Tuesday, March 10, 2009
Lines search for silver lining as storm clouds gather overhead
Tuesday, 10 March 2009
Those operators who invest wisely now will gain when world trade rebounds Nazery Khalid, a Senior Fellow at the Maritime Institute of Malaysia, ponders the blow delivered by the global recession on the shipping industry but puts on a brave face in predicting its rebound. Amid the global financial markets meltdown and the ensuing spectre of worldwide recession, even the most ardent promoter of the shipping industry would be hard-pressed to say any-thing positive about its outlook in the near future. The industry has taken one blow after another since the global economic order was turned on its head as a result of the financial markets crisis in the US.
There are bad signs all around leading to gloomy forecasts in the shipping industry. For starters, consumer confidence worldwide has taken a dive. As consumer spending contracts, unemployment soars and the credit squeeze tightens, people are not expected to spend beyond what is necessary. Businesses have suffered while production and manufacturing activities have been scaled back as a result. This has negative repercussion for world trade, and is bad for shipping, which carries an estimated 90 percent of world trade by volume.
If recent projections and figures released are any indication, the shipping industry is in for a hard time in 2009.
The World Bank has scaled back its growth forecast of the global economy for 2009 from 2.5 percent to a mere 0.9 percent; Japan logged its largest trade deficit ever in January as exports nearly halved due to a sharp slowdown; China faces its steepest economic slowdown in a decade with growth expected to be 7.5 percent in 2009 compared to 9.4 percent in 2008; and in the US, retail sales have taken a nose-dive, credit is tightening and unemployment is fast reaching double-digit percentage, despite the introduction of stimulus packages.
As the growth of the world's economic powerhouses come to a screeching halt, it would take a hard-headed contrarian to project anything positive for the shipping industry.
Already, shipping lines have cancelled unprofitable routes, laid up ships, released crew members and even cancelled orders placed for new vessels with shipyards, forsaking their deposits. The Baltic Dry Index has taken severe hits; freight rates are in a free-fall; prices of vessels - newbuildings and second-hand - have softened; and shipping services are being scaled back.
By the look of it, things will get worse for the shipping industry before they can get better.
With demand for shipping services heading south and financing becomes less available for shipping lines to expand their fleet, what prospects are there for them to stay afloat amid the choppy waters of global trade?
However, amid the doom and gloom, it is crucial to be reminded that the bulk of the world's goods will continue to be transported by sea and shipping will continue to be the most economical means of transport of goods. Ships have long lives and shipping is a slow-burning play, a long-term business and a highly cyclical market. As such, a long-term perspective is needed to obtain an objective view of the business potential and investment opportunities inherent in the industry.
No doubt, the world economy is in for a prolonged gloomy weather, but the sun will shine again after the passing of the dark clouds. Consumers will continue to demand for goods and commodities, producers will demand raw materials and components, and banks will need to lend to grow.
When confidence is back in the market and a modicum of semblance is restored to the beleaguered global economy, one can expect demand for shipping services to pick up again.
Shipping, being a facilitator of trade, is quick to get hammered by a slump in global trade, but it will just as quickly rebound from the recovery of the world economy.
Those who take advantage of the current situation to re-orientate their business, improve their efficiency, invest wisely, plan strategically and utilise their resources optimally will stand to reap the rewards when global trade and demand for shipping services rebound.
Source: CargonewsAsia
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