Analysis of the shipping industry

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