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Thursday, March 21, 2013

What challenges does the shipping industry face in 2013?

Shipping industry conditions are evident in dry bulk trade levels
China has the largest amount of registered ships

By Charles Macmillan

With the global economy still sluggish and showing few signs of a rapid return to growth, 2013 looks set to be another challenging year for the global shipping industry. Consumer demand across Europe has been hampered by high unemployment and falling real wages, while the recovery in North America also remains weak. Many analysts have pinned their hopes on south-east Asia to provide some cheer amidst all the gloom, but given how interconnected the global economy is, it remains to be seen whether the region can drag the global economy forward. However, it does appear that there are at least some reasons to be cheerful when looking at the near-term outlook for the global shipping industry.

Positive indicators

There are signs that dry bulk trade may be set to rebound in 2013, with prospects brighter now than at any time since the initial onset of the global financial crisis in 2008. Freight rates look set to increase across all sectors of the shipping industry, despite the continuing headwinds. Average tanker freight rates appear set to rise in 2013, driven by improvements in global trade and a slowdown in net fleet addition. Tanker freight rates should also see improved capacity utilisation due to reduced net fleet addition, although consumption of petroleum products in developing economies is likely to remain somewhat subdued.

Looking up for 2013?

According to the Baltic and International Maritime Council (Bimco), the shipping industry's prospects for 2013 are generally positive in spite of an oversupply of tonnage. The industry group is calling for worldwide regulation of the shipping industry to level the playing field, as well as strong action against piracy. It is concerned that moves towards local or regional protectionism - often a temptation for policymakers in times of economic strife - could hamper the growth of world trade, which expanded by 4.5 per cent in 2012. However, it notes that many operators ordered tonnage when the global economic situation was somewhat rosier than it is today, and as such as still burdened by the subsequent overhang.

Caution from elsewhere?

However, credit rating agency Moody's expressed concern last year about the outlook for the global shipping industry heading into 2013. It warned that weak earnings and oversupply would be complemented by tighter financing conditions, as banks withdraw from risky and dollar-denominated assets. Moody's predicted that it would take over a year for the drag effect of oversupply started to weaken and observed that marginal players in the shipping market were at particular risk from the ongoing upheaval.

Can stimulus help?

The global economic outlook remains somewhat grim, however, and this is sure to have an effect on the global shipping industry throughout 2013. Some economic data pointed to a modest rebound in Eurozone economic activity at around the turn of the year, but the difficulties facing some European economies remain significant. Japan's new government has signalled its intention to boost demand by pumping money into the economy, while the US government continues to support the economic recovery with modest stimulus programmes. However, political uncertainty and deeply entrenched divisions remain a threat, and it will be some time before we can start to feel truly confident that the global economy is through the worst of its troubles.

About the author: This guest blog was contributed by Charles Macmillan a freelance blogger who is here to educate you about Eurotunnel Freight.

Image license: Image credit: US-PDGov