Shipping boom and bust could happen again

PUBLISHED : Saturday, 13 November, 2010, 12:00am
UPDATED : Saturday, 13 November, 2010, 12:00am

The shipping industry should take a broad, systemic approach to regulation and issues affecting the sector, says the head of one of the world's oldest ship safety organisations.

Richard Sadler, chief executive of the 250-year-old classification society Lloyd's Register, said China should also become more active in international forums that shape global shipping regulations.

Failure to adopt a systemic approach, and one that included China, could affect the future sustainability of the maritime industry, he warned.

Sadler said if the shipping sector could adopt 'systematic governance to mitigate systematic risks it would be a major mindset change and one that the International Maritime Organisation has the capacity as well as the capability to achieve.' He pointed to a raft of issues which needed to be addressed in a total, rather than piecemeal way. These included volatility in the shipping markets, ship overcapacity, fuel shortages, and emissions.

He said the surge and subsequent collapse in the dry bulk market two years ago could occur again. This was when charter rates for an 180,000 deadweight tonne capesize bulk carrier hit around US$300,000 per day in May 2008 only to fall to about US$1,000 per day seven months later as the banking liquidity crisis froze global trade. There were also sharp increases and falls for tankers and container ships.

Charter rates subsequently recovered but there has been significant volatility. This was partly influenced by a large number of new ship deliveries which has seen the global cargo fleet grow in tonnage terms by 122 million deadweight tonnes in the past two years. More than 6,920 ships totalling more than 466 million deadweight tonnes are due to hit the ocean in the next two or three years.

Sadler said that while the dramatic boom and bust in the shipping markets two years ago could have been a one-off, nothing had fundamentally changed. He added that even hardened professionals among Greece's 'intuitive' shipowners found the market hard to predict.

As a result a further slump could be triggered in the future.

This could come from the huge number of new ship deliveries chasing a lack of cargo especially if China scales back its massive infrastructure investment in the next 10 years to focus spending on its rapidly-ageing population.

Controls on ship emissions in the Baltic and North seas imposed by the European Union had forced owners to use more expensive low sulphur fuel, he added. As a result many ship owners and operators were now 'facing financial damage, to the point that it may threaten their sustainability'. 'What happens if oil reaches US$250 per barrel? Then ships may not be the workhorses of the ocean'. If the economics of shipping were to change, said Sadler, a situation could develop 'where manufacturing at the point of use, or close to the point of use, becomes the new reality.' This could fundamentally damage 'the very model that transformed China into the factory of the world'.

'I make the case that China and the rest of the world will all benefit in the long term by trying to solve global problems with global solutions that involve all those with an interest, and stake, in the outcomes.

'Without China's active involvement in shaping the maritime world, the very fabric on which China's success was built could be put at risk. China's central role in the global maritime world - as builders, owners and users - makes it essential that they became more actively involved.'

Cargo carriers

This is the number of additional ships due to begin plying the world's oceans in the next two or three years: 6,920