The Shipping Market in 2010 and beyond

The Shipping Market in 2010 and beyond

2010 was a remarkable year for shipping, strengthening the recovery that started with improved overall volumes in the second half of 2009 and ending with concerns in practically all segments. We are now in the early days of 2011 with a global recovery losing momentum as the macroeconomic drivers behind the economic recovery, such as giant stimulus packages, being phased out and traditional concerns about inflation, deflation and economic overheating challenging national and international economists.

Growth in the advanced economies is forecast by IMF to slide from 2.7 percent in 2010 to 2.2 percent in 2011. Meanwhile, economic growth for emerging and developing countries is forecast to slide from 7.1 percent in 2010 to 6.4 percent in 2011.

Whereas it was expected that consumption and investments would replace the stimulus packages as economic drivers, particularly in the advanced economies, the process has started but needs to strengthen. This translates into positive but not very strong growth. The recovery is weak because of the scars left by the crisis such as cutbacks and rising uncertainty in the labour markets, the severe drop in the value of property and general uncertainty about the economy and the future. Before the crisis changed the world, consumers were big spenders and accumulated debt but now they are more focused on consolidation, which is why consumption is slower to really take off.

On the other hand Asia has managed to move beyond its strength in exports to build a second engine of growth – based on investment and consumption. As Asia's major trading partners, in particular Europe and the US, are entering a period of lower growth rates, the need to nurture Asia's domestic demand over the medium-term has become even more crucial and appears to be moving in a positive direction.

Ship supply: a wall of new ships

All of the main shipping segments, be it dry bulkers, tankers or container ships are facing a wall of new ships to be delivered in 2011. This comes back-to-back with the biggest delivery year ever, 2010. The dry bulk segment is forecast to be hit the most, as BIMCO predicts that the fleet will grow by as much as 14 percent in 2011. For tankers and containerships, the fleet is forecast to grow not less than eight percent.

Supply growth in all segments is biased toward the bigger ships, which is illustrated by the ratio of order book to active fleet. This ratio for Capesize vessels, which are the largest dry bulk ships, is 67 percent. For Very Large Crude Carriers the ratio is 38 percent, while large container ships that are able to carry more than 8,000TEU have a ratio of 95 percent. Normally, this ratio is around 20 percent for bulker and tanker fleets and around 30 percent for the container ship fleet. Despite healthy demand growth forecasts across the board, the main short- and medium term challenge for the industry remains oversupply of tonnage.

BIMCOReflections

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