Artwell Dlamini
19 December 2008
Johannesburg — WITH recession threatening to stall the world's economic engine, local shipping firms are bracing for stormy seas ahead.
The global growth slowdown has reduced the volume of commodities being carried to US and European markets, which are at the centre of the financial crisis.
Alan Jones, senior account executive at Safmarine, whose parent is shipping giant AP Moller-Maersk Group, says the local shipping unit is not immune.
Jones says consumers in China and India -- both traditional markets for South African commodities -- are holding back.
"They are postponing purchases, and when they do, we ship less," he says, describing the economic downturn as "serious".
Jones says the growth rate in China has flattened out. Commodity exports are being influenced by slowing world demand as China sees demand for its goods slow and lower tonnages of raw materials are required.
The World Bank says in its latest global economic prospects report that "the most historic commodity price boom of the past century" has finally come to an end.
Typically, commodity booms end as global growth slows, it says. "Like earlier booms, this one was driven by strong global economic growth and has come to an end with the abrupt slowdown in the global economy precipitated by the financial crisis."
This abrupt slowdown has led to a glut of ships, compounding problems for shipping companies, which have to settle for lower shipping rates.
The closely watched Baltic dry index -- which tracks how much shipping companies charge for moving commodities -- has plummeted from a peak of 11793 points in May to about 675 points now.
Jones says if there is surplus capacity, shipping rates come off the boil. "A global recession will probably result in an overcapacity situation in the first half of 2009, but this will vary by trade."
One shipping executive, who asked not to be named, estimates that more than 100 "capesize" ships are lying idle, with more expected to be parked next year. Other ships of all sizes are not being used. Despite the cancellation of new ship deliveries, some ships are being delivered, while others will be delivered next year, he says.
Jones says lower shipping rates are putting "huge pressure" on shipping lines. But changes in shipping rates vary considerably from one trading route to another, he says. On South African routes, it is likely that import rates will come under pressure, he says, while export rates may hold firm provided volumes increase.
Jones says rapidly declining fuel prices should result in some relief for shipping lines. Most shipping lines have bunker surcharges -- an extra charge -- in place to offset the fuel price increases.
He says on some corridors the bunker surcharges are $300-$400 a container and if the oil price remains below $50 a barrel, most of these surcharges will disappear or drop significantly. This should benefit both shipping lines and their customers.
However, lower fuel costs alone will not be enough to cushion shipping companies from the global downturn. Jones says depressed global economies could significantly reduce containerised traffic for the next 12 months. He expects export volumes of motor vehicles and parts manufactured in SA to fall as much as 30%.
Hennie van der Merwe, MD of Trencor, the JSE-listed group that leases containers, says shipping line s are "suffering at the moment". Reaffirming that Trencor will weather the downturn because most of its containers are on long-term lease, Van der Merwe expects a further decline in world trade next year.
The World Bank expects world trade volumes to contract next year for the first time since 1982. "This decline is driven first and foremost by a sharp drop in demand, as the global financial crisis imposes a rare simultaneous recession in high-income countries and a sharp slowdown across the developing world," the bank says.
Jones says the outlook for the shipping industry is subject to uncertainty. "We are not sure how long the current situation will last but expect 2009 to be a difficult year. We hope that consumers will regain their confidence so we can start shipping again."
Be the first to Write a Comment!
Copyright © 2008 Business Day. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.
AllAfrica aggregates and indexes content from over 125 African news organizations, plus more than 200 other sources, who are responsible for their own reporting and views. Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica.
