The shipping industry has its work cut out going forward in 2017 as the period will see another year of die-hard competition, which now includes tankers, according to international shipping association BIMCO.
In 2016, the container shipping industry bit the bullet in terms of demolition and consolidation to help the market to recover and now the dry bulk sector needs to copy the approach.
For eight years, the world has struggled to cope with huge changes and challenges brought around by the crash of the financial market in 2008. The resulting issues have not always been dealt with in the best way, leaving many large economies still in ‘recovery’ mode.
“The full restoration of shipping markets will need several years of solid improvements to lift fleet utilisation rates. Sector overcapacity almost everywhere must be reduced,” BIMCO noted.
The association added that government support for any industry, including shipping, which is feeling the heat of global competition might seem like a good thing, but direct subsidies from governments in fact have a negative impact on the global shipping industry as they affect free trade and undermine the level playing field for businesses.
2016 has been a horrible year for the dry bulk shipping industry, according to BIMCO. After the Baltic Dry Index (BDI) reached an all-time-low of 290 on 10 February, it improved steadily throughout the year to peak in mid-November at 1,261. This was driven by and benefitted mainly the capesize ships as they transported the key commodities of iron ore into China. As the year progressed, the situation eased as demand growth outstripped the impact of the net supply growth of the fleet.
“For 2017, it is vitally important that shipowners handle the supply side of the market with great care,” BIMCO said, adding that the alarmingly low level of demolition activity seen in the second half of 2016 will not deliver the needed zero fleet growth.
As a significant number of new ships are on order for 2017 and 2018, BIMCO believes that the only way to neutralise the impact of this influx of new ships will be to scrap 30 million dwt annually.
In the wake of a very strong 2015, fortune faded for crude oil and oil product tankers. In 2016 the fleet grew by 6% for both tanker segments, unbalancing the market as demand growth eased off.
BIMCO suggests that in coming years the end-consumption of oil will need to catch up, and bloated oil stocks must be drawn on, before the market can be rebalanced.
Tanker demand growth in 2017 is expected to come predominantly from the greater Asian region led by China and India. BIMCO expects the crude oil tanker segment to see a net fleet growth of around 3% in 2017, compared to 6% in 2016.
“We foresee demolition of tanker capacity to reach a five-year high, but not enough to prevent the onset of a loss-making freight market,” BIMCO said.
Container: fundamental market balance improved
After deteriorating market conditions in 2015, with a very high fleet growth and a high number of new orders for future delivery, 2016 got off to a bad start, according to BIMCO. The need to match the supply of container shipping capacity with global demand for containerised goods became even more urgent.
2016 stands out in terms of consolidation, both in the form of outright mergers but also in the newer and larger alliances being forged to cut cost.
Additionally, the very low number of newbuilding orders was backed up by an all-time high of demolition capacity reducing the harmful effects of new ships being delivered. Panamax ships went out of fashion, resulting in further value erosion of the ship size that turned out to be the one which was squeezed out between the feeders and the very large ships.
The container shipping industry has found it difficult to adapt to the new normal, nevertheless, market conditions ended up improving in 2016 as fleet growth was lower than demand growth, the first time since 2010.
BIMCO said that it expects the container shipping segment to see a net fleet growth of around 3.1% in 2017, compared to 1.1% in 2016.
Copyright Ships & Ports Ltd. Permission to use quotations from this article is granted subject to appropriate credit given to www.shipsandports.com.ng as the source.