Strong world trade guards shippers from recession

The current credit-crunch and the indications of a slowing US economy are well-publicised gremlins that have been predicted to severely impact global trade. However, while share prices and other markets are fluctuating, indicators are that the shipping industry is likely to remain buoyant during 2008.

Certainly with respect to the Middle East there is optimism as reflected in comments made last week by the Senior Vice-President and Managing Director of DP World, Mohammad Al Muallem, who told the MEED Ports Development Conference held in Dubai that from the perspective of the UAE he saw no slowdown. Moreover, he referred to the continuing momentum exhibited by China that outweighed any US slowdown.

With respect to Jebel Ali, Muallem said that if current growth continues at the same pace, DP World would be able to increase capacity to 80 million TEU by 2030 from its current level of 11 million in view of the current expansion plans that are well on schedule.

Furthermore, DP World is to expand from its current operatorship of 23 terminals in 43 countries to 27 terminals in 53 countries.

Underlying optimism

Such confidence borne out by action is indicative of belief in the underlying optimism that remains within the shipping industry. This is also demonstrated by high rates, particularly for containerships that have shown no signs of falling.

Indeed, they continue to creep up with Fairplay quoting a broker as saying that the current availability of ships with more than 2,500 TEU capacity was "absolutely low by historical standards".

However, not everything is working to enhance profits, since the shortage of tonnage has also been caused by undesirable factors such as delays and congestion which have pressurised some carriers to seek an increase of up to $100 per TEU for routes between Europe and the Mediterranean to the Middle East and the subcontinent.

Furthermore, predicted hikes in insurance due to increased levels of claims last year will also put pressure on ship operators by eating into the windfalls that have been swelling their coffers in recent years. Add to this the uncertainty over fuel and the possibility of increased costs in this respect, there could be some tempering of the buoyancy but not, it seems, enough to cause any downturn.

Yet while this uncertainty over fuel may irritate the container and bulker sectors, while oil price levels are set to remain high, the tanker operators will benefit, especially as the shortage of tanker tonnage remains due to single-hull phase-out and a slow rate of newbuilding deliveries.

As cited by DP World, the overwhelming force that continues to stay on the side of the container industry is the continuing effect of demand from China, and there is little or no indication that this driver will lose momentum.

Moreover, the dry bulk market too is currently driven by China, despite the US concerns, with strength in iron ore and now coal that is expected to outweigh the down forces and with the expected appreciation in the value of the Chinese currency, this will help to sustain the demand and give even more impetus to shipping over the next few years.

Furthermore, an increasing demand for the same types of bulk commodities by India is likely to give further boosts to this sector of the shipping industry.

So doom and gloom from the market barometers? If the optimists are to be believed, not so for shipping! This year is set to continue on the heels of 2007 with, it seems, scant regard for any looming US recession.

- The writer is a Dubai-based marine consultant.