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Thursday, July 09, 2009

Newbuilding glut is the big worry

Thursday, 09 July 2009

Shipowners traditionally keep their thoughts on business matters very much to themselves - and for good reason. Shipping is a highly competitive, as well as profoundly cyclical, industry. Success, or even survival, depends on making the right decisions at the right time. And that means reading the market correctly.
It is, though, possible to get some insight. One way is through anonymous surveys. The latest confidence survey from shipping accountant and consultancy firm Moore Stephens shows a negligible increase in confidence in shipping and continuing concern over the glut of new vessels due for delivery.
The average confidence level expressed by respondents, on a scale of 1 to 10, was 5.5, compared with 5.4 in the previous survey in February this year.
Owners, managers and charterers all exhibited a small increase in confidence in connection with the shipping markets in which they operate. Confidence among brokers, however, was marginally down, and the lowest among all categories of respondent. Geographically, the highest confidence level was recorded by respondents in Asia.
Comments generally reflected the downturn in global markets. One respondent noted: 'The volume of work is the same but the payments are late, and that is what is killing us.' But there was also some optimism, with another respondent commenting: 'The shipping market will be stable until September, and then should slowly improve.'
However, that mass of new tonnage still to come out of the yards continues to scare most owners. One said: 'We are doomed by the over-supply of ships.' Less dramatically, another said: 'The glut in the newbuilding order book exerts strong downward pressure on confidence levels.'
Moore Stephens partner Richard Greiner said: 'The high level of concern expressed by respondents about the effect that the glut of newbuildings may have on the market is not a great surprise. In a way, shipping is paying for the success it enjoyed in the boom years before the markets tumbled, on the basis of which it went on a shopping spree.
'It is to be hoped that a continuing return of confidence and a resurgence in trade will be instrumental in dealing with a significant part of the glut, while the ingenuity and resources of shipping companies and their financiers will undoubtedly be needed to help ameliorate some of the other more pernicious consequences of an oversupply of tonnage.'
A new report from UK-based consultants Drewry has confirmed over-supply of newbuildings in most sectors of the industry. The situation is not quite what it seems, and Drewry believes the reported order schedule is unrealistically high and expects to see a significant number of cancellations.
Nevertheless, the picture is bleak - and worst in the dry bulk sector. Drewry estimates that at the beginning of this year there were 6,864 bulk carriers in service, totalling 422 million deadweight tonnes (dwt). Over the next five years, Drewry forecasts demand could grow by 50 million dwt. There would also be some degree of scrapping of old vessels, possibly as much as 60 million dwt.
But Drewry says the effect of trade growth is likely to only make a small dent on the 300 million dwt currently scheduled to be delivered between now and the end of 2013.
So while confidence may be increasing among some owners, especially those who had strategies in place to weather a recession well beforehand, both the mood in the industry and the reality in the shipyards suggest it is going to be a long hard slog back to the good times.

Source: Business Times Singapore