In International Shipping News 05/10/2016
The impact of slow current economic growth in world trade has led the maritime industry to make adjustments in response to economic, political, demographic and technological trends. This is revealed in a study by IHS entitled, “Trade and the Maritime Industry, Global Trends 2016”.
“Understanding these trends is key to improving the performance of capital investment and operational efficiency, and provides the foundation for successful business strategies in the long term,” says the study, which focuses on five elements: 1) prices of raw materials, mainly oil, coal and iron ore; 2) The impact of the slowdown in China; 3) The lifting of sanctions on Iran; 4) The availability of data to design policies; and 5) The long-term impact of demographic changes.
Since 2015, the maritime industry had begun to adjust to the slow growth tending, at least temporarily, to use container ships of 8,000 or less TEUs (twenty-foot container equivalents) reversing the trend towards mega-ships of 18,000 TEUs and more. In an analysis published in November, 2015, Drewry Maritime Research (DMR) noted in this connection that “Large ships can be the center of attention, but their application is relatively limited because of port restrictions and the (low) demand indicate that they are only useful on a few routes”.
“As physical constraints (for example, the expansion of the Panama Canal) the average vessel size on major routes are overcome and will continue to increase, some faster than others, but it is a gradual process and in the meantime ships of less than 8,000 TEUs will continue to be required on routes with lower volume, intra-regional and domestic routes that can not accommodate large ships,” added DMR.
As in the recent study by IHS, this provides for lower prices of raw materials for the next 5 to 10 years, a factor that will depress freight rates, particularly of bulk cargo ships. The exception is the category of tankers, whose rates will remain at a good level at least in the short term.
The slowdown in China has had serious implications for the global maritime economy because of the impact it has had on supplier countries for the decline in demand for raw materials. Consequently, imports from the Asian giant will remain stable and at best, record a slight increase. Conversely, the low and unstable global economy has had the effect of reducing exports from China.
On the positive side, the lifting of sanctions on Iran will have a positive effect on maritime trade, as it will for the industry, from increased access to databanks and technological advances. This element will allow shippers greater visibility of market trends and prices, helping to minimize the adverse impacts of economic cycles that have traditionally plagued the industry.
Finally, IHS evaluated the effect of demographic trends in the next decade. According to the consultant, the middle class in the emerging economies of Asia, Africa and Latin America has been growing, which will impact the demand for imported products and manufactured goods. The classic case is India, a country with high demand, whose economy will grow 7.9% in 2017, compared with 7.3% in 2014.
In the demographic aspect, the maritime industry has a problem of a labor force with a high rate of aging. The same applies to the crews of ships, because young people have lost interest in seafaring due to the perception that technology is advancing at a slow pace in the maritime industry. This poses a challenge to the shipyards to incorporate high-tech ships of the future, in order to attract more young people to inject new blood to the maritime industry.
Meanwhile, the picture is not clear for the time being for the shipping industry. Freight rates will increase modestly over the next 18 months, while the rating agency Moody’s predicted in June that the combined profits of the industry for 2016 will decrease from 7% to 10%. The most affected segments are the transport of bulk cargo and containers.
Source: The Bulletin Panama
