The shipping industry is set to experience a slowdown this year due to several factors, including the oversupply of vessels, industry leaders told Emirates Business. "There is so much uncertainty in this business," said Ahmed Essa Hareb Al Falahi, Chief Executive Officer of Gulf Energy Maritime. "The shipping industry will slow down in the near future.
"There is uncertainty in the market, those who say there is none either have no idea or they are a publicly listed company but we are a private company and we are experiencing it," he added.
Most analysts say tanker oversupply is forecast to outnumber demand. Supply of tankers has increased by six to eight per cent for 2007 and 2008, while demand for oil trade is expected to grow by just four per cent.
"Tanker rates are expected to stay low until mid-2009 when substantial scrapping of single-hull tankers in relation to environmental regulations eases the oversupply situation," a Dubai-based shipbroker, who asked not to be named, said.
Product tanker demand also remained weak during the last quarter of 2007, according to data from Jefferies Research. Dry bulk rates in the same quarter were up but it was largely range bound as the market has been in limbo with the Chinese becoming less aggressive in iron ore imports, the report said.
While the oversupply of ships and a general shipping slowdown can be expected, a crash is not foreseeable, said Saleh A Al Shamekh, President of National Shipping Company of Saudi Arabia (NSCSA) Dubai.
The tight labour market, which has been plaguing almost all industries, is another pain that the industry has to bear. "The future looks tough," Lars Modin, Managing Director, International Tanker Management, said. "One of the main challenges is employing good crew."
From 2008 to 2010, there are on average 4.3 bulk carriers, tankers and container ships per day being delivered. On the other hand, it takes 10 years to train a senior crew.
"If backlog is not cleared and new ships do not start to arrive out of shipyards, the whole process will get delayed," said Phillip Rogers, head of research at Galbraith. Banks are also finding it increasingly hard to finance shipping projects, a clear impact of the sub-prime crisis hurting the banking industry.
In addition, costs have increased significantly, pushing credit margins up, Simon Deefholts, director of shipping at HSBC Bank, said.
"The cost of funding for banks is now higher than that of corporates. Pricing has been recalibrated and this scenario is likely to continue," he told a conference in Dubai. However, there are some who remain optimistic.
According to some bankers, the appetite for shipping financing still remains strong whereas there is less appetite for real estate and unsecured acquisition finance, says David Bonicel, regional head, shipping and land transportation finance, Middle East and India.
"Shipping companies used to source most of their debt abroad not because of lack of liquidity in the local market but real estate or project finance were attracting the majority of the investments," he added.
This kind of optimism from the banks should reflect in the shipping industry in the near future, Al Falahi said, pointing out that for the moment, there is no avoiding a decline in growth.
"Shipowners are worried over what's happening in the global economy. The shipping industry should be alarmed because many companies make their decisions based on asset appreciation. There will indeed be some slowdown in the short term."
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