LONDON: Shipping remains the lynchpin of global trade with 90% of all goods still transported by sea. It can also be a hugely volatile business where both freight rates and asset values can change in a dramatic manner as demonstrated during the financial crisis when we saw the earnings of one particular asset class (Capesize vessels) falling from USD150,000 a day to USD10,000 in a matter of months, and values dropping by as much as 75%. It is truly a global industry as a ship’s construction, ownership, crew, marine insurances and registration can all originate from separate countries.
One of the major challenges currently facing the industry is the overcapacity in the dry bulk market caused by over-ordering of vessels and the slow-down in the Chinese economy. The resulting reduction in demand for commodities such as iron ore and coal has resulted in freight rates hitting an all-time low in the first half of 2015. However, one bright spot is the tanker market where transporters of crude oil are having a good year, boosted by increased demand caused by the fall in the oil price, although it is uncertain how long this will last.
In the container sector more vessels continue to be built as operators seek to exploit economies of scale in order to cut costs by building ever-larger ships. More generally, owners are also seeking newer, more efficient vessels to help them meet increasingly stringent environmental regulations, but as the size of vessels increases, infrastructure and ports have to keep pace.
In terms of CO2 emissions, shipping is by far the most environmentally-friendly form of transporting freight. However, the sulphur content of bunker fuel remains an issue and therefore it is no surprise that regulators are starting to crack down on the pollution generated by the industry. From 2015, every ship must use higher-quality fuels with a sulphur content of no more than 0.1% in the so-called Emission Control Areas (ECA), which will affect trade crossings such as North Europe/Baltic, US and Canada.
