28 March 18 The Business Times by DAVID HUGHES
FORECASTING the shipping markets is a tricky business, although a tendency to err on the pessimistic side is usually wise.
That is perhaps why independent research and consultancy firm Maritime Strategies International (MSI), has been careful to add a note of caution to its forecast of a positive outlook for most shipping markets. It warns that "complex and nuanced trading conditions ahead could quickly derail the recovery".
MSI director Adam Kent commented recently that the compound annual growth rate for seaborne cargo growth showed improvement almost across the board between 2013 and 2017 and will be equalled or bettered over the next four years for all sectors, except crude oil and LPG.
He was however quick to add that more complex and diverse trade routes, shifting bilateral relationships and national policies will impact front and backhaul business.
Dr Kent added: "To illustrate the changes taking place, we used our proprietary models to rank significant bilateral trades by rate of growth in the last five years and the next five. Many of the fastest growing trades are on routes which did not see significant growth over the last five years. Across all shipping sectors, China remains critical to the demand side equation over the next five years but politics and policy are likely to play an increasing role."
Thanks to lower than expected deliveries and robust scrapping, MSI predicted fleet growth levels close to or less than 2.5 per cent over the next two to four years. That, MSI said, was "good news for market balances" while shipyards would continue to manage underutilised capacity with deliveries outpacing new contracting.
"In terms of the earnings outlook a snapshot of the MSI forecast shows almost all vessel types at the bottom of the trough or moving up, with LNG carriers in particular leaping ahead in recent months,"said Dr Kent. "But how owners will view prospects for 2018 depends very much on timing. An assessment of breakeven levels when comparing a five-year-old vessel bought in 2012 or a 10-year-old one bought last year shows that the better result was to be patient."
According to MSI, earnings for bulkers and containerships will show marginal increases on an annual average basis this year, with sustained better rates on containers post-2018.
This generally rosy outlook came with a warning. MSI warned: "For the recovery to continue, the brakes need to stay on new vessel contracting." Now, that is actually asking a lot of an industry that has always over-ordered as soon as there are signs of upswing in the market. There are no "brakes".
Companies like MSI sell their expertise and their forecasts. There is nothing wrong with that, and no doubt many find such analysis very useful when planning ahead.
However, it is also helpful to get the views of those at the front line. That certainly includes sellers of lifesaving equipment to the shipping industry. Their products are essential and ship operators have little choice but to make purchases unless, as in the case of much of the offshore support fleet right now, they have laid up their vessels.
So at first glance Viking Life-Saving Equipment's 2017 results, which show revenue of 1.834 billion Danish krone (S$400 million) compared to 1.858 billion Danish krone in 2017, give little cause for optimism. The company noted that, for the second consecutive year, "revenue and earnings remained stagnant". It commented: "Two of the largest customer segments, the cargo ship market and offshore industry, remain in turmoil and continue to impact the top and bottom lines."
Nevertheless the company said: "Signs of a slight improvement in the economy are encouraging, as well as Viking's gain in market share."
"We find ourselves in a market with extremely complex demands that vary significantly between segments - a market driven by a multitude of factors, including technology, growth in the global economy, trade policy, geopolitical stability, among others. Overall, however, I believe we will benefit in the coming period from growth in the global economy. The backlog of deferred investments in many sectors will also be to Viking's advantage over the next few years," said CEO Henrik Uhd Christensen.
He added: "The consequences of the financial crisis nearly 10 years ago have been more prolonged than we expected. But the maritime market as a whole is improving, and the customer group that will drive the market in the coming years - the shipowners - are eyeing brighter times ahead."
So, bringing analysis and reality together, we do appear to be looking at a slowly improving picture overall. MSI's Dr Kent said: "So while many owners will have the champagne on ice, when to open it will depend on their ability to judge the market correctly and capture the best returns."
Champagne? Hmm! Perhaps better make that a couple of bottles of Tiger for now.