What Tough Times Mean For Global Shipping Industry

AP Moller

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More and more ships are being anchored out of circulation, due to a lack of demand. Shipping of goods in most territories of the world has ground to a halt in recent times. Experts estimate that one-fourth of all ships used to transport finished goods and raw materials are now idle. China’s sluggish growth and economic transition is taking a particularly significant toll on the global trade and shipping.

The shipping industry, popularly known as the thermometer of global economic growth is suffering a hiccup that may last longer than expected. With the tumbling oil price, emerging markets (Africa and the middle east) are in the front of row of declining demands in finished goods and China is not finding it funny. Brazil and Russia appear somewhat tepid.

According to report, in the last quarter of 2015, Danish giant, A.P. Moller-Maersk [MAERSKB:DC] posted losses of $182 million. To deal with the slowdown, the company slashed at least 4,000 jobs to reduce vessel capacity.

However, watchers believe Europe and Japan, in particular, might provide positive surprises in 2016. Reports have it that European Central Bank and Bank of Japan are working hard to boost their economies to bring on the sustainable recovery that everyone needs.

In the first quarter of 2016, global shipping consultancy Drewry revealed that further expected container shipping liner will lose throughout the first half of 2016. Drewry approximated that global freight rates will deteriorate further this year while at the same time carriers will no longer be able to reduce costs at the same pace, given that the main advantages of lower fuel prices have already been realised.

“While global handling growth is forecast to reach an estimated 2.1% in 2016 and this is by no means back in 2009 negative territory, the industry could get very ugly by the second half of this year if current commercial trends continue,” the report said.

BIMCO, the largest international shipping association representing shipowners, issued its report pointing out that the severe lack of exports from China is reflected in the China Containerized Freight Index, CCFI. The index, which tracks freight rates from China to major ports around the world, collapsed to zero in the Q1 of 2016.

Source: sentinelblog.com

Although ship owners and shipping managers argue that phases of substantial booms followed by sharp declines are typical for the industry, the present economic glitch is also affecting the financial industry. Banks are really nervous and in some cases ailing as well, and are hardly issuing loans.

Germany is known for shipping loans. The expansion in Germany’s shipping industry was attributable in large part to cheap and abundantly available money. In the last 10 years, banks and investors pumped hundreds of billions into the industry, which grew at rates of up 20 percent a year.

However, current industry estimates, shows that at least one-fourth of all ships under construction worldwide, worth a total of about $500 billion (€400 billion), either lack sound financing or have no financing at all.

China is one of the most important drivers of shipping demand growth in recent times. But it is not giving an impressive support to the shipping industry as the country re-evaluates its future growth direction.

A BIMCO 2016 forecast predicted that even the tanker market that enjoyed an extraordinarily strong freight market throughout 2015 may slow down growth somewhat in 2016.

Meanwhile, BIMCO expected Iran to return to the crude oil export market in 2016.

“As Iran rebuilds its market share, it will seek to take the place of neighbouring and West African competitors in supplying European and Asian markets.”

The report asserts that the crucial thing for the shipping industry was to improve the fundamental market balance in 2016.

After a record for new capacity entering the market in last year, 2016 is set for a much lower influx at around 3.5%.