Shipping industry struggles to stay afloat as trade dips

With commentators now referring to the present situation in the shipping sector as a "slump", it has been a pessimistic week for the industry.

The online Journal of Commerce reports that container ship charter rates are now in "freefall" with fears of shipowner bankruptcies and ocean carriers cutting or suspending services because of significant drops in cargo volumes. Furthermore, weak freight rates, plus a glut in idle tonnage due to falling chartering activities, is adding to the downward spiral that has yet to bottom out.

For instance, a 2,750 TEU, gearless sub-Panamax vessel now commands $14,000 per day (Dh51,380), down from $19,500 in September and $26,292 in 2007 (figures from Fairplay, quoting Clarksons).

Exim India has described the outlook for India as "bleak" with rates falling by around 40 per cent since July and the Times of India reported that large shipping lines operating between India, Europe and the US say freight rates have dropped to $700 from $1,000 per TEU and to $1,600 from $1,900 per FEU. The Times also describes the fall of between 15 to 37 per cent in shipping stock prices between June and October - Varun Shipping falling 15 per cent, GE Shipping, 20 per cent, Shipping Corporation of India (SCI) by 30 per cent and Essar Shipping by 36 per cent.

The newspaper also cited fears that the large number of new buildings for Indian operators that are scheduled to be launched in 2009 will have an adverse effect with shipping lines unable to recover costs unless there is a significant upturn in rates.

Those carriers that are concerned with a single activity are seen as most vulnerable, particularly the container and bulker sectors. Where companies have diversified, such as SCI, the outlook is slightly better due to mixed interests across container, tanker and offshore business.

Major shipping indexes are also reinforcing the gloom with the Baltic Dry Index, a gauge of demand for bulk shipping, plunging by 91 per cent this year and the US Cass Freight Index of Shipments falling 16.9 per cent in October compared to the same period one year ago. This fall followed in the footsteps of a previous 16.6-per cent decline in September.

Lloyds List describes container outlook as "bleak" with profits taking a nosedive even before the full impact of the downturn is felt. The journal quoted that Evergreen Marine has reported that third-quarter profits were down 94 per cent year on year, and that a number of smaller carriers have already gone bankrupt with many likely to struggle, compared to larger container shipping lines who should fare better with reliance on reserves built up during boom years, but there are still said to be rumours that one or two might be over-stretched.

There are some positive factors that will help to counter, but not equalise, the negative trends. These include the fact that many new buildings have been ordered against long-term charters, but with the integrity of those long-term charters being less secure now, some would argue that this isn't such a positive factor. However, as long as the dollar recovers in value there is some reprieve, at least, from extreme gloom and, of course, falling oil prices are good news.

The extent of the current problem facing shipping is perhaps simplified by a summary given by Clarkson Research. It now predicts a growth of 6.8 per cent for world trade this year, a figure much lower than the forecast of 11 per cent made one year ago. In contrast, the world shipping fleet is set to grow by more than 13 per cent, demonstrating a worrying misalignment between supply and demand.

- The writer is a Dubai-based marine consultant