Uncertain outlook for shipping industry this year — Maybulk; A foggy outlook for container shipping, but a brighter tomorrow still likely

Uncertain outlook for shipping industry this year — Maybulk
05/04/2019 https://www.hellenicshippingnews.com/uncertain-outlook-for-shipping-indu...

The shipping industry outlook for 2019 and beyond remains uncertain after experiencing a relatively buoyant climate last year, thanks to the improvement in the dry bulk market driven by better freight rates across all shipping segments.

The dry bulk shipping demand is projected to grow by 2.5 percent in 2019, mainly driven by agricultural products and minor bulk commodities, whereas the global dry bulk fleet is projected to grow at 2.8 percent this year.

Malaysian Bulk Carriers Bhd (Maybulk) chairman Datuk Ahmad Sufian@Qurnain Abdul Rashid said the dry bulk market had improved last year as freight rates were better than in 2017, and significantly above the historical low levels in 2015 and 2016.

“This was attributed to an overall improvement in seaborne trades of dry bulk commodities, while supply fundamentals of dry bulk shipping remained reasonably healthy,” he said in the company’s annual report released today.

He attributed the growth in the dry bulk segment to the commodity demands particularly from China whilst a limited fleet supply growth provided the main platform for freight rate improvement across all the dry bulk shipping segments.

However, the market also experienced significant volatilities, with the Baltic Dry Index (BDI) fluctuating from a low of 948 in April to a high of 1,774 in July, followed by a decline in the fourth quarter and closing the year at 1,271.

Ahmad Sufian, however, is cautious on the ongoing global trade tension and the increasingly bearish commodity demand sentiments may affect growth of global seaborne trade rate.

“This, coupled with potential trade disruptions of dry bulk commodities such as coal, iron ore and grains, pose demand-side risks and may result in higher freight volatilities,” he added.

Going forward, Maybulk said that the mining incident in Brazil would cause a significant disruption in the dry bulk market and compounded the fall in the dry bulk freight rates that started in the fourth quarter of 2018.

“Concerns of weakening commodity demand in China and global trade uncertainties may impact growth.

“But, there is increasing expectation that ship demolition may increase as some shipowners may be inclined to scrap vessels instead of incurring additional costs for special surveys, installation of ballast water treatment systems and scrubbers to meet the International Maritime Organisation (IMO) 2020 sulphur regulations,” it explained.
Source: Bernama

A foggy outlook for container shipping, but a brighter tomorrow still likely
05/04/2019 https://www.hellenicshippingnews.com/a-foggy-outlook-for-container-shipp...

The container shipping industry is facing an exceptionally high level of uncertainty, ranging from the extra cost associated with IMO 2020 and how much carriers will recover from shippers, to the possibility of a trade recession and unknown future engagement by shipowners in large vessel building programmes, according to the recently published Container Forecaster from global shipping consultancy Drewry.

“The degree of uncertainty is probably the highest it has been in a decade,” said Simon Heaney, senior manager, container research at Drewry and editor of the Container Forecaster. “There are a lot of headwinds facing the industry right now with IMO 2020 at the forefront, but there is also a danger that those fears become over-stated and that commentators unnecessarily talk down the market when the truth is that it is moving in a positive direction. The industry is resilient and has shown that it can adapt quickly at times of stress, and we expect it to come out the other side in a stronger position.”

Every region is expected to see container port handling growth in each and every year of the five-year forecast horizon of the Container Forecaster, albeit at a slightly slower pace than Drewry was previously anticipating. Moreover, supply growth is expected to be below that of demand through 2023, which will assist the industry’s ongoing effort to rebalance an over-supplied market.

Drewry anticipates that the industry will be close to equilibrium by 2023 with its Global Supply-Demand index reaching a reading of 97.1 (100 representing perfect harmony).

The latest report explores the potential ramifications of the new IMO low-sulphur fuel regulations from 2020 on supply and demand, freight rates, liner profitability and the consolidation trend.

“Our analysis makes it very clear that it is essential that carriers increase their fuel recovery ratio, or else there will be serious consequences,” said Heaney. “What gives us confidence of a better tomorrow is that despite weaker supply-demand fundamentals, carriers last year managed to secure marginally higher rates, proving themselves capable of exerting a greater degree of pricing discipline. We expect IMO 2020 to raise the industry’s fuel bill by around 50% in 2020, which will certainly sharpen minds and serve to keep carriers on track.”

Drewry expects strong resistance from BCOs to new BAF formula, but we think that carriers will be more successful than in the past due to the wider market acceptance of burden sharing and the fact that lines started discussing mechanisms early with shippers, giving them time to iron out any teething pains.

To cover more than one outcome, our freight rate forecast for 2020 includes two scenarios: the Base Case assumes that carriers manage to pass on 75% of the cost difference between the cheaper HSFO and dearer LSFO; while the Low Case scenario anticipates a 50% recovery, in line with recent trend. According to Drewry’s calculations, securing the higher rate of fuel recovery would lead to a profitable industry in 2020, whereas maintaining the status quo would result in losses that could trigger more consolidation in the market.

“Most shippers accept that they will have to pay more but they rightly expect any increase to be justified with a credible and trusted mechanism – in other words the ball is very much in the carriers’ court,” said Heaney.
Source: Drewry