Concluding his trilogy of articles looking at the markets, Paul Slater, chairman of First International, is none too optimistic.
The economics of most of the shipping industry continue to ebb away from any profitability, temporary or sustained.
The tanker sector is the only major one that seems to be maintaining operating profits in both crude and products despite the uncertainty of the crude oil price.
The substantial drop in the crude oil price last year has not however increased demand but adjusted some routes. The US allowing its crude to be exported has had little or no effect on shipping as the US oil is expensive and is of a type that has limited refining options.
China has reduced its consumption in line with its reduced manufacturing and its new five-year plan indicates no return to the recent levels in any of their commodity imports.
Efforts by OPEC to freeze production, and thereby stabilise the oil price has not been successful, and the return of Iran to the markets, with its own tanker fleet and a new orderbook, has so far failed to stabilise the crude oil markets.
The dry bulk markets remain grossly oversupplied with ships at this time when almost all the commodity markets and the principal producers are facing historic lack of demand. There can be no recovery in sight for dry bulk shipping whilst this continues and once again it is the Chinese demand that has collapsed.
Enormous losses are being faced by the equity and hedge funds, along with many banks, because of the reckless ordering of new dry bulk ships without any contractual employment for them or any clear idea what the ships would do apart from “trade in the spot markets”.
The commodity owners and their customers are profiting from the absurd rates that some owners are accepting for their ships and efforts need to be made to at least not accept rates below operating break-even.
Laying up a ship is cheaper than trading it at daily losses of several thousand dollars and with no recovery in sight the other alternative is to sell the ship.
The container sector is also in deep trouble as it continues its questionable focus on the projected economics of scale by ordering more giant ships that can only operate in a few deep-ocean ports, and have limited backhaul cargoes.
Currently a seven-digit teu figure of ships are laid-up and even some of the giants are ‘out of service’. Once again we have fleets built without regard for demand and now facing the effects of a global economic recession.
Shipping is a servant to world trade and given the enormous problems in the Middle East, the slowdown in China and the recessions in Europe and South America it needs to trim its own sails accordingly.
Well-established owners with strong financials will be able to secure time charters, the key contracts of the industry, with charterers who recognise the need for quality shipping.
Past shipping recessions have produced strong profitable shipping companies that provide the services that are essential to the charterer and recognise the variables that can occur in operating ships.
Simply looking at the possible variables in the ship’s values is a pure gamble that has caused most of today’s problems and more so because it has been done publicly.