International shipping association Bimco expects another year of die-hard competition, which now includes tankers.
»The shipping industry has its work cut out going forward in 2017 as the International Monetary Fund (IMF) forecast the lowest level of global GDP growth since 2009[ds_preview]. 2017 will see another year of die-hard competition, which now includes tankers. In 2016, the container shipping industry bit the bullet in terms of demolition and consolidation to help the market to recover. The dry bulk sector needs to copy that approach«. Bimco said in market outlook released today.
The global economy would not be lending shipping a hand: The longer global economic growth remains weak and lacks investment, the lower future growth potential for shipping. The full restoration of shipping markets would need several years of solid improvements to lift fleet utilisation rates. Sector overcapacity almost everywhere would need to be reduced, it was added. In the opinion of the analysts, government support for any industry – including shipping – which is feeling the heat of global competition might seem like a good thing. However, direct subsidies from governments in fact would have a negative impact on the global shipping industry as they affect free trade and undermine the level playing field for businesses.
In respect of a growth of GDP in 2017 shipping might not benefit of global developments, the report said, as global GDP growth is currently driven by service sectors and developing/emerging economies which result in a lower “GDP-to-trade multiplier”, and thus generate a lower level of shipping demand than what have been accustomed to in the past.
Worst year on record for dry bulk
»2016 has been a horrible year for the dry bulk shipping industry«, the organization stated. After the Baltic Dry Index (BDI) reached an all-time-low of 290 on 10 February, it improved steadily throughout the year to peak in mid-November at 1,261. This was driven by and benefitted mainly the capesize ships as they transported the key commodities of iron ore into China. As the year progressed, the situation eased as demand growth outstripped the impact of the net supply growth of the fleet.
Looking forward to 2017, Bimco said that it is vitally important that shipowners handle the supply side of the market »with great care«. A continuance of the alarmingly low level of demolition activity in the second half of 2016 simply would not deliver the needed zero fleet growth. »A significant number of new ships are on order for 2017 and 2018. The only way to neutralise the impact of this influx of new ships will be to scrap 30 million DWT annually.« The analysts expect the supply-side to grow by around 1.6% in 2017 (2.2% in 2016E).
»Reversal of fortune after a perfect year« for tanker
For the tanker market, it is suggested that in coming years the end-consumption of oil will need to catch up – and bloated oil stocks must be drawn on – before the market can be rebalanced. Global oil supply continued to grow in 2016 despite many disruptions to production in key exporting countries. The re-entry of Iran into international oil stood as the single-most disruptive event to an established oil market and it had a knock-on effect into the tanker market. »Whether the changes to trade patterns end up benefitting the tanker market remains to be seen and depends on the West African exporters’ ability to defend their market shares in Asia, particularly in India.« Tanker demand growth in 2017 is expected to come predominantly from the greater Asian region led by China and India.Bimco foresees the crude oil tanker segment to see a net fleet growth of around 3% in 2017 (6.0% in 2016E): »We estimate the supply side growth rate of the oil product tanker fleet to be around 2.5% (6.1% in 2016E). We foresee demolition of tanker capacity to reach a five-year high, but not enough to prevent the onset of a loss-making freight market.«
Market balance improved in container fleet
As a positive result of 2016, Bimco names non-operational tools having been put into action – limiting new orders, scrapping and consolidation – after many operational tools have been successfully applied in the market before, like slow-steaming and idling. »2016 stands out in terms of consolidation, both in the form of outright mergers but also in the newer and larger alliances being forged to cut cost. We also saw the unprecedented event of a government-sponsored shipowner filing for court protection.« Additionally, the very low number of newbuilding orders was backed up by an all-time high of demolition capacity reducing the harmful effects of new ships being delivered. According to the report, Panamax ships went out of fashion, resulting in further value erosion of the ship size that turned out to be the one which was squeezed out between the feeders and the very large ships. »Generally, the container shipping industry has found it difficult to adapt to the new normal where demand grows by a multiple of global GDP growth of one or even below, unlike the multiplier of two or more experienced year on year in the past«, it was added. Nevertheless, market conditions ended up improving in 2016 as fleet growth was lower than demand growth, the first time since 2010. As a result, Bimco expects the container shipping segment to see a net fleet growth of around 3.1% in 2017 (1.1% in 2016E). »If the multiplier gets back to one, and the IMF forecast of 3.4% becomes reality, the market will neither improve or worsen in 2017.«
