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The "cyclical nature" of the fortunes experienced by the shipping industry is a hackneyed cliche, yet today it is unmistakably accurate as the world financial crisis wriggles its disrupting tentacles into all areas of business.
This notwithstanding, it is likely that a slowdown in shipping was probable despite the Chinese phenomenon, since overconfidence had already spawned a resultant glut in tonnage that was predicted to follow the newbuilding spending spree of recent years.
For that reason, this was already a downturn waiting to happen - now that will become an exacerbation factor to an unforeseen malaise that might not just ache in the background but may become a painful wounding.
A view that the recent downturn in rates on Asia-Europe trade routes had already been instigated by an increase in capacity has been challenged by a survey quoted by Exim India that claims actual capacity has remained unchanged since May this year.
Furthermore, the number of ships of capacity between 4,800-6,000 TEU (20-foot equivalent unit), engaged on these routes, has fallen from 47 to 26 in a year. If this survey is accurate, completed newbuildings will cause even greater downward pressure as they trickle on to the market.
According to shipbrokers Clarkson, container ships have seen demand this year fall by nearly 50 per cent. Shipping analysts Global Insight agree in a report that expressed their concern about European consumer confidence and an impending recession that will impact on shipping.
Earlier predictions concerning growth of global trade have now been modified with estimations for Asia to Europe now at just 2 per cent and Black Sea/Mediterranean at 4 per cent.
Gloomy assessment
Clarkson says that since the final quarter of 2007 there has been a "stark downward trend" and that figures for the annual global container trade growth has slipped below double digits for the first time since 2001.
Moreover, the battering given to the industry by the surge in fuel prices (despite the recent easing), the recent pressure on freight rates, falling charter rates and diminishing volumes of cargo are all factors that substantiate the gloom of the pundits.
Another complication in this scenario is the increase in costs for raw materials, particularly steel, that are putting pressure on shipyards to increase their prices. From their perspective, with the protection of order books still being full, following the aforementioned "spending-spree", the downturn has yet to hit that area, helped by the residue of demand from healthier shipping sectors.
The dry bulk cargo sector is also suffering with depreciation of rates but in the energy sector there is relative stability and fairly robust conditions with tanker rates steady for VLCC and Suezmax. Panamax and Aframax have shown recent dips but with overall strong averages. However, if the recessions of the western markets combine with a mild winter all that could change, especially as the demand on Chin-ese manufacturing also shows significant reduction, so pessimism may just be hovering above this area of ship operations.
One "blip" in the pessimism concerns oil exploration-related business that remains good with charter rates high and steady demand for tonnage. Indeed, just last week the Shipping Corporation of India (SCI) announced that it is intending to acquire a further 10 offshore support vessels.
From the market movements expressed and published over the past weeks, the trends are sober, or even worse, with the Baltic Exchange Sea Freight Index, which indicates major shipping price levels, falling to more than a two-year low - and this follows a record high recorded last May! This fall was the biggest in one-day in the index's 23-year history and probably helped by lower demand for raw materials by China.
To state the obvious, the cycle is complicated and "all-in-all" this is not a time for undue optimism. Manufacturing and consumer demand will dictate and the shipping industry must "bite the bullet". How hard it must bite is still unknown.
- The writer is a Dubai-based marine consultant.
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