Deficient Supply Discipline Threatens Shipping Recovery

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Demand is poised to outstrip supply in all three segments of the international ocean shipping industry in 2018, but risks of an ill-timed “ordering spree” for new ships remain, according to a recent report from credit ratings provider S&P Global Ratings.

The broad-based recovery seen in global ocean shipping is likely to continue in 2018, provided vessel owners don’t shoot themselves in the foot by ordering a raft of newbuild ships, according to a recent report from credit ratings provider S&P Global Ratings.

According to the report, entitled “Global Shipping Is On Course For Recovery In 2018, But All Eyes Are On Orderbooks,” demand is poised to outstrip supply in all three segments of the global ocean shipping industry – containers, dry bulk and liquid bulk tankers – in 2018, but risks of an ill-timed “ordering spree” remain.

Vessel owners, “renowned in the industry for their historically poor supply discipline,” could see the recent recovery in rates as a sign of better times ahead and begin ordering new ships in anticipation of increased demand, said S&P Global, a move that would “disrupt the encouraging supply trend and constrain charter rates.”

Even so, S&P Global expects a slowdown in capacity growth for the next few quarters regardless of any new orders, simply due to the typical lead-time of 18-24 months from the time a new order is placed and the time a ship is actually delivered and deployed.

This slowdown in supply side growth is expected to translate to higher charter and shipping rates for both the bulk and liquid bulk sectors.

“The lighter new vessel delivery schedule for 2018, compared with 2017, combined with our expectation of sustained imports of commodities, and longer distances traveled, point to rising charter rates across shipping industry this year – with the exception of container liner segment, which, we forecast, will see flat to slightly negative growth in rates,” said S&P Global Ratings credit analyst Izabela Listowska.

“What’s more, given the fundamental improvement in supply conditions, as signified by ship orderbooks being at all-time lows, we think recovery in shipping rates could continue beyond 2018.”

(Source: American Shipper, S&P Global)

Sea News, February 14