellet Terminal in Prince Rupert with an annual throughput capacity of 1.3 million tonnes has therefore been validated.
Existing Canadian pellet capacity is around 4 million tonnes with the United Kingdom currently the leading buyer. Other markets in Europe are Belgium and Italy while primary destinations in Asia are South Korea and Japan with China as yet largely untouched but having enormous potential.
Steffen Brill, Senior Manager, Logistics & Transportation, K+S Potash: Having only recently shipped the first potash cargo from the new K+S export facility at Pacific Coast Terminals, Port Moody, the timing of Steffen’s presentation was fortunate. Introducing K+S, Steffen explained that the company is one of the world’s leading suppliers of standard and specialty fertilizers, the world’s fifth largest potash producer, the world’s largest supplier of salt. K+S operates production sites throughout Europe, as well as North and South America employing more than 14,000 employees worldwide.
Speaking specifically to the new K+S Bethune greenfield solution potash mine, this is Saskatchewan’s first new potash mine in over 40 years. Production began in June 2017 and the mine has a production capacity of 2 million tonnes by the end of 2017 with potential for a gradual expansion of capacity to 2.8 million tonnes in the future. K+S has invested in a dedicated fleet of rail cars to be serviced by CP Rail and has also invested in new track to connect the mine with CP’s main line operations.
Tony Brewster, President Marine Petrobulk LP. Tony has become something of an annual fixture at the conference as everyone seeks to pick his brain as to where the bunker market is going – both supply and cost wise. Tony explained that following the end of a 40 year crude export ban in 2015, oil exports from the U.S. have taken off and are currently running at 9.6 barrels/day with every expectation of a sustained 10 million barrels/day in 2018, thereby putting the U.S. on a par with Saudi Arabia and completely off-setting OPEC production cut-backs which are designed to stabilize prices.
Brent oil price averaged $43.55 in 2016 and in 2017 to date has averaged $54.50 with prices currently at a two-year high. A sustained price of $60 is forecast for 2018. Looking forward to January 1 2020 when the new IMO bunker standards come into effect, Marine Petrobulk does not see a supply problem for traditional (0.1% sulphur content) diesel fuel but low sulphur fuel of 0.5% sulphur, if there is demand, is likely to be challenging. It is also not envisaged that the price differential between 0.1% and 0.5% will justify a blending solution. In addition, for those owners who have invested in Exhaust Gas Cleaning Systems (scrubbers), the supply of traditional 3.5% maximum sulphur content heavy fuel may be challenging given the low level of likely demand. The exception will be the cruise industry which is likely to buy under contract.
Tony also made reference to the increasing inability to bunker alongside certain berths within the Port of Vancouver and the difficulties to access terminals by truck in order to deliver low sulphur marine gas oil. In response to a question, he confirmed that the company currently has no plans to service the Port of Prince Rupert.
Jeff Crawford, Director Marine Logistics, Neptune Terminals: Jeff explained that Neptune’s bulk export business goes back to 1968 and has steadily grown through capital investment optimization of an existing footprint to today having capacity to handle 12.5 million tonnes of metallurgical coal, 10 million tonnes of potash and one million tonnes of phosphate imports.
The company is shareholder driven by Teck and Canpotex. This translates to operating on a “Shareholder Cost of Service Model” with heavy emphasis on communication, environmental best practices and employee safety at work. From an efficiency perspective, Jeff explained that logistical optimization results in 95% of coal loaders being accepted at berth within five days of tendering Notice of Readiness. Plans are advanced for further investment to increase metallurgical coal handling capacity to 18.5 million tonnes/year.
To complete the day, a 30 minute panel discussion involving Morten Ingebrigsten, Haijun Yu (Founder and Director of Vancouver ShipInvest and Management Ltd (VSIM) and Managing Director, Sealink Holdings Ltd.) and Jeff Crawford considered a number of issues, not least the potential long term impact of BHP on-line freight auctions, the implications for shipping of China’s Belt and Road infrastructure development initiative and the potential for ship owners to grow a closer relationship with commodity shippers with a view to achieving greater market stability. There was also discussion related to new build versus second hand vessel purchases and on the impact of short term venture capital investments in shipping.
I should also mention that this year’s winner of the Baltic Dry Index forecast prize draw with a winning number of 1435 (actual BDI on the day was 1361) was Scott Mason of FerMar LLC Charter Brokers.
The conference was once again followed by a well attended pub night hosted by Mahony’s where a fund raiser was held on behalf of the Mission to Seafarers. Kay Afghahi on behalf of ICS presented Senior Port Chaplain the Reverend Peter Smith with a cheque for funds raised.
In summary, thank you for the diligent organizational work undertaken by Alisha and Douglas at the Chamber of Shipping, without which the event would not have been possible. For me, it was a pleasure to moderate the day once more and the ICS team will be working harder than ever to ensure another successful conference in on November 15, 2018. Please be sure to join us.
Director ICS Canada Branch