The overcapacity problem of the global shipping market is expected to persist going into 2014, limiting substantial recovery for the three main shipping segments of containers, bulkers and tankers, according to a latest report by research and strategic planning of DVB Group.
In container shipping, trade demand is projected to improve in late 2014 on the back of a strengthening global economy with the strongest growth coming from regional trades. However the large part of the orderbook due for deliveries in 2014 is anticipated to keep rates under check, while pressure from supply side in 2015 is not likely to ease even after factoring in postponement, the report stated.
“Meanwhile capacity discipline measures such as cascading, void sailings and slow steaming have limitations, which implies fewer options for liners to maintain the rates at profitable levels. Recovery in time-charter rates are expected to be short-lived and gradual,” it mentioned.
The current container carrier fleet stands at 5,135 vessels aggregating 17.1m teu, according to data from Clarksons. The global box fleet is considered young with an average age of 11 years and approximately 70% of the fleet capacity is below 10 years.
The total number of deliveries estimated for the whole of 2013 is 251 vessels with a combined capacity of 1.57m teu, the data showed, pointing to stiff challenges for operators to keep the capacity in check.
The dry bulk shipping segment is also predicted to witness strong demand with annual growth at between 6-7% over the next two to three years.
“Unfortunately for the dry bulk markets, most of the agony is self-inflicted. During the boom years of 2007 and 2008, a large number of newbuilding orders were placed, mostly speculative, which were much higher than what the projected demand could support during this decade. As a result, fleet oversupply chronically over shadowed any demand growth and has kept the market in dire states,” the report said.
Currently, the dry bulk fleet stands at 9,725 vessels of 678.2m dwt, according to data from IHS Global. The orderbook equates to about 16.6% of the current fleet with 1,365 vessels of 105.3m dwt scheduled to be delivered until 2017.
The crude tanker market, which did not have a good year both in 2012 and 2013, is expected to continue facing pressure from fleet oversupply next year, though asset value and earnings might improve slightly going into 2015.
Fleet oversupply will continue to put pressure on fleet employment even with the expected increase in demand. Scrapping on the other hand is expected to continue with vessels as young as 15 years old, the report highlighted.
“Despite postponements and cancellations, the imbalance between demand and supply for crude tanker sector will continue for the next two years,” it added.
Meanwhile, the smaller product tanker segment is seeing “light on the horizon” as year 2013 was relatively better compared to 2012, especially for LR1 and LR2 product tankers, but the outlook is cautiously optimistic. Earnings and asset values are predicted to stabilise in the next 12 months, though a substantial increase is not likely to happen immediately.
“Fleet oversupply is expected to maintain pressure on utilisation rates despite the consistent increase in demand and market fundamental improvements. Thus, a further decline in utilisation rate should not be ruled out,” the report said.