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Tuesday, January 21, 2020

An uncertain outlook for the shipping industry in 2016

In November 2015’s “Message From The Bridge“, I pondered on the vagaries of world trade and their impact on the shipping industry, commenting on the effects of the slowdown in the Chinese economy during 2015.

As we entered 2016, it would be fair to say that there was little positive news emerging for the shipping sector. In mid December one of the world’s major investment ratings agencies – Fitch’s – downgraded their outlook for the year ahead in the world shipping industry from ‘stable‘ to ‘negative‘. Central to their judgement was the slowdown in emerging markets, and the increase in shipping capacity looking likely to outstrip the growth in demand.

Other commentators spoke of the impact of Chinese politicians’ attempts to rebalance their economy. In recent years, China’s economy has been centred on a burgeoning manufacturing sector which created a voracious demand for imports of raw materials and led to high volumes of exported goods: all of which was good news for world maritime trade. The potential rebalancing of China’s economy could see a shift away from manufacturing towards the service sector as the country develops further – less welcome news for those in the shipping industry.

This negative outlook for the overall finances of world shipping comes against a more helpful backdrop for the industry of fuel prices falling to levels unprecedented in recent times. In late 2015, another ratings agency – Moody’s – lowered their 2016 forecast for a barrel of Brent Crude down from $53 to $43; and at some major ports bunker prices were at an eleven year low. And as the price in December threatened to drop to $30, there was no sign of oil producers making a co-ordinated effort to reduce production and lift prices. It was not so long ago that the price was over $100 a barrel.

However, this ‘fuel bonus‘ was seen by Fitch’s as insufficient to offset the over-capacity and the slowdown in world trade. The maritime sector thus forms an interesting contrast with the aviation sector which now sees many of the world’s largest airlines (including some of the formerly troubled major carriers in the USA) returning wonderfully healthy profits, benefiting from the slash in fuel prices as well as buoyant consumer demand.

The shipping industry has faced difficult times on many occasions before and the only thing certain is that forecasts will constantly change, sometimes because of dramatic developments in world politics and international relations. It would however be fair to say that 2016 could prove to be a challenging year for those involved in some of the world’s major shipping companies.

HAMISH ROSS, EDITOR

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