Ship finance expert Paul Slater is not at all optimistic about the shipping markets.
As shipowners and investors return from their vacations the recent turmoil in the world’s stock markets has raised issues that will seriously affect the shipping industry.
China, which unpredictably caused the shipping boom 10 years ago, has revealed that its economy and its financial structure are in deep trouble.
The new Chinese government, appointed in 2012, has exposed the difficulties of a communist administration managing an increasingly capitalist economy in the global markets. This while it tries to root out the abject corruption that snowballed during the prior government’s tenure.
China will focus more on its domestic and regional markets over the next five years of the present government. Mineral and other raw material imports will decline along with the export of manufactured goods.
Optimistic analysts have suggested that the recently devalued Yuan will positively affect exports, but the demand in the USA and Europe is not there and other regional currencies have also devalued.
The dry cargo markets will continue to suffer as the existing oversupply of ships will likely increase. The container markets will also be negatively affected as the huge number of new very large ships continues to deliver and existing large ships cascade down into the feeder markets.
Some major container companies have recently reported strong earnings but it is difficult to see how this can continue particularly if bunker prices rise again.
Ironically the products tanker sector has invested substantially in more fuel efficient ships, but with the sharply reduced price of bunkers this advantage has disappeared and well maintained older ships are now more profitable than the expensive new ones.
The crude markets improved with the sharp reduction in the price of crude oil, but demand has not improved and as re-routing stabilises along with the increase in Middle East refining capacity, the new ships will struggle while the older ones will be marginally profitable.
Overall the Chinese problems are not the sole issue. The global economy is in deep trouble and those shipping companies that work more closely with cargo interests will survive. Those that are operating in the spot markets and chasing raising ship values will fail.
Finally the great unknown is the future of the Asian shipbuilding industry. The major Korean and many of the Chinese yards have recorded huge losses. There are plenty of ships of all types in existence and with the youngest fleet in modern history the shipbuilding industry needs to sharply reduce its capacity not its prices.