Supply side growth threatens profitability prospects

A serious supply side growth rate in the
global shipping industry could postpone
its eventual return to profitability by a
year or more.
This is the view of Peter Sand, chief
shipping analyst at Bimco.
Commenting on the current state of
the shipping industry, he said: “We are
relatively better off – we are not in as
bad a place as was originally thought
in 2016. It is still the supply side that
is key to bringing the industry back to
profitability by 2019.”
He explained that his 2016 industry
assumptions were still valid. “We
need a supply side growth rate of 0%,
meaning that whatever new ships we
take delivery of, we demolish an equal
number of vessels. Whatever demand
side growth we see will benefit the
fundamental balance directly.”
He said the company’s most recent
dry bulk market analysis had forecast a
supply side growth rate between 1.6%
and 2%. “That is why there is a lot of
work that has to be done by ship owners
and by the shipping industry.”
Sand said a return to profitability
by 2019 was not a given. “We need to
work on the supply side in order to
improve the fundamental balance on a
daily basis.” He said in the first half of
2016 the world had seen a determined
industry wanting to limit fleet growth.
“We saw in the first half of 2016
an equal amount of ships being
demolished to the number of ships
being delivered into the fleet. In that
sense, we actually had the industry
delivering a serious supply side growth
rate in the first half of last year.”
However, in the second half of 2016,
when the Baltic Dry Index started
to move upwards and a period of
profitable freight rates was realised,
demolition activity was brought to a
complete halt.
“We saw somewhere around 20/21
million ships being demolished in the
first half of 2016, but only nine million
in the second half of last year. If one
looks at the updated numbers we have
from January and February this year,
we are still in the same territory as we
were in the second-half of 2016. In
other words, ship demolition levels are
too low,” he says.