Market Overview

Analysis of the shipping industry

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2013 turned out to be an eventful shipping year as world economic growth is recovering, and the shipping industry is working hard to counter the fleet oversupply that was created under the previous boom years. According to Prestigo Research, demolition activity in dry, tank and container markets remained high while the pace of newbuild deliveries decelerated. They believe that reduced net fleet additions in the next years combined with global synchronized growth should give freight rates a boost so that market players can start dreaming about shipping fortunes to return again.

The fundamental shift from oil to natural gas caused by the ‘shale gas revolution’ in the USA has led to positive multiplier effects for niche shipping markets like LPG, product, and chemical tankers. According to the broker, these segments have moved counter-cyclically: few new buildings to be digested and strong demand growth have spurred both private and public equity markets (ie. the Ardmore Shipping IPO) that were happy to finance shipping new build projects in 2013.

 

Overall, Prestigo Research believe in a stronger shipping market going forward citing the encouraging economic growth in the world. In addition, the prevailing low earnings in dry, tank and container markets- through low freight rates and higher bunkers fuel costs- indeed may demand further fleet corrections through more scrapping activity.

However, despite promising economic outlooks, projected growth in world merchandise trade could also be undermined by increased protectionism and greater shortage in trade finance.

On the upside some developments may help boost trade nevertheless such as relatively strong GDP growth in China; increased shipments from China to the USA as the latter replaces the European Union as China’s largest trading partner; and proflerating trade liberalization arrangements.

 

However, although trade deals, if successful, can lift international trade flows, some concerns nevertheless remain as to their potential to also divert trade from countries that are not party to the deal, especially when a global trade agreement is not yet in place.

 

Driven in particular by a rise in China’s domestic demand as well as increased intra-Asian and South-South trade, international seaborne trade performed better than the world economy in 2013, with an estimated 4.4% growth in 2013, nearly the same rate as in 2012 (4.3%). About 9.6 billion tons of goods were loaded in ports worldwide, with tanker trade (crude oil, petroleum products and gas) accounting for around 30.3% (30.9%), container for 16.5% (16.1%) and dry cargo representing 53.1% (52.9%) (Source: Prestigo Research)  

 

Figure 1.2: International seaborne trade, selected years

 

Source: Prestigo Research

 

Dry-cargo shipments continued to grow, although only, with 4.8% in 2013 (6.1%). According to Norwegian shipowner, Golden Ocean, 2013 was a fairly strong year for dry bulk trade, helped by healthy imports of both iron ore and coal to China. Iron ore imports increased 10% YoY to reach 820 million tonnes, whilst coal imports to China increased by 17% to 275 million tonnes (Golden Ocean, 2013). Moreover, the company refers to India’s newly commissioned coal fired power plants and improved port infrastructure as other contributing factors. According to World Resources Institute (WRI), around 450 Indian coal plants are in the planning stages. Together, India and China make up around about three-quarters of the world’s 1,200 planned coal plants. In 2013, India imported 164 million tonnes of coal, which was up around 10% YoY (Prestigo Research)

Figure 1.4: Proposed coal-fired plants by installed capacity (MW)
Macintosh HD:Users:olasekkis:Documents:ACADEMICS:Management:Ship Management:Proposed Coal-Fired Plants by Installed Capacity (MW).png

Source: Prestigo Research

Global container trade displayed more impressive growth rates of 6.6%, up from from the growth of 4.1% posted in 2012. According to Danish liner giant, AP.Moller-Maersk, westbound Asia-Europe container demand improved in 2013 with volumes 7-8% higher in H2-2013 compared to the same period in 2012. The liner giant also points to the fact that a range of emerging countries’ foreign exchange rates lost value to the US dollar in 2013. This led to more expensive imports for these countries while exports became more price-competitive- which may indicate greater trade flows into developed countries such as the USA and those inside the E.U. The improved economic situation of the EU in 2013, in which economic growth came in at 0.0% (-0.2%) further supports this argument (Prestigo Research)

 

Dry-cargo shipments continued to grow, although only, with 4.8% in 2013 (6.1%). According to Norwegian shipowner, Golden Ocean, 2013 was a fairly strong year for dry bulk trade, helped by healthy imports of both iron ore and coal to China. Iron ore imports increased 10% YoY to reach 820 million tonnes, whilst coal imports to China increased by 17% to 275 million tonnes (Golden Ocean, 2013). Moreover, the company refers to India’s newly commissioned coal fired power plants and improved port infrastructure as other contributing factors. According to World Resources Institute (WRI), around 450 Indian coal plants are in the planning stages. Together, India and China make up around about three-quarters of the world’s 1,200 planned coal plants. In 2013, India imported 164 million tonnes of coal, which was up around 10% YoY (Prestigo Research)

Figure 1.4: Proposed coal-fired plants by installed capacity (MW)
Macintosh HD:Users:olasekkis:Documents:ACADEMICS:Management:Ship Management:Proposed Coal-Fired Plants by Installed Capacity (MW).png

Source: Prestigo Research

Global container trade displayed more impressive growth rates of 6.6%, up from from the growth of 4.1% posted in 2012. According to Danish liner giant, AP.Moller-Maersk, westbound Asia-Europe container demand improved in 2013 with volumes 7-8% higher in H2-2013 compared to the same period in 2012. The liner giant also points to the fact that a range of emerging countries’ foreign exchange rates lost value to the US dollar in 2013. This led to more expensive imports for these countries while exports became more price-competitive- which may indicate greater trade flows into developed countries such as the USA and those inside the E.U. The improved economic situation of the EU in 2013, in which economic growth came in at 0.0% (-0.2%) further supports this argument.

 

The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

 

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