Tuesday, January 11, 2011

Bulk And Container Freight Shippers Look Back On 2010 And Forward To 2011

BIMCO Releases its Annual State of the Industry Report
Shipping News Feature

WORLD WIDE - BIMCO have published their ‘Reflections 2011’, and as usual, it is worth anyone concerned with ocean freight in any capacity and particularly those interested in environmental and social matters, taking ten minutes or so to read through the annual ponderings. From ship building to piracy on the high seas it provides an insight from a group dedicated to the furtherance of ocean trade.

For those who don’t know BIMCO is an alliance of stakeholders in the shipping business, principally fleet owners, brokers and agents, with its members responsible for around 65% of world merchant shipping. The group uses its influence to try and press for universally agreed standards in the various maritime fields ranging across acceptable pollution levels to guidelines for vessel design.

This years report emphasises that all of the main shipping segments, be it dry bulkers, tankers or container ships are facing what BIMCO describe as a ‘wall’ of new ships to be delivered in 2011. This oversupply of capacity is likely to cause immense problems particularly for the dry bulk segment which is forecast to be hit hardest, as BIMCO predicts that the fleet will grow by as much as 14% in 2011. For tankers and containerships the fleet is forecast to grow not less than 8% and bulk rates are generally set on a long contract basis as opposed to the published tariffs of the box carriers who often work in agreement with each other, anti cartel regulations not applying to certain sectors.

BIMCO point out that supply growth is mainly biased toward the bigger ships, which is illustrated by the ratio: order book to active fleet. This ratio for Capesize vessels, the largest class of dry bulk ships, is 67%. For Very Large Crude Carriers (VLCC’s) the ratio is 38%, while large container ships that are able to carry more than 8,000 TEU have a ratio of 95%. In a normal year this ratio is around 20% for bulker and tanker fleets and around 30% for the container ship fleet. Despite healthy demand growth forecasts across the board, the main short and medium term challenge for the industry remains oversupply of tonnage.

There are copious notes in the document regarding the recent consecutive35 day fall of the Baltic Dry Index, due it concludes to the Chinese initiative to slow growth, and it relays predictions that total dry bulk demand is forecast to grow in 2011 by 7%, slowing down from the demand hike of 9% in 2010. BIMCO point out a new Capesize vessel was launched every second day during 2010 and this is expected to continue in 2011 and 2012 because the same owners who begged to cancel existing vessel new builds in 2009 found the confidence to reorder a year later as they saw the Index start to rise.

BIMCO anticipate it will be easier for the owners of smaller class dry bulkers to negotiate decent rates in the coming 12 months than those with outsize carriers due to the diversity of cargoes they are able to carry and the fact less new build tonnage is on order for these vessel types.

Lower oil consumption in Western markets saw oil tanker supply outstrip demand, particularly in the second half of 2010. When the seasonal increase in demand falls in the spring bulk oil transport might prove a difficult market.

The bright spot for some of the ocean freight carriers was the strength of return of the container trade meaning, after the most calamitous drop off of cargo ever seen in the sector, only 120 box vessels remained laid up a month away from the years end. This after creeks and islands all over the globe seemed to carry their own stock of idle container vessels in the earlier months.

Beware overconfidence however; container ship new builds were delayed throughout 2010 but many will be produced in 2011 which may also mean an oversupply of these vessels if trade drops off. Expect the slow steaming policies of the major lines to continue through the New Year and, assuming a return to the bad old days of rate wars can be avoided, crisis should be averted.

The biggest problem of all may lay with the shipyards which, having increased capacity to accommodate the high days and holidays of 2008 may witness them fighting each other for an ever diminishing market as the youngest global freight fleet in living memory means fewer replacement vessels being ordered. As BIMCO point out, a return to Government subsidies by politicians desperate to save their own countries jobs, distorting trade and damaging international relations.

Of course one of BIMCO’s founding principles is to promote and encourage common international standards to ensure a level playing field for all nations whilst ensuring there is a regulatory framework common to all. This noble goal of course comes up against the vested interests which plague such multi national committees and to many witnesses in the shipping and forwarding community it often appears that there is much talk and little enough action. As the introduction to the BIMCO report states, these are the same topics which reoccur year on year.

BIMCO cites the Australian example where the authorities have introduced unilateral legislation to cover potential environmental damage by insisting vessels docking carry excess insurance above and beyond that outlined by the IMO Convention on Limitation of Liability of Maritime Claims (LLMC). A fair point, but ,as all vessels must be thus insured, the clause does not weigh against any one nation and, after recent maritime incidents, one can hardly blame the Australian authorities fot their attitude. 

In the case of serious environmental concerns, such as the discharge of ballast water, again BIMCO complains about unilateral action by individual states however there is an argument to say that the tardiness and perceived ‘soft touch’ which accompanies the internationally negotiated agreements is the very thing which causes states to declare their own regulations for carrying vessels.

As BIMCO state, it is the reluctance of certain states to ratify and agree what are, after all, simply common sense proposals in some of the key maritime conventions that holds back international ocean freight trade in the eyes of the world.

The prickly problem of pirates continues unabated as we enter 2011 despite sterling work by EU Navfor and NATO’s Operation Ocean Shield and, as the situation has its roots in the economic and social conditions prevalent in poor countries like Somalia, and in political and religious controversy in places like the Niger Delta, no matter what international bodies decide it seems we shall be cursed with the scourge of pirates for some considerable time to come. In this case unilateral action will mean razor wire, safe rooms and more by individual owners and crews for the foreseeable future.