• Thu
  • Aug 21, 2014
  • Updated: 12:07pm

Ship rates expected to remain volatile

PUBLISHED : Saturday, 07 April, 2012, 12:00am
UPDATED : Saturday, 07 April, 2012, 12:00am

Heightened volatility in freight rates is set to continue over the next few years as the global shipping industry absorbs new tonnage and cargo demand remains uncertain, a senior analyst at Goldman Sachs said.

Tom Kim, a global head of transport research, said the shipping industry was 'in a downturn that would last some time'.

Kim said the problems of low demand growth and overcapacity would be especially felt by owners of tankers and dry bulk ships.

In the long term, the growth in global tanker demand was forecast at 2.3 per cent a year, he said. As a result, it would take six years for the large number of tanker orders to be absorbed. Similarly, demand for dry bulk ships carrying cargoes such as iron ore, coal, grain and metals was estimated at 3.7 per cent a year.

But with 2,419 dry bulk ships on order totalling 200 million deadweight tonnes and equivalent to more than 30 per cent of the existing fleet, Kim said it would take almost five years to absorb the new vessels.

Kim also said there would be 27 per cent growth in the global container fleet, while annual boxship demand would grow 9.9 per cent as national economies and consumer sales rebounded. But the days of 10 per cent demand growth in container trades was over.

He said the increasing shift in outsourcing from the United States to foreign countries, which helped drive the expansion in container trades as components and finished products were transported around the world, had ended.

Kim said China was also losing market share in textile manufacturing as production moved to India, Bangladesh and Vietnam.

Foreign shipowners would also be hurt as Chinese shipowners transported more cargo on their ships. China's imports and exports account for 35 per cent of global cargo volumes, but its shipowners own just 5 per cent of the global merchant fleet.

Kim said that for China, it was 'strategically important to carry its own cargo' and it 'wants to control the shipping of oil long-term'. He believes China has a similar 'strategic objective' to control the transport of dry bulk cargoes, especially coal.

'China is building ships to own and transport freight,' he said, adding that Japan did the same in the 1970s.

China has said it wants to carry 50 per cent of its oil imports on mainland-controlled ships by 2015.

Kim said the growing shift in trade between Asia, especially China, and emerging regions such as Latin America, Africa and the Middle East would see these regions emerge as long-term demand drivers.

Jon Windham, the head of Asian marine transport research at Barclays Capital, said: 'Dry bulk freight is entering year two of what will be a five to seven-year downturn, driven ultimately by excess global shipyard capacity.'

Windham said growing trade between China and South America from 2014, with longer voyage distances, would offset a contraction in the Asia-Europe container trade.

Martin Stopford, the head of research at Clarkson, the world's biggest shipbroker, said the shipping industry would see 'more regional diversity' in trade. He said trade volumes would grow between Asia, South America and Africa.

27%

The expected annual growth in the global container fleet

- But demand is forecast to be 2.3 per cent a year

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