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Emerging markets hold best hopes for shipping recovery

China may be slowing, but other emerging markets offer some bright spots for shipping’s future.
Emerging markets hold best hopes for shipping recovery

“These are tough times for shipping and the world has changed,” said Clarksons Platou Asia senior analyst John d’Ancona. “Shipping is having to react to those changes.” While some sectors were still making money, others were suffering the most severe conditions ever experienced, Mr d’Ancona said.  “We have weak macroeconomic sentiment and slower growth, but this is a cyclical market and cycles do not affect all sectors at the same time.” While sectors such as liquefied natural gas were in a “very bad” position, suffering from oversupply, even that was likely to change as some new, bigger projects came online. Liquefied petroleum gas, on the other hand, had been doing well recently, Mr d’Ancona said. Likewise, while containers and dry bulk were down, some sectors of the tanker business were thriving.

And things may not be as bad as they look.

“Shipping has obviously suffered from huge amounts of ships being delivered,” Mr d’Ancona said. “We’ve had a huge delivery of ships in the last five years; now we are feeling the effect of such a massive build. But shipyard capacity has come down; there are not as many yards as there were in 2010 still delivering ships.” While there were still many vessels contracted to be delivered, slippage would occur and there was a slowdown in the number of ships being ordered. “We’ve also seen the reaction of shipowners to these new markets,” Mr d’Ancona said. “When you have so many ships you really need to start scrapping the old ones. We’re seeing a huge amount of activity at the moment, particularly in the dry bulk sector, which is needed. “The cure for a bad market is a bad market. That’s what gets the reaction to make the changes that are required for the future.”

Negative sentiment

However, Mr d’Ancona warned against taking things too far. While China, the big driver of growth for the last decade, would not come back to its previous levels of economic growth, it was maturing to a more sustainable mature market. Negative sentiment in the commodities sector needed to be put in perspective, Mr d’Ancona said.

“The world used to produce enough commodities to ship to the developed world,” he said. “Then after 2002 China came along and there wasn’t enough to go around, so there was a massive expansion of production. But it went too far. But rising prices started to choke off demand and slowed down many economies.” Now, however, buyers had the advantage for the first time in 10 years and were pushing prices down, but this was not sustainable. “This explains why the oil price is so low,” Mr d’Ancona said. “These are trading plays. Why buy today when you can buy tomorrow at a lower price?” On the positive side, this meant that many commodities were cheaper now and this would help nations that were starting their growth phase. “If you’re a country like India, now is the best time to buy steel and invest in your infrastructure,” Mr d’Ancona said. “The world is still growing, just more slowly. Seaborne trade is forecast to reach 11bn tonnes just this year. That is a huge amount of trade, but there is more to go.” For many years the shipping industry was used to a more normal growth pattern, until China came along and things expanded, Mr d’Ancona said.

“But it’s not just China. There is also new growth all around the world. Africa, Asia and even Latin America all want to grow jus the same way that the US, Europe, Japan, Korea, Taiwan and China did.” While economic growth forecasts are lower than they were, they were not as bleak as they were made out to be. “We have to adjust and get used to a slightly different world,” he said. The south-south trade between Asia, Africa and South America is increasing and trading hubs would change along with routes. “The main hub for oil refineries is now from the Middle East to China, not Europe,” Mr d’Ancona said. “Steel production helps countries to grow and build infrastructure, but all the new steel production is in China. Chinese steel exports have been going all around the world.” The Suez Canal sat as a bridge on this new Silk Road, Mr D’Ancona said. “We’re seeing oil go to refineries in India and back through to Europe. Grain trades are going from the Black Sea to feed the growing populations in Southeast Asia and the Middle East.” Hence, while China should not be forgotten or relied on forever, the industry needed to widen its view, he said. “Shipping is changing, but it needs to change in a different way to meet the changing environment,” Mr d’Ancona said. “It is not the time to invest in a lot of new ships. But we are where we need to scrap ships to find that balance, because the world is still growing. We need to think what is required for the future and not just go out and order six ships because someone else ordered six ships.”

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