Excess supply to keep global shipping in choppy waters

Overcapacity will continue to dog the shipping industry despite an expected turnaround in the world economy, the world's largest ship owners' association said.

The spectre of overcapacity will continue to dog the global shipping industry this year, despite an expected turnaround in the world economy, the world's largest ship owners' association Bimco said.

In its Reflections 2013, published last week, Bimco noted: "While there is some optimism that the worst of the global downturn is now behind us, a perceptive economic analysis outlines the challenges facing the main shipping sectors on account of the excessive supply of ships."

The upside for consumers could be cheaper goods as overcapacity continues to mean cheaper shipping rates. The cost of fuel in Japan will be lower because it costs less to ship oil from the Arabian Gulf to Asia; the cost of televisions will be cheaper because the cost of moving containers full of electronic components from Asia to Europe will drop.

While it is good news that the world economy is recovering, the over-tonnage is seriously bad news for the shipping companies responsible for moving more than 90 per cent of the world's trade.

"Shipping is a key facilitator of world trade and the performance of this essential sector is completely interdependent with those of the global economy," said the analysis.

"Against the background of a world economy struggling out of the financial crisis, positive global growth of both GDP at 3.6 per cent and world trade at 4.5 per cent encourages Bimco to suggest that 2013 will be the turning point in macroeconomic terms.But while such a scenario might normally offer comfort to ship operators, all the main shipping sectors continue to labour under a substantial overhang of tonnage of ships ordered in more optimistic times."

Last week, the Baltic Dry Index, the global measure of commodity shipping costs, rose for the first time since November, lifted by a temporary rise in the export of iron ore and coal from Australia.

The index climbed 0.3 per cent to 700, the first gain since November 28. The index last year averaged the lowest since 1986 because of an oversupply of ships and slowing global demand for commodities.

Despite the rise, the rates ships can earn per day hauling cargo continues below operating expenses, minus fuel, according to Moore Stephens, an accounting and advising company in shipping.

Yet the new orders for ships is continuing unabated. In the final week of last year the shipbuilding industry recorded 23 new orders, according to Fearnleys Weekly report.

BP Shipping of the United Kingdom has placed an order for 21 new tankers at STX Jinhae Shipyard for a reported total price of US$110 million (Dh404m). Delivery of the vessels will start in 2015.

STX has also secured a contract to build two more liquid petroleum gas (LPG) carriers from Ultranav of Chile with delivery planned for 2014.

"Despite slow steaming, lay-ups and the recycling of redundant vessels, it is suggested that any balance between supply and demand will not be swiftly achieved. And while highly efficient eco-ships might appear attractive, they too add to the totality of a remarkably young world fleet," concluded Bimco.