In the latest survey of confidence in the shipping industry, things looked pretty murky, with some in the industry projecting a bleak outlook at the start of 2016. Despite this, however, there are hopeful indications that continue to buoy many experts who maintain that, while the seas might be choppy now, the storm won’t last forever.
According to a survey covering the previous three months ending in February 2016, most of those in the shipping industry reported a decrease in confidence almost across the board. But that doesn’t mean there is no light at the end of the tunnel.
Richard Greiner, a partner with Moore Stephens, said after the survey was released, “Most recently, however, there is better news, with the (Baltic Dry Index) starting to move upwards once more, gaining over 100 points within six weeks of plumbing the depths. Moreover, there is a reasonable expectation that the approaching peak harvest season will bolster demand for ships to carry grain and other commodities on international trade routes.”
“This should boost the BDI further and, while diminishing demand for raw materials from China will continue to have an effect, the world will always need shipping to move its trade staples.”
Option for a Rebound
One of the biggest drags on the industry is overcapacity. Ships are larger and last longer than ever, so when freight decreases, it is difficult to shrink capacity to match the dip. One option for some companies to try to balance out freight and capacity is to recycle ships.
Some shippers have begun to do just that, which should have a positive effect on the industry in the medium term, despite the low prices for scrap metal.
Another potential catalyst for a rebound in shipping comes from the U.S. trade market. While the country’s trade deficit grew early in 2016, there also has been an increase in imports that can have a positive effect on the shipping industry overall.
“There are some green shoots appearing this spring in the economic data which makes us more confident that 2016 is going to be a good year after a step-down in expectations and hopes at the start of the year,” said Chris Rupkey, chief economist at MUFG Union Bank in New York, in a recent interview.
Riding the Wave
Despite diminished optimism of recent survey, there are strong indicators that there are better times ahead. Even the most bearish shipping industry expert is aware that the industry is cyclical in nature, with high points and lows.
In some ways, the heavy seas that the industry’s giant ships travel over mirror the heavy seas that are affecting the industry in the short term. According to Grenier, though, “Nobody doubts the ability of shipping to bounce back. It has a long history of doing just that. This time, the only question is when.”
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