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Global economy: Today tackling unpleasant issues still remains important to bringing back optimism and spurring demand

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Global economy: Today tackling unpleasant issues still remains important to bringing back optimism and spurring demand
No doubt, nowadays the world needs daring and decisive political leadership, especially in the EU and the US, for confidence to find its way to the consumers. Developing nations stayed on the growth track despite the large Western economies slowing down imports as a result of hesitant private consumption. With a slowdown as well in exports some economies heavily relying on exports will have to stimulate focus even more on domestic consumption.

Consumers and governments are trying to save more and cut costs, which are sound actions by themselves but not really helping economic growth to kick in.
With a 4% World GDP growth in 2011 and the prospects of a similar level for 2012, shipping will continue to be impacted by significant oversupply of tonnage in all segments, but ship owners have traded in harsh market conditions before and there are of course remedies in the form of idling and recycling of tonnage to establish balance between supply and demand, a condition for improvements in freight rates.

When addressing the effects of the world economy on individual shipping market segments, it is first and foremost the container and tanker sectors that have taken the beating, whereas the dry bulk markets appear to have suffered less with considerable lower but acceptable rates by the end of the year.

The world is constantly turning and trade is growing, albeit at a slower pace; if the political will returns to the US and EU, perhaps confidence will be restored in the financial sector, a necessary condition for investments, consumption and overall economic growth.

Ship supply: Deceleration from all-time peak

Looking forward, the dry bulk fleet will possibly grow by not less than 12% in 2012, while the container ship fleet will grow by 8%. As regards oil tankers, crude oil tankers are facing challenging year as the fleet is set to grow by 7%.
Financing of business must become key issues on every owner’s agenda. As the traditional large European shipping banks are undecided regarding their future exposure to the industry, alternative sources of finance from all over the world have stepped in.

Tankers: Slow economic growth dampens oil demand

Today`s growing demand for crude oil tankers is originating from countries close to the large crude oil producers. That provides fewer tonne/miles as compared to demand emerging from the Western Hemisphere. On the oil product side, refineries in the Far East or Middle East are coming on stream later than expected, which means that the export volume will be lower than previously expected.

The product tanker sector holds optimistic prospects for the near future. However, since it is a complex business and ever changing business conditions and opportunities can be difficult to foresee. But as the “demand stories” of Atlantic gasoline arbitrage, Winter markets, and refinery dislocation are trying to perform to expectations, the focus has turned towards a wider range of products. Demand for oil products with a lower sulphur content than the local refinery is capable of producing provides for trading of the same product with different sulphur content between nations. This surely leads to a growing demand for oil product transportation despite the overall lower oil demand.

Amongst the unreliable factors that could improve earnings in both tanker segments are slow steaming, virtual arrival, longer hauls, e.g. to avoid the growing threat from pirates and of course a faster than expected recovery in the large oil consuming nations. Moreover, being at the right place at the right time continues to be crucial to take advantage of any non-planned-for events that would provide a window of higher earnings, e.g. shortage of prompt tonnage in the Mediterranean due to Bosporus Strait congestion.

Taking the longer perspective, should the world decide to move away from using nuclear power plants for generation of power faster, this could improve tanker demand. Moreover, the trend of the US becoming more and more self-sufficient with oil will potentially affect the tanker industry in a farreaching fashion.

Container shipping

Going into 2012, the sector is struggling on two fronts from the trenches. A bad global economic weather forecast is the main demand threat, while the oversupply issue is an internal problem to consider.

Demand is very roughly distributed; while the volume of inbound loaded containers to US West Coast Ports is growing, the intra-Asia trades and new-market trades are growing rapidly. This difference in growth rates is very illustrative of the underlying market.

The struggle against oversupply has to be fought simultaneously with low demand and in a tough competitive environment. On the world’s largest trading lane from the Far East to Europe, it has been possible to observe the “open exchange of punches” between the market participants. Vessels of ever increasing sizes have lowered the cost per transported unit – and triggered a massive cascading from this trade of sub-optimal vessels.
A very high number of contracts have made this sector stand out from the tramp shipping segments, which have avoided a repeat of last year’s high contracting activity. Half of the new box ship orders are for 2013-delivery, which is the earliest possible delivery. It is not clear whether it is pressure from shipyards or owners that has pushed delivery dates closer – instead of further away which probably would be more prudent. 62 of the orders in 2011 are made in the ULCS segment – bringing the total to 174. That is an increase of 50% of vessels bound for the Far East – Europe trading lane, which is already the mostly challenged market.
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