Athens: A boom in world shipping markets is cooling off, but the sector will still remain strong for years to come, bankers and industry experts say.
"They were really exceptional years," Matthias Umlauf, a senior economist with HSH Nordbank AG, said of 2004 and 2005, when seaborne freight indices across oil and dry commodities trade smashed records. "But compared to the last two years, freight rates have seen a downward correction across the sectors full stop. That's negative," he said at an energy shipping and trade conference.
Explosive economic growth in China, a recovering global economy and the highest oil demand growth in a generation all played their part, fuelling record profits for shipowners and drawing investors to a traditionally secretive sector.
"In any industry, if when you have exceptional earnings and returns you get more competition and that drives the earnings down somewhat and that's exactly what's happened with shipping," Umlauf said.
Container shipping also saw spectacular growth, mainly on the surge in Chinese exports of finished goods to rich economies.
"Half of the world would starve and half of the world would freeze without it," John Tzoannos, secretary general of the Greek marine ministry said of seaborne trade.
"The only other time you've seen shipping in the press is when an oil tanker goes down or when there's some sort of disaster. But I think people have begun to realise just how important we are to world economy," said a Greek shipowner.
In 2005 alone, some two dozen shipping companies listed on US markets, including a handful of Greek-controlled companies that raised a billion dollars in equity between them.
Sexy industry
"Shipping has become a sexy industry because of the returns over the last couple of years and then, of course, everyone wants to be in it," Umlauf said, speaking about the strong interest of other investment banks in the sector.
HSH Nordbank is the world's leading financier to the shipping industry with about 22 billion euros worth of exposure to major clients, he said.
But the growth in the sector has brought a correction. Shipowners keen to cash in on record earnings across the container, energy and dry commodities sectors started ordering ships by the dozen.
Oil tanker rates have also come under strong pressure from new-builds and low scrapping.
"In spite of robust (oil) demand growth fleet growth is expected to lead to a softening of annual average rates," Simon Chattrabhuti, head of tanker research at Galbraith's shipbrokers.
To the upside, the energy side will benefit from continued strong demand growth in Asia especially from China, India and Japan.
The drive for coal use in China, where two-thirds of its energy needs are met by the cheap but polluting fossil fuel, will also buoy rates.
London-based Clarkson ship consultancy estimates that coal has overtaken iron ore as the biggest bulk trade.
"In the future coal will be a constant source of seaborne trade growth," said Fred Doll, of Doll Shipping Consultancy.
"Shipping is an industry that definitely has a future, because more than 90 per cent of the world's trade is carried by sea and that is something that just won't go away," Umlauf of Nordbank said.
