MSI: Shipping Faces a Stormy Road to Recovery

Image Courtesy: MSC

The shipping industry is set to experience a stormy road to recovery, with uneven supply/demand trends set to test the nerve of investors and operators, according to research and consultancy firm Maritime Strategies International (MSI).

Addressing the Hansa Forum in Hamburg, Germany this week, MSI Senior Analyst James Frew warned that the industry will continue to face multiple challenges to a sustained recovery despite positive demand fundamentals.

“The commodity shipping sectors remain well correlated with each other – with the exception of offshore and LPG – and most sectors are positively correlated, but not tightly so,” Frew said, adding that the question is “whether it is supply or demand that is wrecking the markets?”

In demand terms, headline trade in goods and services has stalled in relation to GDP and policy decisions rather than fundamentals, hold the key to future direction. Factors including increased energy efficiency, slowing containerisation demand and reshoring are all threats. However, the demand side is far from all bad news.

According to MSI data, ships required versus ships on order exceed projected demand for product tankers and chemical carriers but lag for bulk carriers and containerships. This is thanks to the industry’s self-prescribed medicine, with 2016 scrapping levels at or near record levels in the bulk carrier and containership sectors.

“The recovery is going to be uneven at best, with a disproportionate increase in vessel earnings for LNG carriers, tankers and LPG carriers. Even with improvements, earnings for containerships and bulkers will not approach their pre-crisis highs,” Frew said.

He added that shipyards will continue “to suffer from a lack of forward cover next year and only cost pressure will stop newbuilding prices falling further in 2018.”

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