Shipping sector set for more turbulence

Business Times - 23 Jul 2009

(LONDON) Trade conditions now are even worse than in the 1930s, a senior shipping industry official said here on Tuesday, with weak global demand and fleet oversupply set to dampen recovery prospects for the seaborne transport sector.

Around 90 per cent of the world's traded goods by volume are transported by sea, with many hoping for a world economic recovery via a resurgence in freight activity. But a reduction in demand for raw materials, manufactured goods and consumer products has hit the shipping sector hard since last October.

Spyros M Polemis, chairman of the International Chamber of Shipping, which represents 75 per cent of the global industry, said the fundamentals were not there for a 'true recovery'.

'It is, I think, worse than the 1930s because of globalisation,' he said. 'In order for recovery to take place, you need the demand to be there. All of the economies have to recover more or less at the same time for shipping to be able to return to normality or more normal rates,' he told Reuters in an interview. 'I think it could get worse.'

The Baltic Dry Index - which gauges the cost of shipping resources including iron ore, cement, grain, coal and fertiliser - collapsed to a record low last December of 663 points and has remained volatile since then.

The index hit a more than eight-month high on June 3 of 4,291 points, driven by Chinese demand for raw materials especially iron ore, which has helped boost freight rates.

Average earnings for Capesize vessels - the largest class of dry bulk ships - have dropped to US$60,490 a day from their peak of US$233,988 a day in June 2008.

Mr Polemis said gains in the dry bulk market in the last two months have been driven by contracts for raw materials that were agreed before conditions worsened in 2008.

'(The rise) is just a blip - something which I think is not going to last,' he said. 'It was a backlog which has to take place and once this is finished, we are going back again to much lower rates.'

Worries have been growing over the number of vessels expected to hit the shipping market in the coming years.

Shipbroker SSY forecast new dry bulk vessels being delivered this year would total 47 million deadweight tonnes (dwt) versus 24 million dwt entering the fleet in 2008. A further 7.5 million dwt is expected to hit the dry bulk market in 2009 from ships converted from oil tankers, it said.

Mr Polemis said 75-80 per cent of all the contracts signed for new vessels were expected to be delivered in the coming years. 'Cancellations are not that widespread,' he said.

'It would be nice to stop the production line. I don't think it can happen to a very large extent. Therefore, a lot of ships will be delivered,' he said. 'All these factors can only mean one thing: a depressed market,' he said\. \-- Reuters