Like the big dipper at a fun fair, the shipping industry has its share of ups and downs. After a thrilling start to the century, rapid fleet growth and the financial crisis dampened the market. However, we are now seeing signs of a better balance between fleet expansion and trade growth.
The shipping rollercoaster has plenty of ups and downs, and one of the best ways of keeping track of the twists and turns is by looking at the balance between the growth in seaborne trade and growth in the fleet.
The Graph of the Week shows the development of fleet growth and trade over the most recent two 8-year periods. During the first phase (1999-2006 inclusive), fleet and trade growth broadly tracked each other, resulting in a competitive and, at times, prosperous market.
Trade growth started strongly at the turn of the century, prompting a “mini-boom” and giving shipping’s thrill-seekers a taste of things to come. After a couple of slower years in 2001-02 in the wake of the “dot-com crisis”, trade growth recovered and achieved a CAGR of 4.6% for the period as a whole. At the same time the fleet grew at 4.2% per annum – tracking demand growth but not exceeding it. The tight market conditions that characterised this first cycle of the century drove the shipping market to incredibly firm levels and, for some, the thrill of a lifetime.
Hold On Tight
During the second 8-year phase (2007-2014 inclusive) fleet growth has surged ahead of trade. For the first couple of years the market was strong enough to absorb the large number of new deliveries coming out of a rapidly expanding shipbuilding sector. However, in the wake of the global financial crisis, consistently higher fleet growth resulted in much weaker market conditions.
In 2009 global seaborne trade fell by 4.0%, compared to fleet growth of 7.1%. Trade made up some lost ground in 2010 when it grew by 9.6%, but with fleet growth hitting 9.5% that year and 8.8% in 2011, trade growth was unable to keep pace. Over the past 8 years as a whole, the fleet has grown by a CAGR of 6.5%, compared with trade growth of 3.5%.
Here We Go Again
Over the past two years deliveries have eased enough for fleet growth to fall back below 4% pa, and in 2014 trade growth is expected to exceed fleet growth for just the second time in over a decade (the other time being 2010 when trade was recovering from the financial crisis). As a result shipping markets are relatively tighter and faster to react to localised demand/supply imbalances. The last 9 months have seen spikes in bulker, tanker and gas carrier rates which have encouraged renewed interest in tonnage acquisition (both secondhand and more efficient newbuilds) and capital markets.
So the 21st century so far has been a breathless ride. There have been long, slow climbs and the occasional sharp drop, but many enjoy the thrill of the ride and want to get straight back on. Shall we go again? Have a fun day.