Business | Shipping
Shipping industry will ride the storm of financial crisis
As the turbulence of recent weeks has rocked the previous complacency that had become embedded in the fabric of a western society that the righteous have already dubbed as irresponsible, the marine industry has begun to batten down in preparation for rough weather ahead.
- By Frank Kennedy, Special to Gulf News
- Published: 23:26 November 2, 2008
Dubai: As the turbulence of recent weeks has rocked the previous complacency that had become embedded in the fabric of a western society that the righteous have already dubbed as irresponsible, the marine industry has begun to batten down in preparation for rough weather ahead.
While the consumer world fattened itself on the produce of its spending, shipping, too, enjoyed a smooth voyage while it supplied the needs of the spenders, automatically reaping the benefits bestowed by the boom. Such is the nature of this business.
Storms are part of the seafarer's routine and the cyclical nature of the industry has been present since the early days of steam - a time when the fleet shipowner came into his own.
Over the years, times have been good and times have been bad and so the industry learned to adapt itself, accordingly by expedient expansion and contraction, as a direct function of consumer demand.
So what makes this current situation so different? Indeed, stormy waters are always present somewhere and by skillful navigation they can often be avoided.
Some would argue there is no difference - this predicted world-recession is like previous downturns - but therein is the answer. It is likely to be a world-recession - not just the United States, not just Europe - the globalisation factor is the difference.
The black clouds are everywhere! Furthermore, with indicators in China now predicting a slowdown there, the source of much of shipping's recent success may be faltering, thereby exacerbating the impact to be felt by many operators.
Capital-intensive
Yet the extent of such an impact is still a variable since it shall be dictated by the actions of the banking sector - particularly those concerned with ship finance, of course.
Shipping always has been capital-intensive and as such is very reliant on the banks to provide the buoyancy needed to operate smoothly and successfully.
The extent to which the banks now restrict their lending will therefore be directly proportional to the difficulties that shipping companies may or may not be about to experience.
At the present time "caution" is the dogma that the bankers are muttering in their hypocrisy so it is certain that prudence will prevail.
Observers do say that lending is not likely to dry up, but they are also saying that conditions have already been made considerably more stringent with risks being minimised and borrowing limits curtailed.
It has also become evident that bank guarantees are also becoming difficult to obtain which will have particular impact on shipbuilding - however, in the long term perhaps that may be beneficial in view of the predicted glut in tonnage that will certainly not help a recovering industry after this present crisis.
At the end of the day, the strong will survive and the weak will fail and the fact that much of the severity of the situation for the ship operator rests with a bunch of bankers, is an understatement.
Notwithstanding the gloom, it must be remembered that the shipping industry is resilient - a fact moulded into its very fabric by its cyclical nature mentioned above.
Furthermore, the momentum of the shipping industry will never stop due to its place as the cheapest form of transportation.
It will certainly slow down as we now experience, but recovery will be the next trend and likely to be 'in-line' with the economic performances of the main-drivers of the 21st century - namely China and India.
But for the time being, contraction is the scenario - while times have been good, the interdependence of all economies on each other has suited shipping.
As a global industry it has provided a global service to a global economic structure in order to satisfy all requirements - worldwide and local.
However, as the banking fiasco has shown, global influences do cause significant local effects and shipping must prepare itself for the home-truths of local contraction that will undoubtedly cause the seagulls to come home to roost - the question is, for how long?
The writer is a Dubai-based marine consultant.
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