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A buoyant outlook anchored in crude oil and China


If it is true that a rising tide lifts all boats, prospects for the global shipping industry are getting pretty close to high tide.

Analysts covering global shipping say the industry, whose success is tied to global economic conditions, is performing extremely well based largely on demand from developing countries.

"Asia, in particular China, is presently the strongest contributor to global shipping demand growth in all segments," Natasha Boyden and Noah Parquette, analysts at Cantor Fitzgerald LP, New York, wrote in a recent report. "Essentially, shipping rates are riding on the back of China and whether or not the country's commodity usage is growing rapidly enough to absorb additional tonnage supply."

Pareto Securities AS, Oslo, Norway, said that demand across most market segments is strong. In a recent quarterly report on the industry, Pareto expressed a mostly positive outlook for the crude tanker, product tanker, chemical tanker, dry bulk, container and reefer markets. Its only reservation was for the gas-carrier market, which it called "challenging due to delays in new volumes and rapid fleet expansion."

Marine transportation is a $58-billion industry with at least 54 publicly traded companies, according to Cantor Fitzgerald. In contrast, the boat building industry counts about 1,000 companies with combined revenue of about $10 billion, led by large companies such as Brunswick Corp., Lake Forest, Ill., General Maritime Corp., New York, and Century Boat Co. Inc., Panama City, Fla., according to a recent report by

The boat building industry is concentrated to the point that the largest 50 companies control about 75 percent of the market. Demand in that sector depends mostly on consumer income, with the profitability of individual companies linked to manufacturing efficiencies. Many of those boats, however, are very small sport craft and use little or no steel plate; some are as small as sailboats or canoes, which use no plate.

Cantor Fitzgerald said that all shipping segments have seen considerable growth in rates during the past five years, leading to a rush to order new buildings. But the company remains cautious about the extensive order book "as it may negatively affect earnings should supply capacity exceed demand."

Cantor Fitzgerald said dry bulk carriers are experiencing record rates but it is cautious on the tanker segment, with the expectation that the Organization of Petroleum Exporting Countries (Opec) hasn't increased crude oil production enough to fill additional capacity from the order book.

"However, single-hull phaseouts by 2010 (in the tanker segment) may have a positive effect on fleet supply," Boyden and Parquette wrote.

Pareto Securities said that surging world oil production is spurring tanker demand, adding that Asian demand, in particular, continues to show strength. Dry bulk market fundamentals remain strong, led by growth in Chinese and Indian steel production and increases of 8 percent in iron ore shipments to China from both Brazil and Australia.

"With Brazilian iron ore producer Vale finishing negotiations with Chinese steel mills ahead of Anglo-Australian BHP Billiton and Rio Tinto, the exports out of Brazil have been substantial. And the average Capesize rates were 40 percent higher year over year during the first four months (of 2008)," Pareto said. "China's move toward becoming a net importer of coal was a prime driver behind the rising pressure on Australian load ports and the high waiting times that limited tonnage availability in the spot market. Port congestion remains an issue as the fleet is growing more than port capacity."

Steel producers in the United States and abroad are aware of the implications of such fleet growth for their business. They see increasing demand for raw materials from China and India, in particular, as leading to the need to build more ships to carry materials to their final destinations.

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