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Thursday, April 22, 2010

Volatile freight rates as shipping recovers from the GFC.

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HSBC, the worlds largest bank, hosted a shipping conference on the 29th of March and I thought I'd share some of the information and ideas raised there by ship operators, ship yards, ship brokers and financiers that might be pertinent to followers of this blog. Freight Forwarders, like yours truly, seemed to be absent. The source of this information is HSBC's Shipping Day report.

Overall there was consensus that a slow recovery is underway however many operators are still delivering substantial losses and freight rates, particularly in the container sector, are likely to be very volatile in some trade lanes. I have personally seen this volatility and you have to be right on your game!

The volatility is being caused by carriers who have been hiking rates in order to try and get back into profitability and fluctuations in shipping capacity. Rate hikes the past 6 to 8 months has been due to carriers cutting their capacity as they have laid up vessels to ride out the downturn. The rules of "supply and demand" have kicked in.

Capacity is now growing again though. Some carriers have started reactivating some of the ships they have laid up while at the same time there are new container ships being delivered from the ship yards that were ordered years ago(pre GFC) which are increasing capacity. HSBC report that most of these vessels are destined for Europe/Asia tradelanes. Rates have already dropped by about 10% as a result. Good news for shippers and freight forwarders. Overall it is concerning that there is still massive over-capacity in shipping globally.

We are also seeing the RoRo carriers contemplating bringing more vessels out of "lay up" so I suggest we will see similar volatility in freight rates in this sector soon which is likely to continue until demand and capacity stabilises.

Recovery in the bulker and tanker trades seems be happening faster and in fact the ship yards reported a preference to work in these sectors. The ship yards received almost no orders in 2009 and suffered from substantial deferments of orders as well.

So, all in all, still interesting times for shipping but I am heartened that recovery seems to be slowly underway even if there are still some rough seas ahead for a while.

All for now,

Brad Skelton

The Shipping Bloke.

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