The shipping industry is expected to sail in choppy waters this year due to the weakening world economy.
As the global economy inches closer towards recession, it will trigger a domino effect that will affect the industry.
As much of international trade is carried by seaborne transport, the industry will surely feel the pinch of slumping global consumption, production and trade volume.China, whose economic growth has driven global economic growth in the last decade, will also suffer a drop.
The International Monetary Fund (IMF) has projected that China’s GDP will grow at a slower pace of 8.5% next year from its earlier projection of 9.3%.
Consumers will also continue to tighten their spending and industries will cut down on production.
This will result in lower demand for goods, materials and components, and lessen the volume of global trade.
And several shipping trades will suffer more than most.
The woes of the bulk trade looks set to continue as demand for bulk items decline further.
The container trade will also suffer a sharp fall, partly also due to the impending entrance of huge new tonnage in the market.
These will cause freight rates, which have taken a severe beating of late, to spiral down further.
It will also drive the prices of vessels down and also affect the net worth of shipping companies, whose valuation will be lowered as the prices of their assets decline.
However, players with deep pockets and huge cash reserves will find plenty of opportunities to acquire vessels on the cheap and expand their fleets.
As a result of the credit crunch, banks are expected to tread more cautiously in the ship financing markets.
Less funds will be made available, especially to small shipping companies.
Shipping companies which manage to secure financing will have to pay higher rates for it.
As funding becomes scarce and expensive, shipping companies will defer from borrowing and delay their fleet expansion programme.
Shipyards will also see demand contraction as shipping firms defer their orders while distressed shipowners are expected to cancel orders.
In addition, the ‘funding freeze’ will also result in banks tightening the issuance of letters of credit and trade finance facilities to importers and exporters, which will adversely affect the volume of trade.
The issue of maritime security will also be keenly monitored as the spate of attacks on merchant ships in the Gulf of Aden continue.
Although the surveillance and naval patrols have increased in the strategic sealane that facilitates much of the world’s seaborne transportation of crude, the frequency and intensity of attacks have continued unabated.
A more drastic and effective action should be taken by the international community to eradicate the threat of piracy there.
Due to the rampant piracy cases, insurance underwriters are expected to increase their coverage for ships, crews and cargos.
Shipowners and shippers will have to take up extra coverage such as kidnap and ransom coverage and ‘war risk zone’ premiums in high risk areas such as the Gulf of Aden.
The focus on protecting the marine environment will also become more intense, due to the introduction of new environment conventions and growing public attention and concern on the issue.
Several countries which have introduced stringent laws to protect their maritime areas from pollution by the shipping industry will strictly enforce them, in the wake of several recent high profile incidents.
The imprisonment of the master and chief officer of the Hebei Spirit tanker that discharged oil off the coast of South Korea in December 2007 has provided a precedent that has worried many shipowners and seafarers.
Although no shipping trade is immune to the widespread slump in the demand for shipping services as a result of the global economic woes, the offshore shipping sector should continue to perform well as offshore oil and gas activities continue.
Demand for offshore services vessels, especially, will remain strong as oil majors continue their exploration and production activities in deepwater fields.
The tanker market should remain resilient as global demand for energy continues to grow, albeit at a modest pace.
Economic growth and demand for container shipping services in the Middle East and South Asia are expected to remain buoyant.
Shipping, being a demand-derived service, stands to rebound quickly once consumer confidence, industrial output and the global economy pick up steam (thestar.com.my).
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