Shipping Forecast 2010

Shipping Forecast 2010: A bearish year upcoming?

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Miral Shipping Report - 2010 Forecast

First a Look Back at Shipping in 2009

It was an interesting year for dry bulk shipping, to say the least. It started out with very low freight levels being paid to owners of all vessel classes. Freight rates were so low there were fears of a long-term collapse in the shipping market that could have resulted in the potential widespread bankruptcies of ship operators and some owning companies. Those fears largely did not come to fruition.

On the demand side, huge stimulus in many large economies, in particular China, lifted demand for most vessel classes starting in the spring of 2009, and helped underpin freight rates for the rest of the year. For example, China imported record amounts of iron ore (over 600 million tons!) and increased their imports of grain and coal, while also overtaking Germany as the world's biggest exporter. Trade was also more robust than forecast in India, the Middle East and even parts of Europe and South America.

On the supply side, considerably fewer new building vessels hit the market, due to delays in deliveries, which also contributed to keeping rates elevated. Freight rates recovered substantially; not to the extreme levels of early 2008, but rates peaked approximately a third of the way there. Certainly, there were a few bankruptcies of owner - operators, most notably Atlas Shipping and Eastwind. However, the carnage predicted by some and feared by most did not occur. In the end, we can reflect on a much better 2009 than it could have been.

Shipping Forecast 2010

What can we expect from 2010? So far the market indicators are looking more bearish than a few months ago. China is still forecast to import record amounts of iron ore, but they have also taken measures to slow down their economy as asset inflation is once again taking hold. Two weeks ago, it was announced that the People's Bank of China is raising the percentage of deposits that banks must keep in reserve. Further credit tightening is widely expected and this could cool down the sectors that use the commodities that are carried on most dry bulk ships, particularly capesize and panamax tonnage.

"In 2010, like most years, there should be ups and downs but the risk of China slowing down, coupled with a potentially large increase in vessel supply, should be negative for freight rates unless other economies or some unforeseen factors pick up the slack."

I have also seen projections of higher steel production outside of China (namely in Europe), which would be positive for freight. At the same time, I also believe that any substantial economic recovery in Europe or the U.S. is far from certain. On the supply side, indications are for substantially more new vessels to be delivered than in 2009; some say up to 30% of the present fleet. In 2010, like most years, there should be ups and downs but the risk of China slowing down, coupled with a potentially large increase in vessel supply, should be negative for freight rates unless other economies or some unforeseen factors pick up the slack.

Current Shipping Market

Let us turn our attention to what is happening now. Since my last report in November 2009, the Capesize Index rose so rapidly that it tested resistance only 3 days later, and then fell back almost as rapidly towards one of its support levels at approximately $36-38,000 per day. It has held near there during the past month, but just broke through these lows, closing Thursday at $34,795 daily timecharter average, the index at 3706.

The panamaxes followed a similar pattern by hitting resistance in the high $30,000s per day before then dropping back. The panamax index is now at 3523, or at $28,323 timecharter average. However, supramaxes on down to handysize vessels have fared differently. Since November, they have continued to slowly rise, and have remained relatively strong until recently. Only in the last two weeks have they started to weaken. Supramaxes hit a near-term high above $26,000 per day early last week and now stands at 2313 or $24,180 timecharter average. The Handysize Index showed a similar pattern to the Supramax Index, peaking recently just under1250, and now stands at 1177.

Looking Ahead for Shipping

Forecasting ahead a few months, the effect of China's credit tightening and increased vessel supply is negative for freight, but some seasonal positive factors that developed late in 2009 have continued this winter until the last few days. The cold start to the winter in Europe, Asia and North America has increased the movement of thermal coal and de-icing salt; plus the large amounts of fertilizer moving to India has helped keep the handysize and handymax freight markets at relatively high levels. The South-American grain season is set to begin in March-April, and should keep demand for handysizes and handymaxes fairly steady until approximately May 2010.

The capesize market is more uncertain, with the beginning of credit tightening and the New Year in China. The panamax market should benefit with South American grain, but could also be hurt if the capesize market turns out to be weak. Looking further ahead, June - August is usually the slowest period of the year and it looks weak right now. We will keep you informed so stay tuned.

Editor's Note: This article should interest shipping market investors in securities including: Teekay Corp. (NYSE: TK), Navios Maritime Holdings (NYSE: NM), Navios Maritime Acquisition (NYSE: NNA), Navios Maritime Partners L.P. (NYSE: NMM), Tsakos Energy Navigation Ltd. (NYSE: TNP), Overseas Shipholding Group (NYSE: OSG), International Shipholding (NYSE: ISH), Excel Maritime Carriers (NYSE: EXM), Safe Bulkers (NYSE: SB), Claymore/Delta Global Shipping ETF (NYSE: SEA), Genco Shipping & Trading (NYSE: GNK), Diana Shipping (NYSE: DSX), Danaos (NYSE: DAC), Tsakos Energy Navigation (NYSE: TNP), Ship Finance Int'l (NYSE: SFL), Nordic American Tanker (NYSE: NAT), Seaspan (NYSE: SSW), General Maritime (NYSE: GMR), DHT Maritime (NYSE: DHT), Brunswick (NYSE: BC), Marine Products Corp. (NYSE: MPX), DryShips (Nasdaq: DRYS), Top Ships (Nasdaq: TOPS), Eagle Bulk Shipping (Nasdaq: EGLE), Sino-Global Shipping (Nasdaq: SINO), Paragon Shipping (Nasdaq: PRGN), K-SEA Transportation Partners (NYSE: KSP), Euroseas (Nasdaq: ESEA), Star Bulk Carriers (Nasdaq: SBLK), Omega Navigation (Nasdaq: ONAV), Knightsbridge Tankers Ltd. (Nasdaq: VLCCF), TBS Int'l (Nasdaq: TBSI), Golar LNG (Nasdaq: GLNG), Claymore/Delta Global Shipping (Nasdaq: XSEAX), American Commercial Lines (Nasdaq: ACLI).


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