With emerging global trends pointing to further declines in seaborne oil and container transportation, the headwinds faced by global shipping sector are not set to abate any time soon.
Next week (Tuesday 25 June) sees full-year results from ACM Shipping (ACMG) which may illustrate the sector's pains. Analysts forecast £3.3 million pre-tax profit, which would represent a 16% year-on-year decline.
The forecasts could have been a lot worse if ACM was a shipowner, but its status as a broker does insulate the group from some of the risks associated with the sector. Indeed, its spot brokerage business – which accounts for around 58% of revenue – is expected to have performed well in extremely challenging market conditions.
The industry is sinking from an oversupply of vessels which continues to undermine shipping rates. Analysts have pointed to scrapping volumes which do not outstrip new ship launches.
While global ship scrapping tonnage increased by 8.8% year-on-year in 2012, more recent data show that the global scrapping tonnage declined in the first quarter of 2013.
Structural overcapacity is only one of the concerns facing the sector. In a recent note on the global shipping industry, Moody's Investors Service identified a number of issues which have the potential to disrupt the sector landscape over the next five years: falling US oil imports, the return of some manufacturing capacity to rich industrialised nations and technical innovation in vessel design.
While ACM's experience of the global downturn in freight volumes and rates has been muted owing to its lower exposure to volatile dry rates – dry bulk freight only accounts for 15% of ACM's revenue – Moody's points out that demand for seaborne oil transportation has been weaker than expected, even taking into account the increased appetites of China and India.
It says: 'We forecast that in 2013 crude oil seaborne trade will be either flat or decrease compared to 2012, a year in which the tanker segment received a short-term boost mainly owing to the effects of EU and US embargoes on Iranian oil exports, which took effect in the middle of last year.'
The emerging trend of reshoring is also likely to have an impact on freight rates, particularly in the container sector.
'Estimates about the extent of reshoring vary: for example, the Boston Consulting Group – a global management consulting firm – forecasts that by the end of 2020 about two-thirds of US imports of semi-finished and finished goods from China will be affected to some extent by reshoring, and that as a result of this trend the production of 10%-30% of the goods in areas such as transport, computers and machinery might shift from China back to North America,' says Moody's.
Technical innovation and environmental regulation remain key features of the sector but financing these upgrades continues to be problematic with many shipping banks, particularly those in Europe, reducing their exposure to the shipping industry in recent years, while players may struggle to obtain bond financing at cost-effective rates.
Moody's goes on to point out that the 'challenges are the greatest for the dry-bulk industry, where the average fleet age is high and the current financial positions of most players are quite weak.'