Orderbook still a confidence buster

Republished by kind permission of: A&A Thorpe, 131a Furtherwick Canvey Island, Essex SS8 7AT Tel: +44 (0) 1268 511300 Fax: +44 (0) 1268 510467 shipaat@aol.com

A resurgence in broker optimism, sparkling economic figures from China and a modest easing in the availability of finance may all give good reason for shipping folk to be more cheerful. But the massive newbuilding glut continues to overshadow shipping’s main markets.
   

The outlook is made all the more uncertain because no-one really knows the true scale of the problem. Owners see no reason to report newbuilding delays or cancellations unless they are bound to, by corporate governance procedure, and shipyards certainly don’t want to talk about their crumbling orderbooks, for obvious reasons. The result is that even the industry’s best statistics – from usually accurate sources – do not reflect the true picture and no-one really knows what the margin of error may be.
   

Nevertheless, London brokers report a significant upturn in sale and purchase activity. Deals are getting done, they say, and finance seems to be more readily available. Meanwhile China has confounded analysts yet again this week, reporting recession-busting double-digit growth of 10.7% for the fourth quarter of 2009. Overall, the Chinese economy expanded by 8.7% through 2009, despite the global picture undergoing the sharpest and deepest downturn for decades. 
   

China’s economy had slowed to 6.1% in the first quarter of the year, but gained ground to 7.9% in the second three months, and 8.9% in the third quarter. Now, analysts will be waiting to see whether this solid growth trend will be maintained in the first half of 2010.
  

Leading liner executives are talking, admittedly guardedly, in more optimistic terms. They are well aware, of course, that there is far too much tonnage in operation today and much more to come, but Eivind Kolding, for example, head of Maersk Line, the world’s largest liner company, was reported recently saying that his company expects exports out of Asia to grow between 3% and 8% this year. The first rebound in trade statistics came in November, he said, when year-on-year figures were positive again for the first time in many months. 
   

The company expects a very challenging year ahead, however, and Kolding anticipates that a few more vessels in the fleet will head for lay-up. Roughly half of Maersk’s 460-strong fleet is chartered and independent owners should expect more Maersk re-deliveries in the months ahead. Meanwhile, the carrier has implemented “super slow steaming” across a range of its services.
   

Having conducted speed reduction experiments of its own, Maersk liaised with engine builders MAN and Sulzer, and its insurers, and is now running many of its vessels at just 10% engine load, giving speeds typically of 12-14 knots. This strategy yields a number of benefits besides the obvious one of cutting fuel consumption. Emissions are radically reduced and, of course, the capacity of the fleet as a whole is constrained, enabling more ships to be kept in operation. 
   

This week, shipping accountant and consultant Moore Stephens has published findings from its latest confidence survey. Although respondents’ average confidence level in November stood at the same level, 5.7, as in August, there was widespread concern over the scale of the orderbook. Many see the impending tonnage glut as a critical constraint on raising freight rates which, in some sectors, is absolutely vital for many companies’ survival. Some suggested that banks should stop funding new projects and shipyards should agree to more delivery delays. Others thought that this was already happening.
   

The firm’s shipping partner Richard Greiner said that confidence is still somewhat fragile, which is not surprising considering that the world economy does not seem likely to be able to sustain a significantly larger world fleet. “Scrapping and redeployment will take care of some of the over-supply, but we will doubtless see less welcome forms of contraction,” he warned ominously, “and more newbuilding cancellations and delays.”