* Fundamentals point to upturn through 2016 - ship owners
* Bulk commodity shippers to gain as cargo growth outstrips
* Tanker rates to rise on slower fleet growth, Asia oil
* Recovery may fade after 2016 due to overcapacity -
By Keith Wallis
SINGAPORE, Feb 7 The shipping industry is poised
to emerge from its longest downturn in three decades, buoyed by
an end to years of overcapacity that have depressed freight
rates since the end of a shipping boom in 2008.
Dry cargo ships are likely to see the strongest recovery,
say owners and analysts, as growth in bulk commodity cargoes
such as iron ore and coal outpaces supply of new tonnage for the
first time in seven years.
But tanker rates will also rise as fleet growth is slowing,
while strategic oil reserve projects in China and India should
boost already solid Asian demand.
The recovery will bring some respite to shipping firms that
have endured years of losses as freight rates failed to cover
costs. Global shipper TMT Group filed for bankruptcy protection
last June, shortly after South Korea's STX Pan Ocean filed for
court receivership, while Indonesian shipper PT Berlian Laju
Tanker narrowly avoided bankruptcy.
"While there will be potholes, here and there, as always,
the worst is over based on the market fundamentals," said Ong
Choo Kiat, president of U-Ming Marine Transport, one
of Taiwan's largest listed shipping companies.
Prices of new and secondhand ships started to rise last year
on expectations of a recovery, though experts warn some shippers
will still only break even this year and any recovery may fade
after 2016 when overcapacity could again dampen freight rates.
Key drivers of the pick-up will be China's continued
urbanisation and falling iron ore prices, experts say, which
should support import growth even though the commodities
super-cycle that drove a 2003-2008 boom in shipping markets is
The global dry bulk seaborne trade is forecast to grow 5.8
percent in 2014 to 4.37 billion tonnes, according to Barclays
Research, outpacing a 5.3 percent rise in the global merchant
fleet to 753 million deadweight tonnes.
This is the first time growth in demand for shipping of iron
ore, coal, grain and minor bulks such as fertilizer, logs and
soya beans has been greater than dry bulk fleet growth since
2007, Barclays said, as the industry finally shakes off a surge
in new ship orders in the wake of the boom.
However, ship owners who paid high prices for new tonnage at
the peak of the market would still only break even this year,
said Jayendu Krishna, senior manager at shipping consultancy
Drewry Maritime Research,
Buyers who paid up to around $100 million for a 180,000 dwt
Capesize ore carrier at the top of the market would need a daily
charter rate of $44,000-$45,000 to break even, still well above
current rates. The price of a similar Capesize ship has since
eased to around $56 million, according to Clarkson Research.
EYES ON INDEX
The Baltic dry index, compiled from a basket of dry
bulk freight rates and which traditionally falls in the run up
to the lunar new year holiday in China, has halved in the past
month to 1,086 points on Feb. 5.
Dry bulk rates are expected to bounce back in February and
March as chartering activity rises, said Khalid Hashim, managing
director of Thai dry bulk ship owner Precious Shipping.
"Our reading of the market is that the up-cycle will
continue till the early or middle part of 2016 before starting
to slip," Hashim told Reuters, although that would depend on the
number of new dry bulk ships delivered.
Analysts from Barclays and Jefferies forecast the Baltic dry
index would average between 1,400-1,600 points this year,
compared with 1,060 last year. The index topped 11,500 in
For the tanker market, rates for very large crude carriers
(VLCCs) on routes to Asia had climbed since October to their
highest level in 18 months, said Peter Sand, chief shipping
analyst at industry lobby group Bimco.
At the same time, growth in the VLCC market slowed to 1.9
percent year-on-year in December compared with expected import
growth in China of around 4 percent, which should help boost
"I believe we are about to go from bad to better in the very
large crude carrier market," Sand said, adding that rates for
VLCCs on routes to Asia had climbed since October to their
highest level in 18 months.
Demand should be boosted by China's moves to fill part of
its strategic petroleum reserve and India's plan to launch
underground storage facilities later this year.
This could include more than 50 million barrels in China and
nearly 40 million in India, said shipbroker ACM Shippng in
"[China's] stockbuilding has some way to go," said Henry
Curra, ACM's head of research.
Moves by China to diversify its crude oil supplies to West
Africa and South America would also lead to longer sea voyages
and higher rates for tanker owners, Sand said.
(Editing by Richard Pullin)