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Asia holds the key to future shipping

Asia holds the key to future shipping
In these days of electronic communication, shipping very much stands out as a business where personal relationships and face-to-face contact remain extremely important.

Asia holds the key to future of shipping markets.

In these days of electronic communication, shipping very much stands out as a business where personal relationships and face-to-face contact remain extremely important. This is not to say that email, instant messaging and the like are not popular in shipping, as they surely are, but the personal one-to-one interaction is still king.

'The bottom line is shipping is a people industry and always will be,' Keith Denholm, commercial director of Pacific Carriers, stated at a recent forum by the Institute of Chartered Shipbrokers.

One only has to look at the constant stream of events, be they cocktail receptions, seminars or industry forums that are held in Singapore's shipping community to understand the importance that this face-to-face contact holds for the industry.

This is how longstanding business relationships are built and maintained, and industry executives get a chance to exchange views and information on what is happening in the market. Over the last few years the market has given the industry much to talk about, be it through the boom of 2003 to 2008, or the crash of end-2008 into last year. Now some recovery is being seen in a number of shipping markets, and the economy at large, and the question on everyone's lips is whether the recovery is sustainable.

There can be little doubt that continued recovery of global shipping markets will hinge heavily on Asia. It is not simply a matter of 50 per cent of the world fleet being owned and operated in Asia, and 85 per cent of global shipbuilding capacity based in the region, it will also economically drive the recovery in shipping volumes.

In April 2009 the second Sea Asia conference and exhibition in Singapore provided an invaluable opportunity for executives from across the shipping industry, in Asia and beyond, to discuss and share their experiences on what was happening in global shipping markets. In the volatile markets of the last few years the opportunity for the most senior members of the industry to come together in a public forum has become ever more valuable to the shipping community at large.

Opinions divided

A series of industry polls at the Sea Asia conference revealed just how divided opinions were on key issues of the day such as newbuilding cancellations and where freight rates were headed across a variety of sectors. In such market conditions information and its exchange becomes a vital commodity as companies head into uncharted waters. In particular what is happening in the world's most economically dynamic region - Asia - is of key importance.

Over the last year since Sea Asia 2009, a number of shipping sectors have staged a largely unexpected level of recovery. An over-arching factor in much of this recovery has been the role of Asia in driving demand for shipping.

The crash in the dry bulk market in the latter half of 2008 was a collapse of an unprecedented scale in any market, not just shipping, with rates plunging by over 97 per cent in a matter of months.

However the dry bulk shipping market rebounded to healthy levels for much of 2009 with one big factor driving it - Chinese iron ore demand which soared to a record 627.6 million tonnes. For 2010, brokers Clarksons forecast China will buy 661.7 million tonnes of iron ore, nearly two-thirds of the expected global iron ore seaborne trade of just over one billion tonnes.
Container shipping started 2010 with a surprise upswing in both volumes and rates, with lines heading back to profitability on major trades. Shipping lines have in particular pointed to a greater resilience of the Intra-Asia trades as well as the Asia-Middle East trades. On the intra-Asia trades, lines are now indeed talking of being back in the black.

Demand from Asian consumers is expected to be a major growth driver in future as economies in the region continue to grow, and disposable incomes and material aspirations rise. The oversupply of container ships remains a serious issue though, but some newbuilding cancellations and slow steaming have acted to slow overcapacity.

Tanker markets remain an area of concern with tonnage supply outstripping demand although the early part of this year also saw a surprise spike in tanker rates.
How this picture plays out as the year progresses is still a subject for debate with factors such as the use of tankers for floating storage and the single hull phase-out affecting the equation.

Again Asia plays a key role in determining future supply, with the decisions by leading Asian oil consumer countries to bar single hulled tankers from 2010 impacting the level of available tonnage in the market.

Looking beyond 2010, Asia's demand for oil will be a major determining factor for the performance of the tanker market.

'China's growing reliance on seaborne crude oil imports will set the tone of the tanker market for the coming decade,' said shipbrokers Poten & Partners in a recent report. Over the last decade China's demand for spot chartered very large crude carriers increased five-fold from 11 in 2000 to 55 in 2009.

Big picture

However the broker noted that China's petroleum requirements were in fact far higher than the spot market numbers would suggest. 'Today, large Chinese oil companies have contracts of affreightment and term coverage with a variety of international shipping players. The reported spot market shows only part of this immense picture,' it said.

China's National Petroleum Corp expects imports to rise 10 per cent this year, with Chinese imports having crossed the 50 per cent threshold last year. These are all factors sure to be discussed at length at the Seatrade Tanker Industry Conference to be held on April 28 as part of Singapore Maritime Week 2010.
Turning to shipbuilding, the newbuildings crisis has not turned into the massive nightmare scenario many predicted. Overall the vast majority of newbuildings are being delivered and major Asian shipbuilders have shown resilience in the face of tough times. With lower newbuilding prices some new orders have started to trickle in for the major yards breaking the highly worrying order drought that was seen in 2009.
The threat of newbuilding cancellations has also brought Asian-based financing to the fore with Chinese banks in particular coming in to support shipowners, both domestic and international. In the Middle East, local financiers have stepped in to help the likes of United Arab Shipping Co with its newbuilding programme.

While many positive signs are being seen across a wide range of shipping markets, plenty of uncertainty does remain. Volatility has become a major feature of shipping markets in recent years and this is set to remain the case, making accurate forecasts all the harder. Forecasting will not be just about the numbers of ships and demand but also the personal knowledge of those executives who live and breathe markets on a daily basis.

www.turkishmaritime.com.tr

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