May 14, 2012
Professor Lemper, what do you think will happen in the global shipping market this year and next? Will global cargo handling continue to increase and – if so – what will be the main reasons for this increase?
I expect global freight transport to grow further this year and next, which also means increases in sea freight and cargo handling in ports. In light of slightly weaker global economic activity, growth rates – as in 2011 – will fail to match the record increases achieved in 2010. However, robust global growth will probably help sea transport as a whole to grow by approximately 4% p.a. Probable drivers are China’s and other emerging markets’ appetite for commodities on the one hand, and a further, albeit in my opinion probably slower, integration of the world's economies and thus the globalisation of production processes on the other.
Which segment of the sea freight market do you think will see the strongest growth? Which segment do you expect to post below-average performance?
In the past, container shipping has been the segment with the strongest growth dynamics. This will continue to be the case over the coming years. We forecast growth to average approximately 7% p.a. However, the bulk transport market also registered above-average growth in the last few years. This segment looks set to grow by around 5% p.a., driven among other things by China’s ore and coal imports. By contrast, we think tanker shipping – especially of crude oil – will see below-average growth.
Which regions do you expect to experience the strongest momentum in maritime transport in 2012 and 2013?
Even though Chinese economic growth seems to be “flattening out” somewhat at present, it will still provide the strongest momentum for world trade and maritime transport. Moreover, South America and India will play an increasingly important part in future.
Global cargo handling will thus continue to expand. At the same time, freight and charter rates in the sea transport sector have hovered at a very low level (in a long-term comparison) for some time now. What are the main reasons for this? Can you give us an assessment that differentiates between the most important segments?
The weak rate level (on average) is mainly attributable to excess supply of tonnage. In the boom phase prior to the crisis and straight afterwards merchant ships of all kinds were ordered in huge numbers, so there would have been excess supply in most large shipping markets even without the slump in demand in 2009. During the crisis, some construction orders were cancelled and substantial delivery delays occurred, but in the end all the countermeasures were unable to close the gap between supply and demand.
In container shipping, the overall situation is actually not so dramatic at present. With an expected increase in demand of roughly 7% p.a., an order book corresponding to about 25% of the fleet in operation with a delivery horizon of approx. 3.5 years is definitely appropriate – especially if there are old vessels expected to be scrapped. However, the planned delivery dates also imply a somewhat concentrated capacity increase in 2012 and 2013, resulting in supply growth of roughly 10% p.a. which exceeds the expected increase in demand. Also, there will be a concentration on larger vessels, so excess capacities will increase in that segment, while vessels with room for up to 3,000 containers (TEU) looks set to post markedly below-average growth.
In bulk shipping the foreseeable imbalance is even more pronounced, at least based on order-book information. Even if scrappage rates remain high – as expected – order books for 2012 would suggest capacity increases of roughly 20% – with demand forecast to rise by around 5%. Even if, for various reasons such as wharf capacity, financing problems etc., delivery of maybe 30% of the new vessels were postponed into next year, a sustained recovery of freight and charter rates looks highly unlikely this year and most probably also next.
In the case of oil tankers the discrepancy between foreseeable fleet growth and the expected rise in demand is comparatively small overall. Within this segment, however, tankers carrying crude oil only will come under more pressure given considerably larger order books and at the same time weaker growth rates than product tankers, where fleets are expected to grow less strongly while demand will likely rise somewhat more dynamically.
In view of these freight and charter rates, when do you expect a recovery to take place and will this be driven by demand picking up strongly or rather by more moderate capacity increases?
Bearing in mind what I have just explained, practically all markets will remain under pressure during the current year. The situation may improve of course on stronger-than-expected economic growth on the one hand and a further delay in capacity growth on the other. Neither should be ruled out categorically. Should one or both of these possibilities materialise, the best prospects for an improvement would be in the market for small container ships, product tankers and possibly also handysize bulk carriers (depending mainly on scrappage activity).
In such an environment, does it still make sense to rely on the Baltic Dry Index (BDI) as a leading indicator for the world economy? Isn’t the BDI much too dependent at present on the development of shipping capacity?
Exactly. In relatively balanced markets the BDI certainly represents a good indicator of a recovering economy as it is strongly influenced by cargo markets for raw materials and fuels. In the current situation characterised by large and growing excess capacities, even a more buoyant economy would have very little effect on cargo markets. Hence the BDI’s usefulness as an indicator is limited at present.
A number of economic and regulatory factors such as rising oil prices and stricter environmental rules can hamper growth in maritime shipping over a medium- to longer-term horizon. Which factors do you consider to be most important? And how can the industry meet these challenges?
If shipping became more expensive as a result of different factors, this could certainly impact volume growth. From my point of view, though, it is not primarily the effect of generally higher costs that would be an issue. Overall, transport costs are very low today in relation to the value of the goods shipped and an increase, for instance in fuel costs via generally rising prices or additional carbon emission fees, would probably have little effect on total volumes in world trade and intercontinental maritime shipping. The situation would be more problematic if higher costs led to shifts in the competitive position vis-à-vis other means of transport such as overland haulage. This seems to be the case in northern and northwestern Europe where so-called SECAs (Sulphur Emission Control Areas) have been introduced which are subject to special regulations governing permitted sulphur dioxide emissions. The measures required such as higher-quality fuels or filter systems will make maritime shipping more expensive so that it is likely to lose market share. The industry will hardly be able to offset these disadvantages as ferry and container-feeder services – which are particularly affected – have already been largely optimised. There is a debate at present about providing public-sector financial aid for a trial run of equipping some ships with the relevant filter systems and possibly extending the transition periods.
Do you think that port capacities and seaport hinterland transport will represent a limiting factor in the foreseeable future – especially in Germany?
Port capacities and hinterland transport links in Germany and especially container shipping had already reached high utilisation levels prior to the crisis. So a bottleneck was to be expected. This point has not yet been reached again due to several expansion measures but the predominant trend in transport suggests this will be the case some time in the next few years. Hence, our analysis of growth in cargo handling is based on the fact that there is economic and competitive potential which can only be tapped, however, if both land and coastal infrastructure is expanded for pre-carriage and onward carriage and in the ports.
Prof. Dr. Burkhard Lemper is a director at the Institute of Shipping Economics and Logistics (ISL) in Bremen where he is head of the Maritime Economics and Transport department. In this capacity, he has managed or participated in a large number of projects in the area of maritime economics and sea transport for both private and public-sector clients. His research and advisory activities focus on maritime shipping and port markets, especially container shipping, as well on the analysis of ports, hinterland transport and other transport markets, on feasibility studies for transport and port projects and on the modelling of traffic flows. Besides his work at ISL, Prof. Lemper is a lecturer in Maritime Economics, Economics and Foreign Trade at the Bremen University of Applied Sciences as well as other universities and academies.
This interview was conducted by Eric Heymann (+49 69 910-31730)
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