Shipping Plagues: Rising Oil Prices, Declining Freight Rates & Vessel Oversupply

At Singapore’s Asia Pacific Maritime conference, many shipping companies expressed their concern for the industry’s current state in regards to oversupply of vessels, rising oil prices, and falling freight rates. Key members of the industry believe it will take another two years or so for shipping liners to recover profitability. These issues have plagued the industry’s year-long decline, and look to be the factors contributing to its continuance.

Some shipping consultants predict that growth in the Europe to Far East container traffic will slow to 1.5 percent this year. This is compared to an 8.3 percent container vessel fleet growth for the same period. However, industry leaders remain composed and confident in overcoming current challenges.

Conference speakers deemed Singapore as one of the fastest growing regions in the world, as strong domestic demand continues to keep Asian economies solid and trade volumes in Asia vigorous. With this realization, the maritime industry is optimistic about Asia's ability to increase a positive forecast as Asia grows to become a center of influence for shipping. Others reiterated that overtonnage is not something that stays around in the shipping industry - it just takes a few years to absorb it all.

Driven by cheap credit, many of the large ship orders placed in 2007 are now being delivered, resulting in decreased ship asset values. Funding remains to be an issue for shipping companies after European banks pull out from the ship financing business. Although shipping liners received the rate increases they asked for, this is not enough to keep shipping firms out of the red, according to a Channel News Asia report.

Lastly, high oil prices have directly resulted in the slowing down of marine fuel sales. For example, Singapore’s latest marine fuel sales have dropped to a two-year low.