Hard times for maritime sector – Business Times
April 8, 2011
Hard times for maritime sector
Freight rates at low with oversupply while fuel prices rise
Business Times – 08 Apr 2011
(SINGAPORE) Rising fuel prices, tumbling freight rates, piracy and now radiation fears will make this year one of the most difficult in decades for the maritime industry, forcing some shippers out of business.
Despite unprecedented global demand for oil and commodities, freight rates for tankers and dry bulk carriers have remained near multi-year lows as a flood of new vessels worsens a lingering oversupply problem.
Dozens of top executives and government officials will converge in Singapore on Monday for the city-state’s annual Maritime Week to discuss the long list of challenges for the freight industry and how to survive them.
‘If you take a snapshot of the market, demand is reasonable and back up to pre-crisis levels but the oversupply is keeping a lid on the market,’ said Andrew Lockie, director of International Shipcare, which manages vessels left idle by owners because of poor economic conditions.
‘The writing is on the wall for a depressed market for this year, next year and probably extending into 2013.’
South Korea’s second biggest dry bulk shipping firm, Korea Line, has been the most high-profile casualty so far this year, filing for bankruptcy protection in January after struggling to stay afloat amid a sharp drop in freight rates. Others were poised to follow. US-based container shipper Horizon Lines warned last month it could also be forced to seek bankruptcy protection.
The Baltic Exchange’s Dry Index, the benchmark for seaborne trade and a key indicator of global economic activity, has struggled to recover from a two-year low of 1,043 points reached in February. The index closed at 1,430 on Wednesday, near a one-month low and far below the 4,200-level reached less than a year ago.
The oversupply problem stems from the industry’s buying spree before the economic downturn two years ago, with those vessels only now coming to the market.
In the dry bulk market, the global fleet responsible for shipping iron ore, coal, grains and other commodities is expected to grow between 11 and 13 per cent this year to top a record 600 million deadweight tonnes. That would far outpace demand growth of between 5 and 8 per cent, analysts said.
One bright spot though, could be charter rates for panamaxes, which may jump about 55 per cent as Japan buys more raw materials to generate power and rebuild after its worst-ever earthquake.
Forward freight agreements will rise to US$22,000 a day for the fourth quarter, from US$14,175 yesterday, said Philippe van den Abeele, the managing director of Castalia Fund Management (UK) Ltd, a London-based adviser to a hedge fund trading shipping derivatives. Importers will favour the vessels over ships with extra capacity because they can call at more ports, Mr Van den Abeele said.
As a comparison, profit on capesizes, which can carry about twice as much cargo, slumped 56 per cent to US$8,894 a day this year, Baltic Exchange data show. Supertanker earnings slumped 77 per cent this year and the cost of putting boxes on container ships rose 29 per cent.
In addition, bunker fuel costs for shipowners have surged this year in tandem with multi-year high oil prices. Bunker fuel prices, which can make up anywhere from 10 to 70 per cent of operating costs depending on the type of vessel, climbed to 21/2-year highs on Wednesday.
Shipping companies have adjusted their contracts with clients and introduced additional fuel surcharges.
The industry also faces intensifying piracy attacks in the Gulf of Aden and Indian Ocean, and the potential threat of radiation exposure from Japan’s quake-crippled Fukushima nuclear complex.
‘This is something we monitory very closely,’ said Lam Yi Young, chief executive of the Maritime and Port Authority of Singapore, about the nuclear crisis in Japan. – Reuters, Bloomberg