The global economy's steady improvement is creating a better outlook for shipping, and as demand rises and fleet expansion cools off, market fundamentals are expected to improve across the board, according to a report released Wednesday by BIMCO.
As the signs of economic recovery continue, the IMF expects 2014 GDP and world import volume growth to hit a three-year high at 3.6 percent and 4.8 percent, respectively. BIMCO predicts that “the distribution of economic growth is set to shift to in favor of demand-driven by advanced economies.”
China and Japan, the world’s second and third largest economies, respectively, will maintain solid international shipping demand in 2014. Europe will command a higher demand for container ships and tankers, and the U.S. will lead with strong private demand and increased domestic oil production that should benefit containerships and product tankers, according to BIMCO’s analysis.
In emerging markets and developing economies, growth is expected to remain strong at 5.1 percent in 2014. This is supported by stable domestic demand, recovering exports and solid fiscal conditions — a positive sign for shipping sectors, according to BIMCO.
Of major concern is volatility in freight rates caused heavy supply; however, BIMCO expects periodic healthy earnings for even the most oversupplied shipping sectors. “This is inducing carriers to deploy increasingly large vessels throughout their networks to optimize services,” as stated in BIMCO’s report.
In his accompanying message to BIMCO’s report, President John Denholm said that “a worrying amount of ordering is taking place, adding tonnage to an already excessive world fleet. This will delay a return to a balance between supply and demand and hence the long awaited market recovery. To add insult to injury, the ever increasing regulatory requirements impose significant costs on our industry at a time when it can ill afford them.”
BIMCO notes that regulatory burdens, particularly those addressing environmental pressures, remain major challenges to the industry’s cost base at a time when resources are limited. This includes massive challenges on sulphur limits, ship efficiency, ballast water treatment and NOx regulation.
In terms of dry bulk, BIMCO expects the fleet to grow by 4.4 percent as delivery and recycling activity cool off. For the dirty segment, a growth of 2.9 percent is expected, and containership supply growth is expected at 5.7 percent.
Driven by iron ore, coal and grain, BIMCO expects dry bulk demand to grow at 4.5 percent to 6 percent, with China remaining in the driver’s seat. As the first shipping segment to recover from the market downturn, the product tanker market is expected to strengthen, and will employ a larger fleet to accommodate anticipated growth in demand.