Shipping industry set to emerge from five-year downturn
February 27, 2014 Category Logistics, Ports & sea transport
The shipping industry is poised to emerge from its longest downturn in three decades, buoyed by an end to years of overcapacity that have depressed freight rates since the end of the shipping boom of 2008. Dry cargo ships are likely to see the strongest recovery, say owners and analysts, as growth in bulk commodity cargoes such as iron ore and coal outpaces supply of new tonnage for the first time in seven years. But tanker rates will also rise as fleet growth is slowing, while strategic oil reserve projects in China and India should boost already solid Asian demand. The recovery will bring some respite to shipping firms that have endured years of losses as freight rates failed to cover costs. “While there will be potholes, here and there, as always, the worst is over based on the market fundamentals,” said Ong Choo Kiat, President of U-Ming Marine Transport, one of Taiwan’s largest listed shipping companies. Experts warn some shippers will still only break even this year and any recovery may fade after 2016 when overcapacity could again dampen freight rates. Key drivers of the pick-up will be China’s continued urbanization and falling iron ore prices, experts say, which should support import growth even though the commodities super-cycle that drove a 2003-2008 boom in shipping markets is over. The global dry bulk seaborne trade is forecast to grow 5.8% this year to 4.37 billion tons, according to Barclays Research, outpacing a 5.3% rise in the global merchant fleet to 753 million DWT. It promises to be the first time growth in demand for shipping of iron ore, coal, grain and minor bulks such as fertilizer, logs and soya beans exceeded dry bulk fleet growth since 2007, Barclays said. However, ship owners who paid high prices for new tonnage at the peak of the market would still only break even this year, said Jayendu Krishna, Senior Manager at shipping consultancy Drewry Maritime Research. Buyers who paid up to USD100 million for a 180,000 DWT Capesize ore carrier at the top of the market would need a daily charter rate of USD44,000 to USD45,000 to break even, still well above current rates. The price of a similar Capesize ship has since eased to about USD56 million, according to Clarkson Research, as reported by the South China Morning Post.
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