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article imageNew orders threaten fragile shipping sector recovery: survey

    Feb 27, 2014 in Business

By Jonathan Saul

LONDON (Reuters) - Overcapacity threatens to derail a fragile recovery in the global shipping sector as ship owners and investors place orders for new vessels betting on better times, a survey showed on Thursday.

Ship owners ordered large numbers of vessels between 2007 and 2009, just as the global economy sank into its biggest crisis since the 1930s.

In recent months, prospects have brightened as the sector absorbs the tonnage as well more positive signs for world trade. Investors including private equity players are eyeing prospects with a wave of new ship ordering taking place.

A survey of the transport sector by international law firm Norton Rose Fulbright found 40 percent of those polled cited overcapacity as the biggest threat to recovery in the industry.

"There is a real disconnect between those in the shipping sector who believe that the purchase of additional assets is the most beneficial investment for their business and those worried about overcapacity," said Harry Theochari, global head of transport at Norton Rose Fulbright.

"While optimism is growing in the shipping sector, a further imbalance in supply and demand risks throwing the current fragile recovery off course."

It normally takes three years on average for vessels to be delivered from yards. Data from online ship valuation and maritime intelligence provider showed the biggest number of ships were placed on order in various sectors last year since the slump.

In the oil products tanker sector, 233 medium-range (MR) tankers were ordered in 2013 - the biggest spike in orders since 2009. data showed 35 MRs were already ordered so far in 2014. The MR live fleet numbers 1,752 vessels at present.

In the dry bulk sector, there were 176 orders in 2013 for capesizes - among the biggest vessels in that segment - the biggest ordering spree since 2009. data showed in 2014, 56 capesizes were already on order. The capesize live fleet numbers 1,467 vessels at present.

The annual survey by Norton Rose Fulbright, now in its fifth year, is one of the transport sector's leading barometers of market conditions, especially for the shipping community.

Shipping was the least optimistic transport sector in the survey, with 69 percent of respondents reporting positivity about market conditions compared with 81 percent in rail and 75 percent in aviation. The availability of funding was also a concern for shipping respondents.

The survey found anxiety in all transport sectors over a lack of suitably qualified people. Skilled personnel in the Middle East region was cited as the biggest challenge for transport businesses.

"The risk of a skills shortage developing in the transport sector has also been highlighted. Ensuring a skilled workforce is in place will be fundamental to the future growth of the transport sector," Theochari said.

The survey canvassed views from over 850 participants from a range of companies involved in transport including financiers, ship owners and operators, manufacturers, government bodies and professional services firms. Of those polled, 380 were from the aviation sector, 215 from rail and over 260 from shipping.

(Editing by David Evans)

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