Increased oil global demand to boost up freight rates in 2010

News was prepared under the information support of Online Daily Newspaper on Hellenic and international Shipping "Hellenic Shipping News".

2 Sep 2010

A report prepared by KFH Research Limited on the shipping industry, points out that the industry started to improve and that the current situation in Asia, Europe, United States and GCC markets are more optimistic now compared to 2009. The report depicts that the three major divisions of the shipping industry namely, containers, tankers and bulk cargo have shown positive signs of recovery in the recent months as commercial activities worldwide picked up. It further expects the demand on international shipping containers will continue to increase in 2010 owing to global economy recovery, as well as north-south Asia and the Gulf Cooperation Council routing expansion.
The report highlights the growing global demand for oil which will pay the shipping rates higher this year. It also expects iron ore and coal worldwide will overcome one billion tons record high while also noting that the effects of global financial crisis on the shipping industry has seen the worst and completed the longest leg thus far.
The following is the text of the report:
The global shipping industry which experienced a frenzy of shipbuilding in 2006-08 was badly affected by the financial crisis in 2009. Both shipping rates and volumes both contracted sharply as a result of overcapacities in the industry. However, the industry had its first taste of recovery in the 2H09 as the global economy rebounded more strongly due to the positive measures taken by the respective governments to counter the crisis.
We believe the mood in Asia and other major economies in Europe, the US and the GCC region are considerably more upbeat this year as compared to 2009. Various economic indicators like trade and industrial production across countries in Asia, US, Europe and the GCC region have surprised on the upside in recent months, confirming that economic activity is gaining traction.
Economies in the Asia region, in particular, namely China, India, South Korea, Indonesia, Malaysia and Singapore have all reported higher-than-expected GDP figures in the latest quarter. Within the Asian and Gulf region, exports performances have started showing positive improvements. Sign of a return to stability in the G3 economies also bodes well for the global trade environment and this will brighten the prospects of export-dependent economies.
We believe this resumption in trade will augur well for the global and GCC shipping industry moving forward. The three major segments of the shipping industry, i.e. the container, tanker and dry bulk segments, have already shown positive signs of pick-up in recent months, with the improvement of trade activities globally.
For the container shipping segment, the market began to pick up in the 4Q09, with relatively fast growth seen on the European, GCC and Asian routes. In 2010, global container shipping demand will keep rising on an improved global economy. Faster growth will be seen in north/south-bound routes in South America, South Africa and other emerging markets, as well as in routes in Asia and GCC. Box shipment on the peak-leg of the Asia-Europe trade has also continued to show positive year-on-year (y-o-y) growth, growing by an estimated 10.6% y-o-y in January '10, to total 1.13 million TEU. Due to stronger container demand, charter rates for Panamax FCC have increased 71% to USD12,000 in April '10, from USD7,000 in April '09.
In the tanker market segment, the rise in global demand for oil will consequently push shipping volumes higher in 2010. We expect freight rates to pick up in 2H10 as shipping demand resumes growth while capacity growth slows. Furthermore, time charter rates as of April '10 for all segments of the Tanker segment have also bottomed, and the rate of contraction on year-on-year basis have narrowed significantly. In terms of asset values, a newbuild 320K VLCC is currently averaging USD98 million as compared to a high of USD154.5 million in 2008. Meanwhile, the average price of a 5-year old 310K VLCC is approximately USD80 million, as compared to USD141.7 million in 2008.
In the dry bulk segment, we expect global bulk shipments to rise further, driven mainly by increased demand for iron ore and coal from China, Europe and the US. With global iron ore trade expected to surpass the one billion tonne mark, and overall coal trade expected to easily surpass the 800mt mark, the outlook is increasingly positive for a stronger recovery from the decline witnessed in 2009. Further, time charter rates for capesize bulkers have risen 43% to USD28,500 in Mar '10, from USD20,000 in Mar '09. We believe this positive trend will continue moving forward.
Overall, we believe the worst is over for the shipping industry. Prospects for 2010-2011 are much brighter, as real GDP growth for the major economies are expected to return to positive growth territory. Overall, we reiterate our positive stance on the global and GCC shipping industry in 2010-2011. We further believe that the current market environment with historically low asset values and where shipping companies face difficulties in relation to both financing and chartering out of vessels also provides for excellent opportunities for an "Asset Play" strategy.

Source: Kuwait Finance House