SIW1065imagel‘Halfway Houses’ are for people who have been getting treatment for a compulsive problem like alcohol; or maybe substance abuse. When the treatment is over and the patients prepare to build a new life, the Halfway House provides support. It’s not a service Mission to Seafarers provides, but who knows, it might be helpful to anyone who has been treated for Shipping Investment Abuse (SIA) and is now anxious to get back into the shipping investment business.

 A World of Temptations

The trouble is that in today’s market there are so many temptations for SIA sufferers. It is four years since the shipping slump started, catastrophically, in 2008. Year by year earnings edged down and by 2012 most sectors were trading at operating costs.  But in 2013 things seem to be edging in the right direction. The shipyards have reduced their orderbook from 51% of the world fleet in 2008 to 15% today. And demand looks OK. Despite the OECD’s economic problems, trade is growing briskly. Not as fast as the fleet, which grew by 6% in 2012, but around 4-5% pa which is helpful. Of course there’s a big surplus to clear, but the fundamentals look temptingly better than last year.

Half Way To Where?

So where are we in the cycle? The line in the chart makes 2013 look rather like the bottom of the trough. With rock bottom rates, sprightly scrapping, a “normal” orderbook and trade undented by the Euro trauma, could we be halfway through a classic ten year cycle (see dotted line)? Past cycles lasted from 3 to 12 years so 10 years is typical of a longish cycle. But history rarely repeats itself and today’s key question is not when the market recovers, but how.

Small Baggage, Big Boom

How it recovers is something SIA sufferers can influence. Halfway House inmates struggle to build a new future because they carry bag-gage from the past and shipping markets can face the same problem. The last boom was mercifully baggage free. Pessimism in the 1990s slowed fleet growth; a run-down shipbuilding industry produced few ships and China added 1 billion tonnes of unexpected trade. Demand surged ahead of supply and we got a super-boom. But today there is too much baggage. Building is bloated, China is maturing and investment sentiment is bubbling. The risk is that the upswing gets buried. Yard capacity is there to do the job and some owners have the cash.

See Your Councillor, Shipmates

So there you have it. We might be halfway through the cycle, and the future might be the rosy recovery shown in the chart. But shipping might have accumulated so much baggage that rehabilitation will be-come a long and tedious business. Will those treated for SIA be able to resist when the yards slip them a cheap package? Can they bear the boredom of life dedicated to modest commercial returns? History says the temptation to go on another bender might be too great, but not necessarily. Which is why shipping needs its own Halfway House – please contribute generously. Have a nice day.

 

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