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There is no need for either market based or regulatory intervention to break a period of sustained low freight rates, erosion of asset values and oversupply according to a shipping industry panel, disputing the conclusions of similar panels, especially one of industry leaders at Danish Maritime Days (DMD) 2016.

 

Debating the state of the market in London, June 6, at an event co-hosted by international law firm Norton Rose Fullbright and marine and energy PR and communications consultancy BLUE, the panel however, warned that if the current downward cycle reached 2021 it would constitute the longest downturn the industry has ever experienced.

In 2016, the DMD group surmised two general approaches could be taken to achieve a rapid reduction of the present cargo fleet capacity: a free market approach, where the book value of assets were realigned to reflect their real market value, and a more interventionist approach.

Admitting there remained substantial oversupply in the market, the Norton Rose Fulbright / BLUE panel largely agreed intervention in either incentivising the acceleration of scrapping, or in controlling newbuild numbers, was both impractical to implement and unnecessary.

Janina Lam, head of dry bulk research at Howe Robinson, suggested that even if market intervention was feasible at the newbuild stage, shipbuilding was not an industry that reacted to market trends beyond commodity prices. Lam said: “Shipyards don’t react to the market, they react to the ton of steel price. That’s why we see prices for bulkers, tankers and containers correlating with each other. Therefore, the yards do not care about the markets.

“We saw discounted prices in 2012 and 2016 where newbuilds were more attractive than the second-hand market. This is where I see the problem: where we see pro-cyclical behaviour.”

In terms of incentivising scrapping, non-executive director for vessel cash buyer GMS, Nikos Mikelis said: “The market will sort itself out. I don’t see the need for governments to subsidise scrapping. I cannot see recycling intervention working. Ballast will get some ships, but it’s a moving feast [in terms of when].”

Clarksons president, Martin Stopford, believes if the oversupply issues were not resolved, the downturn could extend for many years, saying if market recovery did not commence before 2021, the industry would have been in the longest downward cycle dating back to the 19th century.

Filed: 2017-06-15