Thursday, 30 April 2009

No shipping recovery before 2012

Singapore, April 26: The Sea Asia conference and exhibition 2009 held in Singapore a few days ago saw major maritime industry players and savvy shipping executives being electronically polled on questions related to the industry. This poll threw up some interesting opinions and sentiment, more so since these professionals have their hand on the pulse of the industry on a daily basis. About 500 business leaders were canvassed. The most startling statistic to emerge was that almost 70 percent of delegates polled felt that a balance between dry bulk ship supply and demand would not be restored before 2012, clearly indicating that the recession is seen as a long duration one by many.

Shipbuilding is a segment that is particularly hit because of shrinking volumes and cancellations due to the unavailability of credit for falling asset prices. Interestingly, the consensus was that the Chinese would keep freight rates low in their own self interest by maintaining oversupply. They would, many felt, even complete many ships that may have been cancelled at their yards. Additionally, delegates pointed out that even with the huge decline in container traffic worldwide, some ports in Europe seemed to be going ahead with boom time expansion plans. This twin phenomenon of oversupply in tonnage and in handling facilities would keep shipping costs down for the next few years, most felt.

The tenor of the questions asked said it all: Can the industry bounce back to previous levels and when? Is the ‘green shoots of recovery’ theory valid? Or, is this likely to be a slow and draining contraction that will see the industry remain hamstrung by low demand and oversupply? Is Asia better off than the rest of the world because of the China and India story?

The consensus amongst business leaders seemed to be that things would get worse before they got any better. Those polled included a wide cross section from the industry: ship owners, government and industry trade bodies, the Baltic Exchange, Port Authorities and logistics providers from across the world.

Some interesting opinions and poll results from the conference:

· On the question, “Where the Baltic Dry Index will be at the end of 2009”, 63% said between 2000 and 4000, 21% said between 4000 and 6000, 13% said under 2000, and 3% said over 6000.
· When will dry bulk shipping capacity reach equilibrium? 41% said 2012, 27% said after 2013, 26% said 2011, 41% said 2012, and 5% said 2010. The most pessimistic statistic of all, with just a twentieth of those polled expecting a recovery until 2011, and a staggering 67% not before 2012.
· Where will crude oil prices be at the end of 2009? 52% said between $60 and $80, 40% said less the $60, 7% said above $80. Most felt that demand for oil would fall faster than supply reduced. They also thought that Asia would not consume oil at Western levels and that Western oil consumption patterns would change, resulting in even lower demand.
· $350 billion of new build finance is required in the next two years. The consensus was that new construction plans should be cancelled wherever possible. However, Chinese interests mentioned earlier may throw a spanner in the works here. As much as 39 percent of those polled said that 20 to 30 per cent of the bulk carriers on order would be cancelled.
· An asset value crisis plagues the industry, with resale values of ships seen at around two thirds of the value of a new build. Shipowners believe that this situation will worsen. Most delegates also believed that with increasing surplus tonnage, this crisis could hit banks and ship owners hard down the line.
· A major economic shift is on the horizon, many felt. Blind consumerism will decrease, leading to even lower demand for many goods. Almost nobody polled said that the United States would return to its history of high consumerism.
· Chinese consumption is low since there is hardly any middle class to speak of while there are many poor. This imbalance in an export oriented economy will need to be addressed, many felt.
· The majority of those polled said that with more box ship deliveries set to hit the market this year while 12% of the worldwide container fleet was idle, it was likely that 20% of the global container fleet would be idle by the end of 2009. The recovery, when it happens, will show Asian percentage volumes rising.

With inputs from wire reports from Singapore, Sea Asia sources, conference and financial reports from Cargonewsasia and SeekingAlpha)

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