Shipping Industry Faces Negative Prospects

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Shipping Industry in Doldrums

A ship's hull endures harsh conditions at sea, as illustrated by this reefer ship in bad weather.
A ship's hull endures harsh conditions at sea, as illustrated by this reefer ship in bad weather. | Source

Shipping Industry in Doldrums

Negative earnings

With a few exceptions, all the shipping lines in the world will be ending 2011 in the negative earnings territory. This prediction has been made by the shipping consultants Apphaliner. There is no surprise in this prediction as it has not shocked anyone. The world economy is witnessing recessionary trend now with European debt crisis looming large. US economy is not doing any better. This has spread like a contagion and though Asian economies are doing relatively better, their economies are also affected by slowdown if not outright recession. Moreover the economic crisis that is affecting one part of the globe will naturally affect the other part and slow down exports and imports. Shipping depends on cargo trade among the nations. As trade has been hit, shipping industry is also hit hard. The fourth quarter earnings are expected to be below the third quarter earnings. Shipping industry is witnessing torrid times with low volumes and crumbling freight rates. As the winter slack season has arrived, the shipping industry is laid in sick bed,

Sea piracy is a crucial issue to handle

Rising piracy and the measures that need to be taken to fight it have made shipping industry costlier. A robust response is needed to fight the pirates. Somalia depends on its livelihood on sea piracy and the people in that country are well trained and well equipped with arms to capture ships and kill the inmates including the Captain. The countries in the world have not formulated any policy of dealing with this crucial issue. In the meanwhile other issues are taking attention. A strike by the yard owners and workers to protest against a notification issued by the Central Excise asking a ship-wise breakup of materials procured from dismantled vessels has affected productivity in Alang, Asia’s largest ship breaking yard. The production loss is estimated at 10000 tonnes of steel a day. Global container ship operators are mulling a capacity cut due to high cost, oversupply and flagging demand. They hope to shore up freight rates depressed by a sluggish world economy. As many container careers have been losing sizeable income since the third quarter of the current year, their decision makes sense.

Worth of the ships drops

Slump in the freight market has led to a surge in ship breaking activity. The two are inversely connected. Shipping companies are sending their older vessels to the ship yards for ship breaking that fetches them a good income. In fact, curbs have been proposed on old ships in order to prevent marine accidents. Insurance companies have to pay through their nose in case of disastrous marine accidents. In India, the shipping ministry is planning to move to the Commerce Ministry for regulating shipping lines levying surcharge. There is another view that notwithstanding the slump in the shipping industry for the last two years which is cyclical in nature, shipping industry is rapidly growing rather than remaining moribund. Shipping stocks are at a new low because of the slump in the freight rates. The slower economic growth has led to a 32% drop in the value of new container ships. Post-Panamax vessels (vessels that cannot travel through Panama Canal) are worth only around $75 million as against their worth of over $100 million six months back.

New records in ship breaking

Demolition of dry bulk ships is creating new records now in deadweight tonnage terms due to high price offered by ship breakers to the owners, high fuel costs and low unremunerative freight rates. Till October 15, 300 dry bulk carriers totalling 19.5 million deadweight tonnes (dwt) have been sold for scrap this year alone. The previous record was created 25 years back in 1986 when 12.2 million dwt was scrapped for the whole year. Mind you, the current year 2011 is not over yet and figures after October 14 will add up to this figure of 19.5 million dwt.

Crude oil business fails to rescue shipping industry

Even the crude oil tanker business has not lifted the fortunes of the shipping industry to a great extent. Spot market for a very large crude carrier (VLCC) from the Gulf to the Far East has slipped to $1800 per day as against over $10600 a day in February this year. From this level, the rate increased to over $14400 in March but tumbled down to just over $550 in April. A rule of the thumb calculation reveals that crude oil carriers need a freight rate of nearly $30000 a day in order to break even. Only few shipping companies that have long term contracts with their overseas charterers, presence in different segments and attractive valuations have managed to keep their heads above water for survival in this tough time. Shipping industry has never witnessed such a torrid time before.

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Comments 2 comments

daisynicolas profile image

daisynicolas 4 years ago from Alaska

This is a bright assessment of the shipping industry. Interesting to know about global trade through this industry.

ramkimeena profile image

ramkimeena 4 years ago from India Author

Dear daisynicolas,

I thank you for your valuable comments.

Best wishes to you,

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