Gulf shipping sector to pick up speed

Fuel costs are having an impact on the competitiveness in shipping. (AP)

Having weathered the perfect storm that ensued the global economic meltdown, the shipping industry in the Gulf is more optimistic about the future than its global counterparts.

Joel Rodricks, Director, Sales and Marketing, at Maersk Kanoo, Dubai, said: "The UAE and GCC have been more stable markets and despite the global recession we did not see such a huge impact in this market.

"The real estate and construction market has been most affected, but trading activity albeit slow, has continued to be healthy. A number of industrial projects are on track for completion and we shall see healthy growth of export volumes in the petrochemical and aluminium sector.

"This will no doubt be good for the shipping volumes from the region so we are forecasting increased business in 2010.

"We have seen a recovery in volumes in the second half of 2009, which has been positive," said Rodricks. "Volumes in last months of the 2009 have been higher than what we witnessed in late 2008, which indicates that 2010 will start off much better than 2009.

"Rates have climbed up with shipping lines laying up vessels to reduce capacity and running cost. This has bought about a better balance in supply and demand and will help shipping lines cut losses. As trade volumes pick up lines will no doubt consider bringing some vessels out of lay up. The timing will be critical and will determine how the market reacts in the new year," he said.

Shankar Subramoniam, General Manager for UAE at Clarion Shipping, said: "The first two quarters are going to be tough with low movement.

"There is an expectation that during the fourth quarter things may move up. All this is based on the market intelligence. A great deal depends on the overall industry growth in the region. There will be some niché market around the Middle East performing better, which will attract vessels to the UAE."

"The major advantage the UAE has over other ports is the infrastructure and flexible clearing procedure," said Subramoniam. "There are lots of intermodal options available from the UAE, which attract many shipping companies to bring in material to the UAE compared to other GCC ports."

When asked on the advantages the UAE and the GCC have in terms of the shipping business next year, Subramoniam said: "The UAE ports have one of the best connectivity and economical land transport options that attract ships."

He said in today's difficult market and low freight rate regime, it was an attractive option for shipping lines to operate to and from the UAE.

"The UAE plays a major role as a transshipment hub for the Middle East and Asian destinations. There is better economic growth in India and China. Hence, the UAE can be a transshipment hub for these countries as vessel owners prefer the UAE as a transit point for efficiency and cost," he said.

According to Fazel A Fazelbhoy, CEO of Topaz Energy and Marine, Dubai, the Gulf is uniquely positioned in terms of its geographical importance to global trade.

"When the US and Europe start posting strong growth and consumer confidence increases, as is already happening in China, the GCC stands to benefit significantly from the upswing in vessel traffic," said Fazelbhoy.

"The well-developed port facilities in the region will also facilitate a swift recovery. The Offshore Support Vessel (OSV) sector is more closely tied to the exploration and production spend of international and national oil companies and with a projected oil price of over $70 per barrel, we are cautiously optimistic of the sector's prospects in 2010," he said.

He, however, said the global shipping industry as a whole had been under pressure during 2009 and would continue to feel the same during 2010.

"The general shipping industry is dependent on the global recovery and the shipment of goods, and as long as we are in a climate of less-than-stellar growth, the big bulker, tanker and container lines will have to get used to low rates and thin margins," said Fazelbhoy.

"However, the OSV segment of the industry that Topaz operates in, is the relative bright spot of shipping. The market is continuously growing as a result of the increasing importance of offshore oil and gas fields across the world with Brazil's Tupi field and Kazakhstan's Kashagan field as the prime examples," he said.

"The OSV sector has been affected by the crisis with reductions in day-rates and softening demand, although not nearly as significant as other shipping sectors. While concerns of oversupply in the short term remain, we believe there is still opportunity for progressive OSV-operators with modern, high-spec fleets with exposure in the right geographies," said Fazelbhoy.

Global trends

Caught in the global financial whirlwind, the shipping industry is finding it tough to wriggle its way out. The unexpected trough in global trade volumes in 2009 has had severe knocks on the global shipping industry, bringing a streak of unmitigated bad luck to this largest mode of global transportation and trade.

The double jeopardy is that recovery in shipping is not going to come out of its own. In view of the fact that as much as 80 to 90 per cent of the global trade is carried by sea, any signs of recovery in the seaborne trade or demand for shipping services is entwined with the pace and manner of the global economic recovery this year. That means until the global demand for liquid bulk, dry bulk, containerised shipment, and general cargo picks up, a number of ships are going to keep their anchors down in most parts of the world.

The shipping industry is going to be in rough waters in 2010. This is what the consensus seems to be. According to the United Nations Conference on Trade and Development's (Unctad) Review of Maritime Transport 2009: "Some challenging times lie ahead for the shipping industry and international seaborne trade. Forecasts for seaborne trade have been marked downwards, with dry bulk – the mainstay of the boom experienced over the past few years – projected to fall sharply.

"Experts at Fearnleys, a leading shipbroker, expect world seaborne trade to fall by 1.4 per cent in 2009, before turning around and growing at a slower rate of two per cent of 2010," it said.

Similar is the forecast by the International Chamber of Shipping, [the international trade association for merchant ship operators] and International Shipping Federation [international employers' organisation for ship operators].

According to their joint report titled 'Annual Review 2009': "Shipping is notoriously volatile, and its more experienced practitioners are familiar with the cyclical boom and bust nature of maritime freight rates.

"However, the contraction resulting from the general global downturn could well be exacerbated by the large number of new buildings due to come into service during the next few years, notwithstanding efforts by many shipowners to cancel or renegotiate contracts. Many of these ships were ordered at high prices at the top of the market."

Long-term outlook

"In the face of two-way pressure, there is likely to be a considerable increase in the number of older vessels sent for dismantling and recycling," the report said.

The report, however, also said: "Notwithstanding the current gloom and doom, the longer-term outlook for the [shipping] industry remains very good. The world's population continues to expand, and emerging economies will continue to increase their requirements for the goods and raw materials that shipping transports so safely and efficiently.

"In the longer term, the fact that shipping is the most fuel-efficient and carbon-friendly form of commercial transport should work in favour of an even greater proportion of world trade being carried by sea."

Michelle Byrne, Head of Shipping and Freight Transport, Business Monitor International (BMI), the global industry research and analysis firm based in London, said: "Shipping lines are continuing to try and combat overcapacity by laying up vessels and in some cases scrapping ships.

"We expect the threat of overcapacity to continue as large order books still plague the shipping lines despite firms deferring and cancelling vessels."

Analysts also point out that apart from the global downturn, there is another equally debilitating factor looming large over the shipping industry – the threat of piracy and high fuel cost.

The Unctad report said: "The current preoccupation with the financial crisis and global recession should not play down concerns over other challenges that affect maritime transport and seaborne trade. These include, for example, security at sea, which is being challenged by a surge in piracy incidents in key strategic transit points such as the Gulf of Aden."

According to London-based EA Gibson Shipbrokers, the tanker market encountered the recession a little later than other shipping markets. "The tonnage supply situation will continue to be a major headache in 2010 although any prolonged floating storage may provide considerable support to the tanker market. This year will be a challenging year even with the anticipated revival in oil demand," it said.


Reducing maritime emission a challenge

The challenge of reducing carbon emissions remains a critical issue for the shipping industry, according to a joint report by the International Chamber of Shipping [the international trade association for merchant ship operators] and International Shipping Federation [international employers' organisation for ship operators].

"The international community therefore needs to agree upon worldwide measures for shipping that will deliver genuine and tangible reductions in the consumption of fossil fuels, while being practical and feasible and having a minimal negative impact on global trade (about 90 per cent of which is transported by sea)," the report said.

The report said, it may well be possible for shipping to reduce the CO2 emitted per tonne of cargo carried one kilometre by perhaps 15 per cent to 20 per cent in the next five to15 years, through a combination of technological and operational developments, as well as new and bigger ships. However, it appears impossible to guarantee any absolute reduction in emissions by the shipping sector as a whole, due to the projected [longer term] growth in demand for shipping arising from the growing world population and, when it recovers, the expanding global economy.

Shipping companies have a very strong incentive to reduce their fuel consumption and thus bring down their CO2 emissions. Despite recent price reductions, bunker costs still represent a very significant proportion of a ship's operational expenses, which in the long term are expected to rise (not least as a result of the recent IMO agreement mandating use of low sulphur fuels).

Fuel costs are already having an impact on the competitiveness of certain trades, and in the current harsh economic conditions may even determine some companies' survival. For example, short sea and coastal shipping are often in direct competition with land transport modes, and regulators need to ensure that, as a result of efforts to reduce CO2 emissions by ships, there is not a modal shift to less carbon efficient forms of transport that would actually increase global CO2 emissions, the report said.

 

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