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Saturday, February 8, 2014

Shipping in cruise control as cargo growth surges

Source: http://www.thestar.com.my/Business/Business-News/2014/02/08/Shipping-in-cruise-control-End-to-industry-downturn-expected-as-cargo-growth-surges/

SINGAPORE: 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 a shipping boom in 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. Global shipper TMT Group filed for bankruptcy protection last June, shortly after South Korea’s STX Pan Ocean filed for court receivership, while Indonesian shipper PT Berlian Laju Tanker narrowly avoided bankruptcy.
“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 UMing Marine Transport, one of Taiwan’s largest listed shipping companies.
Prices of new and second-hand ships started to rise last year on expectations of a recovery, though 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 urbanisation and falling iron ore prices, experts say, which should support import growth even though the commodities supercycle that drove a 2003-2008 boom in shipping markets is over.
The global dry bulk seaborne trade is forecast to grow 5.8% in 2014 to 4.37 billion tonnes, according to Barclays Research, outpacing a 5.3% rise in the global merchant fleet to 753 million deadweight tonnes (dwt).
This was the first time growth in demand for shipping of iron ore, coal, grain and minor bulks such as fertiliser, logs and soya beans had been greater than dry bulk fleet growth since 2007, Barclays said, as the industry finally shook off a surge in new ship orders in the wake of the boom.
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 around US$100mil for a 180,000 dwt Capesize ore carrier at the top of the market would need a daily charter rate of US$44,000-US$45,000 to break even, still well above current rates. The price of a similar Capesize ship has since eased to around US$56mil, according to Clarkson Research.
The Baltic dry index, compiled from a basket of dry bulk freight rates and which traditionally falls in the run up to the Lunar New Year holiday in China, has halved in the past month to 1,086 points on Wednesday.
Dry bulk rates were expected to bounce back in February and March as chartering activity rises, said Khalid Hashim, managing director of Thai dry bulk ship owner Precious Shipping. – Reuters

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