Shipping industry sees 'depressed' freight markets to remain in 2011

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

31 Oct 2010

Global oil tanker and dry bulk freight markets will likely be ''depressed'' next year because of an oversupply of vessels and slow economic growth in developed countries, senior maritime executives said. The expansion of the world's fleet is expected to outpace global economic growth in 2011, a result of the industry's buying spree two years ago before the financial crisis severely slashed sea trade.
But low freight costs could provide arbitrage opportunities and cost-savings for commodity buyers, such as China, that aim to boost their imports of oil, iron ore, coal, grains and other commodities.
''Because the world economy didn't have a chance for sufficient restructuring due to the strong monetary and fiscal policy support by governments, we may face a prolonged period of depressed markets,'' Kyuho Whang, chief executive of South Korea's SK Shipping, said at an industry conference.
The number of oil tankers next year is expected to rise by more than 7 percent from this year's estimated 455 vessels, while global oil demand growth was likely to rise only 1.6 percent, analysts said.
Ample tonnage has plagued the oil tanker market since early September with average earnings hovering around the daily operating cost level of $10,000.
''The long-term predictions are that we will have an oversupply for many years and an oversupply of course leads to a depressed freight market,'' said Tor Svensen, president of Norway's maritime risk management group DNV.
In the dry bulk market, the world's fleet was forecast to expand by 11 percent, while global economic growth may only increase by 4 percent.
Still, there are opportunities for industry players to make profits on volatility in the freight markets.
Chinese speculators outside the shipping industry were taking advantage of low cost financing and buying dozens of domestic vessels in the hopes of selling them in the next few years for a large profit, said Michael Bonderup, general manager for Danish shipper Norden's China unit.
''Financing is readily available in China and this seems to be a good alternative for them,'' he said.

Source: Reuters