In its just-published report “The Changing Tide of Risk”, broker Marsh has predicted that the three main sectors of the marine industry – containerships, tankers and bulk carriers — will all face economic challenges throughout the rest of this year, “partly as a result of an over-optimistic view that conditions will improve in the near future”.
Marsh noted that following the collapse of Hanjin into administration and eventually liquidation, Marsh had warned that a possible “domino effect” could occur in the containership sector. Consolidation in the container shipping sector had become an aggressive necessity. But Marsh said that a more concerning factor for those in the wider industry was the formation of three new alliances, 2M, Ocean Alliance and The Alliance, which now make up (73.1%) of global containership capacity. Marsh also noted that many of the ports and terminals around the world were at least partially owned by ship operators, giving priority to the vessels of a particular alliance.
Marsh said that this, coupled with aggressively low port tariffs being demanded by those alliances, would see ports and terminals struggle to maintain profitability.
The production of ever-larger container ships meant that many terminal operators had invested in larger and more expensive gantry cranes in order to service them,
This, said Marsh, had led to dramatic falls in profitability at ports and terminals, although the broker accepted that whether these lower-than-expected results were due to pricing pressure from the mega- alliances or to a slowing of global economic growth was a matter for debate.
On the capacity side, Marsh said that, although the ordering of the latest generation of ultra-large container ships of 20,000 TEU or larger capacity may have stalled, the remainder of 2017 would continue to see the delivery of ultra-large vessels that had already been ordered. This, said the broker, would continue to add pressure on an already over-supplied sector, leading to an acceleration in the scrapping of older, less-efficient vessels.
With the advent of new lock systems capable of seeing 12,000+ TEU size container ships transit the Panama canal, the old “Panamax” size vessels (4,500 TEU maximum) became outdated almost overnight, observed Marsh.
The broker said that for container ship operators of ships with a size of between 3,000 TEU and 5,000 TEU, 2017 was likely to be a tough year.
In the dry bulk carrier sector, described by Marsh as “the backbone of the marine industry”, it was noted that the sector had still fully to recover from the collapse of freight rates after the financial crisis of 2008/09. This was despite the fact that demand in Asia, particularly in China, continued to increase.
Marsh reminded us that Hanjin was also a considerable operator of dry bulk carriers and the problems that led to the collapse of the company’s container ship operations were exacerbated by an unhealthy dry bulk market throughout 2016.
Increased scrapping of older tonnage was anticipated by Marsh as a natural counter-balance to current oversupply. The Hong Kong Convention will require shipowners to choose their scrapyards on criteria of environmental considerations rather than on prices offered.
Marsh felt that the belief of some analysts believe that the dry bulk market had reached its nadir to be over-optimistic for all but bulk carriers of neo-panamax size (80,000dwt to 150,000 dwt).
In the oil tanker sector, Marsh expected the price of crude to increase slowly this year. However, Marsh observed that the high volumes of oil shipped by sea over the past two years, a contributory factor to lower oil prices had been beneficial for tanker operators.
If production was cut the need to ship so much oil by sea would also diminish.
The oil tanker sector continued to be extremely over-supplied, with a raft of newbuilds due to come into operation this year. As a result, said Marsh, the freight rates for oil transportation were not likely to increase. https://www.marsh.com/uk/insights/research/the-changing-tide-of-risk-expert-perspectives-on-the-marine-industry.html?utm_source=publicrelations&utm_medium=referral-link&utm_campaign=the-changing-tide-of-risk-marine-2017 https://www.marsh.com/content/dam/marsh/Documents/PDF/UK-en/Emerging%20Trends%20in%20Shipping.pdf