Shipping firms get that sinking feeling

Shipping firms must be getting used to that sinking feeling. But it seems that for freight rates at least the market has bottomed and prices have increased by 15% since August.

Raymon Krishnan, the President of the Logistics & Supply Chain Management Society reckons that despite the increase in freight rates, carriers are cautiously optimistic about the recovery of the industry. “The downward spiral of freight prices has certainly stabilized, compared to the first quarter of this year. From a bottoming out of the market that happened June – July, we are now looking at carriers implementing General Rate Increases and Rate Restoration Programmes for freight and bunker.” Since August rates have increased by as much as 15% in most trade lanes and we can expect to see even higher increases as we enter 2010. This works out to be between US$150 – US$300 per twenty-foot equivalent unit (TEU).

Carriers, just like everyone else nowadays, are being ‘cautiously optimistic’ as recovery is slow and there are no specific growth trends with the overall outlook in the industry matching what market experts predict i.e. we can expect things to return to pre 2009 performance in Q3 of 2010.”

But contrary to popular belief, for some shipping companies it is business as usual.Krishnan reckons that regional carriers seem to be holding up pretty well. “The regional carriers like PIL and RCL seem to be holding up well as demand in the regional sectors are still quite strong. Also, carriers who have not invested in significant new builds like OOCL and Wan Hai are not as badly affected as some carriers, who in some circumstances have had to stop plying certain routes altogether.”

Some analysts however believe that the sector is still hurting. OCBC’s investment research team is one who reckons that for shipping industry the outlook is still gloomy. “Supply side concerns remain high with continued deliveries of container ships, bulk carriers and tankers through the year adding to the glut. Repressed demand for container ships will move in sync with the sluggish global trade. While demand for bulk carriers may be buffered with the commodity gap in China, we think that a single country's fundamental demand appetite will not be able to prop up the whole subsector in any sustained manner. Crude tankers