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Affinity Policy Comment 27 November 2023

A Matter Of Fairness

Market sentiment continues to be supported by hopes of inflation cooling further, even if macro data came out somewhat on the strong side last week. Euro Area and UK PMIs edged cautiously higher, albeit from low levels, while output price indices remained above pre-pandemic averages on the key service sectors. Similarly, consumer confidence improved from -17.9 to -16.9, while Germany’s IFO expectations survey increased from 84.7 to 85.2. Meanwhile, US jobless claims fell back after the surprising uptick earlier in November, and Euro Area Q3 2023 indicator of negotiated wages continued to point towards sticky price pressures stemming from the labour markets.

Bond yields moderated further and, while Opec+'s decision to delay a meeting where markets had anticipated possible new production cuts sparked some volatility in the oil markets, oil prices have continued to edge lower, which has also weighed on markets' long-term inflation expectations.

While some have anticipated lower long-end bond yields and continue to see further downside towards 2024, much of the decline could already be behind us. The sharp uptick in yields earlier this month was largely driven by an increase in term premium, probably due to the high bond issuance and rising concerns of public debt sustainability in the US. These concerns have all but faded ever since, which could lead to persistently higher term premium also going forward. In addition, markets shouldn’t price in significantly faster rate cutting cycles for either the ECB or the Fed unless there are additional signs of weakening in macro data.

This week, the focus will once again turn to inflation. Danske Bank expects Euro Area November flash HICP to continue easing both in headline and core terms. It expects the former at 2.7 per cent y-o-y versus October’s 2.9 per cent, and the latter should fall to 3.9 per cent y-o-y, from October’s 4.2 per cent, slightly below consensus forecasts. This is because some of the negative base effects, which have pushed the headline figure lower over the past months, are now fading and overall headline inflation should remain close to 3 per cent towards next summer. Meanwhile, US October PCE data, also due for release this week, might slow down to +0.2 per cent m-o-m according to current market consensus, mirroring a similar CPI decline.

In other news, following a year of record heat and drought, this year’s COP28 climate summit will feature a contentious set of issues for countries working to find common ground in tackling climate change, including whether to phase out fossil fuels and how to finance the energy transition in developing countries, while all countries are expected to update their national emissions-cutting targets and plans by 2025.

The toughest talks at the summit might focus on the future role of fossil fuels, and whether countries should commit to start phasing out the use of CO2-emitting coal, oil and gas. While at COP26 it was agreed to phase down the use of coal, participants have never agreed to quit all fossil fuels - the main source of planet-warming emissions.

The US, EU and many climate-vulnerable countries are insisting on a final COP28 deal that commits countries to phasing out fossil fuels. But the G20 failed to agree on this point at their summit in July, and countries including Russia have said they would oppose a fossil fuel phase-out.

And while the UAE's incoming COP28 President Sultan al-Jaber has said the phase down of fossil fuels is "inevitable", countries are waiting to see if the UAE will push other oil-rich nations to back the idea at COP28, especially as Jaber has faced criticism for his dual role as head of ADNOC and incoming president of the climate talks.

However, it is not that there is no apparent solution to the fossil fuel issue, as the UAE and other fossil fuels producers want COP28 to include a focus on emerging technologies designed to capture and store CO2 emissions underground. Still, these technologies remain in their infancy as they are currently expensive and not used on a large-scale.

However, the EU has been opposing CCS as it could be used to justify continued fossil fuel use, albeit without properly addressing the actual environmental and social impact of clean energy production. Such was the politicisation of decarbonisation that the IEA backtracked from supporting CCS, previously touted as crucial for meeting global climate goals, to calling them an “illusion” this year.

Instead, countries should consider setting goals to triple renewable energy capacity and to double energy savings by 2030 - a proposal made by the EU, US and supported by the UAE. This looks set to win broad support, with G20 economies including China already backing the renewables goal. But the EU and some climate-vulnerable countries insist on pairing this pledge to boost renewables with phasing out fossil fuels, a contentious proposal that will undoubtedly attract flak from fossil fuel producers and from countries unable (or unwilling) to switch fully to (sometimes expensive) renewables alike.

Last but not least, tackling climate change and its consequences will take a sizable investment, far more than the world has budgeted so far. Developing countries will need at least USD 200 Bn every year by 2030 to adapt to worsening climate impacts like coastal sea rise or storms, according to the UN. However, these figures do not take into account funding to help replace polluting energy with cleaner sources.

And there are also the costs of the damage already being caused by climate disasters. At COP28, countries will be tasked with setting up a "loss and damage" fund to help with this, which developing nations say should unlock at least USD 100 Bn by 2030. And while the EU and US have said they will put money in the climate damage fund at COP28, they also added about the need for private finance to help.

The financial aspect will be another source of tension at COP28, with vulnerable nations claiming more money from wealthy nations, whose past CO2 emissions largely caused climate change, to be spent on adapting to a world that is sure to become warmer over the next few decades.

All these issues are contentious but not unsurmountable, and the outcome of the event will boil down to all participants understanding that every country will need to ensure that energy transition objectives aren’t obstacles to economic growth and social mobility, quite the opposite, while at the same time boosting energy access, and reducing emissions at the same time.


Affinity Research LLP

what we do

  • Carbon

    Carbon

    Using tailored analytics platforms, we offer client-specific advisory and trading services across the global carbon markets. Contributing to hedging strategies, sustainability reporting and financing requirements, our aim is to assist clients in managing their financial exposure to the approaching energy transition.

    Contact: Hugo Wilson
    [email protected]
    +44(0)20 3142 0121

    Containers

    Containers

    Our specialised Container team in South America arranges freight & logistic solutions primarily for the mining and perishable industries.

    Contact: Andrea Meza Allemant
    [email protected]
    +51 99 115 2393

    Dry Cargo

    Dry Cargo

    Our dry bulk chartering teams in Sydney, Melbourne, Perth, Santiago, Lima, Montevideo, Buenos Aires, Singapore and London are cargo-focussed and they fix voyage, COA and time charter business on behalf of their clients with a wide range of ship owners.
    For Atlantic business please contact Hans Bredrup
    For Pacific business please contact Rahul Khanna

    Contact: Hans Bredrup
    [email protected]
    Contact: Rahul Khanna
    [email protected]

    LNG

    LNG

    Our young and dynamic LNG team possess wide-ranging experience of spot and term charters working with all major LNG shipowners and charterers. The LNG team has close interaction with the Newbuilding and Sale & Purchase divisions with an unrivalled track record of contracting LNG newbuildings and in the sale and purchase of LNG assets.
    We maintain up-to-date knowledge and an understanding of new technologies within the LNG sector to ensure that our clients can make the most suitable and cost-effective decisions on shipping solutions.

    Contact: Joni Mackay
    [email protected]
    +44(0)20 3142 0133

    Newbuilding

    Newbuilding

    Our Newbuilding team has concluded over 500 newbuildings of all types, including LNGCs, FSRUs, drillships, crude tankers, product tankers and dry cargo vessels. We have contracted in all major newbuilding centres globally, with particular focus on the Korean Shipyards.

    Contact: Nick Wood
    [email protected]
    +44(0)20 3142 0111

    Offshore

    Offshore

    Affinity Offshore is based out of our Oslo and Houston offices. The Team focuses on world-wide sale & purchase of offshore support vessels, as well as chartering – particularly in the Americas and Mediterranean/MENA regions.

    Contact: Tor-Øyvind Bjørkli
    [email protected]

    Research

    Research

    Our research department combines real time market information with econometric modelling and the latest technology. 

    Contact: Sevita Kondyliou
    [email protected]
    +44(0)20 3142 0182

    S & P

    S & P

    Our Sale & Purchase team has extensive experience of working with private clients, national shipping companies, major corporates, oil companies, grain houses and institutional investors. We provide a cradle to grave services across all shipping sectors. We operate from London, Singapore and Seoul to give 24-hour coverage of the markets, working for both newbuilding and second-hand buyers.

    Contact: Tom Morrison
    [email protected]
    +44(0) 20 3142 0128

    Tankers

    Tankers

    Our established tanker chartering teams serve the industry from London, Houston and Santiago delivering a highly proficient spot chartering service with a prime position in the fuel oil market. The team has close relationships with oil majors, national oil companies, oil traders and major ship owners and operators. 
    Our ethos for operations and post-fixture is simple: these roles are as important to us as the chartering/commercial function, and we continue to apply those same principles of professional ship broking throughout the life of each fixture.

    Contact: Tim Gurdon
    [email protected]
    +44(0)20 3142 0142

    Valuations

    Valuations

    We provide transparent, objective ship valuation service to major owners, banks and other financial institutions at short notice and a daily basis. We provide a retainer service for regular fleet valuations.

    Contact: Stuart Morrison
    [email protected]
    +44 (0)20 3142 0144

    Carbon

    Using tailored analytics platforms, we offer client-specific advisory and trading services across the global carbon markets. Contributing to hedging strategies, sustainability reporting and financing requirements, our aim is to assist clients in managing their financial exposure to the approaching energy transition.

    Contact: Hugo Wilson
    [email protected]
    +44(0)20 3142 0121

    Containers

    Our specialised Container team in South America arranges freight & logistic solutions primarily for the mining and perishable industries.

    Contact: Andrea Meza Allemant
    [email protected]
    +51 99 115 2393

    Dry Cargo

    Our dry bulk chartering teams in Sydney, Melbourne, Perth, Santiago, Lima, Montevideo, Buenos Aires, Singapore and London are cargo-focussed and they fix voyage, COA and time charter business on behalf of their clients with a wide range of ship owners.
    For Atlantic business please contact Hans Bredrup
    For Pacific business please contact Rahul Khanna

    Contact: Hans Bredrup
    [email protected]
    +56 99 887 3036
    Contact: Rahul Khanna
    [email protected]

    LNG

    Our young and dynamic LNG team possess wide-ranging experience of spot and term charters working with all major LNG shipowners and charterers. The LNG team has close interaction with the Newbuilding and Sale & Purchase divisions with an unrivalled track record of contracting LNG newbuildings and in the sale and purchase of LNG assets.
    We maintain up-to-date knowledge and an understanding of new technologies within the LNG sector to ensure that our clients can make the most suitable and cost-effective decisions on shipping solutions.

    Contact: Joni Mackay
    [email protected]
    +44(0)20 3142 0133

    Newbuilding

    Our Newbuilding team has concluded over 500 newbuildings of all types, including LNGCs, FSRUs, drillships, crude tankers, product tankers and dry cargo vessels. We have contracted in all major newbuilding centres globally, with particular focus on the Korean Shipyards.

    Contact: Nick Wood
    [email protected]
    +44(0)20 3142 0111

    Offshore

    Affinity Offshore is based out of our Oslo and Houston offices. The Team focuses on world-wide sale & purchase of offshore support vessels, as well as chartering – particularly in the Americas and Mediterranean/MENA regions.

    Contact: Tor-Øyvind Bjørkli
    [email protected]

    Research

    Our research department combines real time market information with econometric modelling and the latest technology. 

    Contact: Sevita Kondyliou
    [email protected]
    +44(0)20 3142 0182

    S & P

    Our Sale & Purchase team has extensive experience of working with private clients, national shipping companies, major corporates, oil companies, grain houses and institutional investors. We provide a cradle to grave services across all shipping sectors. We operate from London, Singapore and Seoul to give 24-hour coverage of the markets, working for both newbuilding and second-hand buyers.

    Contact: Tom Morrison
    [email protected]
    +44(0) 20 3142 0128

    Tankers

    Our established tanker chartering teams serve the industry from London, Houston and Santiago delivering a highly proficient spot chartering service with a prime position in the fuel oil market. The team has close relationships with oil majors, national oil companies, oil traders and major ship owners and operators. 
    Our ethos for operations and post-fixture is simple: these roles are as important to us as the chartering/commercial function, and we continue to apply those same principles of professional ship broking throughout the life of each fixture.

    Contact: Tim Gurdon
    [email protected]
    +44(0)20 3142 0142

    Valuations

    We provide transparent, objective ship valuation service to major owners, banks and other financial institutions at short notice and a daily basis. We provide a retainer service for regular fleet valuations.

    Contact: Stuart Morrison
    [email protected]
    +44 (0)20 3142 0144

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