As 2010 ended, concerns about most shipping industry’s segments began mounting with evidence of a weak economical recovery further deteriorating hopes of a swift recovery of freight rates. According to BIMCO’s newest analysis from Peter Sand, global recovery is now appearing to be losing momentum, as the macroeconomic drivers behind the economic recovery, such as giant stimulus packages, are being phased out and traditional concerns about inflation, deflation and economic overheating are challenging national and international economists.
This coupled with a mountain of new ships arriving this year as well, don’t mean good times for ship owners across the board. “All of the main shipping segments, be it dry bulkers, tankers or container ships are facing a wall of new ships to be delivered in 2011. This comes back-to-back to the biggest delivery year ever, 2010. The dry bulk segment is forecast to be hit the most, as BIMCO predicts that the fleet will grow by as much as 14% in 2011. For tankers and containerships the fleet is forecast to grow not less than 8%.
Supply growth in all segments is biased toward the bigger ships, which is illustrated by the ratio: order book to active fleet. This ratio for Capesize vessels — which are the largest dry bulk ships — is 67%. For Very Large Crude Carriers the ratio is 38%, while large container ships that are able to carry more than 8,000 TEU have a ratio of 95%. Normally, this ratio is around 20% for bulker and tanker fleets and around 30% for the container ship fleet. Despite healthy demand growth forecasts across the board, the main short- and medium term challenge for the industry remains oversupply of tonnage” said Peter Sand.
When it comes to dry bulk shipping, once more it’s all in the hands of China. “For 2011, total dry bulk demand is forecast to grow by 7%, slowing down from the demand hike of 9% in 2010. The solid demand picture in a relatively stable market has seen owners returning to the yards to sign many new contracts. This happens only a year after owners ran to the yards to renegotiate all contracts in order to avoid receiving the vessels that were already on order.
A new Capesize vessel was launched every second day during 2010 and this is expected to continue in 2011 and 2012. Even with dry bulk demand from the US and Europe to supplement the demand from China, the fundamental balance between supply and demand – in particular the Capesize segment – is about to stay “in favour of charterers” for the coming years. This is a result of the industry’s buying spree two years ago before the financial crisis severely slashed sea trade.
Going forward, the dry bulk market will continue its heavy reliance on Chinese demand: a demand that has been so strong in 2009 and 2010 that trade balances have been skewed more than normal and congestion in ports located in the main loading and discharge areas has been severe. The velocities of the Capesize freight rates movements are expected to continue going into 2011. Meanwhile, the smaller segments are predicted to be in more smooth waters than the bigger vessel types, as the inflow of new tonnage in these segments is less dramatic and the commodities which they transport are more diversified” concluded Mr. Sand.
As for tankers, the analysis states that demand in the Eastern hemisphere has proved solid, with China emerging as a large importer of crude oil. The overall trend is clear; it is very positive that Asian demand has grown and will continue to grow, but the oil thirst in the East is not strong enough to offset the lower consumption in the West. This is due to fewer tonnes-miles. “While the winter markets could prove to be a pause for breath for tankers in the short run, it seems likely that tanker freight rates will remain a bit under the weather in 2011. For 2011, the crude segment remains the better half of tanker shipping as the product segments are still heavily affected by the weak demand from the main consuming areas, as well as oversupply. When Western demand growth eventually returns, tanker demand will look strong again as Eastern demand is unlikely to slow down any time soon. Whether the strong tanker demand will also give higher rates is also dependent on the fleet development.
However, the underlying trend is more challenging for crude oil tankers than product oil tankers. The business is developing towards higher growth in oil products transports than crude oil transports, as refineries have been and are being built closer to the oil well today than 20 years ago” said BIMCO.