PTI reported that shipping companies across the globe have been struggling with oversupply of ships and little demand in the last 5 years. However, a slight pick up on the back of recovery in global trade and economy recently have lifted hopes and freight rates in the shipping industry, but this could soon come under the cloud from rising new ship orders. Over the last 6 months, there has been a spike in demand for new ships, both in the bulk as well as container shipping industry. This was led by enthusiastic shipping companies in Greece and Norway and depressed shipping vessel prices.
Mr Arun Gupta, CMD at Shipping Corporation of India, said in an interview that "In mid-2013, asset prices touched their bottom. Ship owners who had deep pockets have been ordering vessels. Therefore, freight rates will not improve unless owners are united and there's some self discipline and moratorium on not ordering vessels."
As many as 750 new dry bulk ships were ordered in 2013, most of them in the second half of the year compared with only 300 a year earlier, according to London based Drewry Shipping Consultants. The container shipping industry also witnessed 205 new ships orders against only 70 ayear ago.
Dry bulk ships carry iron ore, steel and coal, while container ships carry finished goods.
These ships will enter an already oversupplied market in another one and a half to 2 years, upsetting many shipping companies, including the ones struggling in India. India Ratings recently upgraded Indian shipping from negative to stable but said that global overcapacity in the sector could prevent a meaningful improvement in freight rates.
Dry bulk specialist Mr Rahul Sharan at Drewry Shipping Consultants, said that "Markets will improve in the second half of the year. But with the new orders being delivered and if new orders continue to rise, then oversupply problem will continue and recovery will be slow."
New ship orders have continued to rise in the recent past due to many reasons. Apart from depressed prices and enthusiastic response to a nascent recovery, analysts attribute the jump to stringent environment norms in the US and Europe. Newer ships are more fuel efficient and reduce cost and emissions.
Mr Subrata Behara, a senior research analyst tracking the container shipping industry at Drewry, said that "Bigger vessels are being ordered for economies of scale. Once you increase the width of the vessel, draft requirement goes down. This is helpful as ports in the developing countrie have low drafts."
However, Indian shipping companies are hoping that most of these new orders will get cancelled once banks realise the bleak outlook of the shipping industry.
Captain Anoop Kumar Sharma, CEO and Director at Essar Shipping, said that "Many people overcome with the euphoria in the last few months have placed orders at various shipyards. Now markets are again going down. 1 think in the long term, all these new orders won't fructify. Most of the deals will fall through and only 50% will come in water."