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The Shipping Industry
Credit Analysis & Research Limited, Sep 2010, Pages: 142
The Shipping Industry – Sailing through Turbulent Waters
The Shipping industry being highly co-related to the developments in world trade, therefore, any adversities in the global economic growth adversely affects the prospects of global shipping fraternity thereby explaining the cyclic nature of the shipping industry. With the world economy registering y-o-y GDP de-growth of 2.3% during CY09, the sea-borne trade almost came to a standstill during H1CY09. The top global merchandise importing nations i.e. U.S., China and Germany reported y-o-y de-growth in imports ultimately resulting in subdued export performance by the global leading merchandise exporting nations such as China and Germany.
During CY09, the Petroleum, Oil & Lubricants (POL) demand remained subdued across the globe with the global oil demand averaging 85 mb/d recording y-o-y de-growth of 1.4%. Notably, the OECD nations reported sharp decline in oil demand while the demand in the non-OECD nations remained strong comparatively owing to the prospects of faster economic recovery as compared to the developed nations in the OECD. Corresponding to the declining demand, the supplies remained restrained with OPEC oil supplies recording y-o-y de-growth of 6.2% partly offset by marginal increase in supplies from the non-OPEC nations at y-o-y growth of 1.6%. With vessel deliveries in this segment remaining steady, the freight rates of wet bulk vessels, say, VLCC declined from US$30,000-35,000/ day during Q1CY09 to US$15,000-20,000/ day during Q4CY09. The decline in freight rates and increase in vessel operating expenses induced the shipowners to scrap vessels. During CY09, the vessel scrapping volume aggregated 4.3 mn GT, recording a sharp y-o-y increase of 104.7%.
The demand for dry bulk vessels being derived from the demand of commodities such as coal, iron-ore etc. across the globe remained affected owing to reduced requirement from end-user industries such as steel, power etc., compared on y-o-y basis. Correspondingly, the Baltic Dry Index (BDI) plummeted to historic low of 666 during December CY08. However, with China remaining the major importer of coal and iron-ore during CY09, the BDI stabilised at 1,500-2,000 level during H1CY09. During CY09, the world crude steel production declined to 1.21 mn tonnes recording y-o-y de-growth of 8.2%. With several long-term charters entered into by major iron-ore exploring companies such as Vale, Rio Tinto etc. during H2CY09, the BDI improved marginally hovering in the range of 2,500-3,000 level. The new-build orders in this vessel segment declined to 11 mn GT during CY09 registering y-o-y decline of 78% with scrapping during the year surging to 6.1 mn GT registering a sharp rise of 110.3%.
The trend of containerisation has been gaining increased acceptance globally thereby replacing break-bulk/dry bulk mode of transportation. The development of container ports with greater draught and equipped with advanced cargo handling facilities can primarily be attributed to the said growth. However during CY09, with the cargo volumes declining on the three major trading routes i.e. Asia – Europe, Asia – U.S. and U.S. – Europe on y-o-y basis, the freight rates for Containerships c.3,500 teu declined from US$26,130/ day during CY08 to US$6,000/ day during CY09. The decline in new-build orders in this vessel segment was also phenomenal with 0.5 mn GT of orders being contracted only across Containerships > 8,000 teu representing y-o-y decline of 95.6%. Similar to other vessel segments, the scrapping volume during CY09 aggregated 4.9 mn GT recording sharp y-o-y growths of 206.2%.
The Indian Shipping Industry too suffered set-back on account of the global downturn with the Indian shipowners faced with additional challenges such as: multiplicity of regulations, onerous tax regime, port congestion etc. The Government of India (GoI) through the Ministry of Shipping has initiated various projects such as National Maritime Development Programme (NMDP), National Highways Development Programme (NHDP) etc. for the development of port and other related infrastructure.
The authors expect growth in world GDP during CY10 to propel the growth in global sea-borne trading volumes. However owing to order backlogs with the global shipyards, constant flow of vessel deliveries and reduction in scrapping volumes since CY10, the authors expect the global shipping fleet to be in over-capacity during CY10-CY13.
The report elucidates facts about the Global Shipping Industry, supplemented by latest statistical data and comprehensive analysis. The report comprising five sections provides an in-depth view of the global shipping industry and market trends during CY09 with focus on future prospects of the global and the Indian shipping industry.
Section I: Outlook
- This section sub-divided into two broad heads illustrates the future prospects of the global as well as Indian shipping industry
- Estimates of growth in global sea-borne trade and world fleet size projections uptill CY12
- Estimates of over-capacities in global shipping during CY10-CY13 based on a combined mix of factors such as forecasts of world fleet size, sea-borne trade growth, scrapping etc.
- Second-hand vessel purchase v/s new-build vessel purchase: Cost-benefit analysis uptill CY13
- Outlook based on vessel segment i.e. wet bulk carriers, dry bulk carriers and containerships
- Growth prospects of the Indian shipping industry
Section II: Market Trends CY09
- Snapshot of global merchandise trade (imports & exports)
- Developments in Wet bulk, Dry bulk and Containership vessel segment focusing on pattern of trade flow of commodities (i.e. POL, Iron-ore, coal, grain etc.), new-build orders, vessel deliveries, scrapping volumes, asset prices & investments
- Wet bulk, Dry bulk and Containership volumes at major Indian ports
- Cost Analysis of players in the Indian shipping industry
Section III: Trend Analysis
- Analysing trends in global and Indian maritime trade based on study of world fleet size (vessel-wise and age), operating efficiency of world fleet, historic relationship between world economic growth and growth in global sea- borne trade
Section IV: Industry Basics
- Classification of ship type based on cargo carrying capabilities
- Comment on features inherent to the shipping industry such as Capital Intensive, Pricing Power, and Ways of Deployment etc.
- Overview of common shipping practices i.e. vessel flag, flag of convenience etc.
Section V: Review of Indian Shipping Companies
- In-depth study of the players in the Indian shipping industry i.e. Shipping Corporation of India (SCI), Great Eastern Shipping (GE Shipping), Mercator Lines Ltd. (MLL) with particular emphasis on their operational and financial performance (FY07- FY09), tonnage owned, fleet composition (by vessel-type and age), new-build vessel orders placed etc.
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