The dry bulk shipping market is being hit by an oversupply of vessels and slower world trade.

The deteriorating market has hurt operations at companies such as China COSCO​, which has had vessels seized for non-payment.

There are just too many ships and the oversupply will worsen, with new vessels on order amounting to 45 per cent of the current fleet.

This is a stark contrast to the 6 to 7 per cent trade growth some analysts forecast.

The expected result is more companies going under, and new-order cancellations.

Divay Goel, general manager of Siva Ships International, said: “If the global economic slowdown spreads to India and China, then definitely we would see a reduction in demand for raw materials…then we might see a further depression of rates – continued depression of rates – so I think any recovery we were expecting say in 18 months or so might get extended up to 24 months or later.”

Already, international shipping prices of dry bulk cargo are down by 85 per cent since the highs in 2008.

China COSCO is said to be feeling the heat, though it has sought to reassure investors that its business remains strong.

According to wire reports, China COSCO said that negotiations with shipowners over unpaid bills would be resolved and its business remained strong.

It has reportedly had several vessels arrested over the past two months due to unpaid charter payments on long-term contracts inked in mid-2008, worth millions of dollars.

Greek shipowner George Economou is reported to be the key party, with some 18-20 vessels on charter to COSCO, valued at over US$500 million.

However, despite a stormy outlook for the shipping sector, analysts said that shipping trusts still offer potential for investors looking to dip into the sector.

Ng Kian Teck, an analyst at SIAS Research, said: “Shipping trusts are yielding about 10 over per cent right now, and even from a PE perspective, some of the shipbuilders are very cheap right now. But the market is very cautious on the outlook itself and the huge…shipping order books are going to weigh on the whole industry.

“So what investors can do is to price in a higher risk premium on to their valuations, and that will give them a comfortable range before they enter these stocks, and if you have given enough risk premium, you can get a good deal.”

Shares of China COSCO in Hong Kong have plunged 50 per cent this year.