Posidonia 2016: A quick reflection
06/06/2016

Posidonia 2016: A quick reflection

A very celebratory week but with little to celebrate this time around. It feels as though most conversation circles at this year’s Posidonia have limited if any positive things to talk about. Sentiment for all shipping markets is keeping at a downright negative tone, while most are trying to excuse the inexcusable in terms of what has inevitably led to this great down turn in the market. In forums you hear blame being thrown left, right and centre, though the unavoidable truth is that each market player has played there small or big part. One must let all this get the down however, as the shipping market always prevails back to normality even if it be with a renewal of market players and under ever changing market fundamentals.

The big issue on focus across all these talks is the overwhelming supply of vessels and the large damage done by the excessive ordering of the past. It will be a while before a proper balance between supply and demand has been achieved and we have managed to shrink the orderbook down to size, but fears are that we may see a trickle back into old bad habits, with new orders being placed as soon as the market starts to pick up once more, continuing the two year cycle pattern that has been noted ever since the market crash of 2008. What’s worse is that this two year market cycle has been a downward trending one, with each subsequent peak and trough being lower than the last, primarily driven by the sluggish demand side of things. The collapse of the commodities markets has been severe and it looks as though things are not in any state of improving on this front for now, despite the slight recovery noted during the past couple of months in some of the commodity markets such as that of iron ore and crude oil. The fundamentals for most of the commodities markets still point towards further problems down the line.

The few bullish views present in the market seem to focus more on the potential prospects, quoting figures such as the level of potential growth in consumption of energy and goods in most of the developing countries, however one must not forget that even China’s exponential growth of the early 2000’s was heavily dependent and driven by the opening of credit in the U.S. and European markets, allowing the consumers in these respective markets to over indulge in imports and create enough demand and foreign direct investment so as to create a strong upward pulling force for China to become the world’s workshop. Shipping is heavily reliant on large investment projects which increase the demand for industrial commodities such as iron ore, while once most of these investments come into operation the pull onwards the requirements for energy commodities as well as commodities which are heavily used as feedstock in the eventual production line of finished products. Of course this cycle of growth will make an appearance once again, however before it is able to do so several structural changes will need to take place in the developed economies so as to create the prime conditions for consumers to be able to support such growth.

In the meantime, it looks as though we need to look more favourably to the vital structural changes that need to take place within shipping itself. In order to drive the next boom in the freight market, we will require a more appropriate shipbuilding capacity to the one we have today, keeping as such a self-providing check to refrain the market players from any new excesses in terms of ordering new vessels and as such keeping fleet growth more in line with what the market really requires

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