The outlook for the shipping industry remains bleak for the rest of this year, with no major upturn expected until April 2013 at the earliest, Erik Borgen, the general manager of DNB Bank Asa Singapore, said Tuesday at the launch of the Sea Asia 2013 conference.
The current situation -with shipowners facing high bunker fuel costs, lower demand for shipping, falling freight rates, and falling asset values of vessels- does not bode well for the rest of the year, but this trend is more "cyclical more than structural," Borgen said.
Bunker fuel prices in Singapore, for example, have risen steadily from a range around $500/mt in late 2010-early 2011 to above $700/mt in the current market.
Given that "90% of world trade is carried by sea," the market will turn at some point for the better, "if globalization is set to continue and [if] there isn't a global meltdown," he said.
The shipping market is also "at or near the bottom, both in terms of freight rates and asset values... With regards to freight rates, we may already have seen the bottom and on asset values, on old vessels you're very close to the scrap price," said Borgen.
Freight levels for the last two years have stayed depressed, especially in the tanker segment. The VLCCs doing the key Persian Gulf to North Asia voyages have seen periods when the returns were in the $5,000-$7,000/day range.
Adding to the woes of the owners is also the drop in the asset values of ships. While the price of a newbuild VLCC in 2008 was more than $140 million, it fell to $100-105 million in 2010-11, according to market sources.
In terms of surviving the current market conditions, the few who will survive are the ones who can afford to, and are likely the same ones who will be able to afford new, fuel-efficient vessels to cope with the changing regulatory landscape that includes lower sulfur limits globally, Borgen said.
CHINA'S ROLE With financing being one of the key challenges in today's shipping industry, and banks not being able to lend as readily as before, the market will likely turn to national governments for support in this area, said Borgen.
China is one such example of having ample capital with strong government support, compared to other countries which still rely very much on a structure of lending from banks, he added.
Shipping remains a big employer, in terms of shipyards, and will remain an important priority for many countries to support national growth as well, he said.