Wednesday, January 4, 2012

What Lies Ahead for Bulk and Container Freight Rates in 2012?

Last Year Ended on a Low Note - But Can We Expect Better to Come?
Shipping News Feature

WORLDWIDE – The problem of oversupply in the shipping industry has become a familiar situation, and, with more new build container and bulk cargo vessels due off the blocks in the coming months, things are unlikely to get easier for the worlds freight carriers during 2012. So what do we face in the next twelve months? By all accounts it looks as if the situation, whilst currently disappointing, could get much worse for certain sectors with some companies more exposed than others.

Firstly the bright spots, if your main business is shipping LNG, or liquefied natural gas to give it its proper name, or foodstuffs in bulk or otherwise, then you can face the future without the nagging dread that seems to be facing just about everybody else at this time. Continuing doubts about the euro in a market where US dollars are the currency of choice are leaving the real experts floundering to see a bright side.

LNG tanker rates are rising as demand for a cleaner fuel increases particularly after the Japanese Fukushima Daiichi catastrophe which grounded the nuclear industry across that country. Some analysts are predicting rates for LNG fleets will jump up to 100% over 2011 as shortages of suitable vessels push prices up whilst other tanker rates plummet. The Baltic Dry Index finished trading before Christmas at its lowest level since August after a rapid decline and oil tanker rates have fallen dramatically as demand fell, partly due to the taste for gas but also driven down by the retreat of oils percentage share of global energy supplies with predictions that this will be a continuing process as industrialised nations wean themselves off this particular fossil fuel and look for alternatives.

Whilst the shipyards of the Far East continue to produce the giant box carriers and tankers which were ordered in the peak years there is nowhere near the same number of orders for LNG carriers at the moment, the trade was viewed with some suspicion in previous years, particularly after a fall in consumption three years ago, but the fact that LNG represents the only big shipping game in town at the moment, backed up by many analysts predictions that the current new build orders will not cope with the predicted rise in consumption, make many see it as a safe bet for expansion.

A report last month from consultants Moore Stephens detailed how respondents to its survey were more confident than previously yet individual topics discussed do not seem to reflect this. Whilst many senior executives talked of increased investment the majority of them also expected the cost of finance to rise, only 23% expect dry bulk rates to go up, 31% felt container rates would fall (the worst return since 2009), tanker operators also appeared pessimistic with only those associated with vessel charters anticipating a rise in tariffs.

The survey concludes on an ominous note stating unequivocally that the returns currently available through the freight markets are generally not sufficient to offset operating costs and leave any prospect of a return on investment and with Moore Stephens shipping partner, Richard Greiner concluding:

“The loss of some good, well-run companies is the sad but inevitable result of the singular economic conditions currently prevailing throughout the world. But the loss of short-termist, inadequately funded companies will leave the industry in much better shape than it was before the indicators started to point in the wrong direction.”

The actions of many of the world’s container companies in the past few weeks as they huddle together against the cold economic gales suggest he may well be right. In a falling market survival of the fittest is, as always, the way of the world and those companies who have managed to either diversify sufficiently or chosen to back the right sector will have the best chance of seeing in the next decade.