Thursday, December 25, 2008
Investing In Shipping At Low Tide
Thursday, 25 December 2008
Oil is plumbing new depths close to $32 a barrel, the global economy is on its knees and freight rates have been plummeting over the past few months as a result. On Christmas Eve, the shipping industry's benchmark Baltic Dry index posted its fifth consecutive drop, falling 1.3% to 774 points. Not a cheery market context for investors, but some are sniffing opportunity There is a good chance that the shipping market will rebound to a degree in 2009, as a dearth of new ships and increased consolidation in the sector tighten up capacity. Shipbuilders are canceling projects as demand slumps and financing runs dry, which could lead to a shortage if international trade and the world economy picks up next year. With an upswing in freight rates now expected, it might not be a bad idea to make a bullish call on shipping futures, known as forward freight agreements.
"It's a good time for entering into this kind of an asset class," said Anshuman Jaswal, a Bangalore-based analyst with research firm Celent. He told Forbes.com that industry surveys were estimating a pickup in freight rates in the first quarter of 2009, and that a recovery could be well underway after the middle of next year.
It is unlikely that there will be much joy for shipping bulls if the rest of the world economy does not perk up, with Asia a particularly important hotspot for the industry. How China fares will be crucial: the country's recent slowdown has given many economists a fright, and the effectiveness of the government's stimulus efforts will be under close inspection in the new year.
But if there is a recovery next year, shipping is sure to feel the benefit. Small shipping firms will struggle to survive, leaving more of the market to fewer rivals, while there will be fewer ships than expected to cope with demand.
Celent's Jaswal also said the shipping derivatives market was worth looking at because it was becoming more advanced and transparent, with more electronic trades involved and more financial players putting their money in.
As adapted from Forbes
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