This past week, we asked our audience of maritime enthusiasts how they feel a projected armada of newly build vessels will affect shipping rates next year.
Bearish observers, from analysts to certain shipping executives (read: Diana Shipping(DSX Quote)), have long warned of a coming glut — the result of a natural cycle in the industry that sees ship owners go on fleet-expansion binges during times of global economic booms. Once those new vessels enter the market, rates crash. It’s a tale of supply and demand as ancient as seafaring itself.
Certainly ship owners can lessen the pain of a down cycle by locking their ships into long-term charters. (In a move widely regarded as bearish, DryShips(DRYS Quote) put 100% of its fleet’s days in 2010 into long-term charter.)
Usually, though, contracts are always expiring on some portion of an owner’s fleets and, if rates plunge, that company must fix new charters at the going rate. And this is to say nothing of the decline in the value of those floating assets whenever rates decline, a circumstance that could imperil the status of the debt ship owners received in order to buy the assets in the first place.
At any rate (pun intended?), some industry insiders don’t agree that 2010 portends disaster. John Wobensmith, for one, the chief financial officer at Genco Shipping & Trading(GNK Quote), has said that ship owners will cancel or delay 45% of the total dry-bulk orderbook next year. If so, Wobensmith will be right in his prediction of relative rate stability next year. “I just don’t see the doomsday scenario,” he told TheStreet earlier this month.
Loading Comments…