SINGAPORE–DVB Bank SE (DVB.FF), a major global financier of purchases of ships and airplanes, projects that the market for global marine transport vessels won’t recover until at least the middle of next year, when demand finally catches up with supply.
World trade is expected to grow 4%-6% this year, but an excess supply of shipping capacity will keep vessel prices depressed,Wolfgang Driese, the chairman and chief executive of DVB Bank, told The Wall Street Journal in an interview.
“We need two to three years to grow out of the orderbook. But we could, in the middle of 2014, see stabilization in asset values and perhaps some increase in charter rates. It’s not so that this is a bad market forever,” Mr. Driese said.
Ship owners went on an ordering spree at the peak of the boom in the marine transport market in 2007 and 2008, causing new yards to mushroom across many parts of Asia, particularly China and South Korea. However, the global economic crisis led to a drop in international trade, creating a glut of vessels.
“The ship owners killed their own market,” Mr. Driese said.
While the excess supply isn’t as severe as it was, it will take the industry 2-3 more years to absorb all the new ships being produced, Mr. Driese said.
Government support for shipyards, because they are big employers, has skewed the market and added to the problem of excess supply–in some cases by resulting in the production of ships even after the initial customer canceled the order, Mr. Driese said. Around half of all smaller shipyards would disappear without government support, he said.
The shipping industry has pinned its hopes for a recovery on Chinese economic growth spurring demand for raw materials such as iron ore and coal.
DVB Bank estimates that demand for bulk transportation will grow 7% this year, up from 4% last year.
The outstanding orderbook for bulk carriers still stands at 19% of the current fleet, down from about 50% three years ago. That will take 2-3 years to balance as trade grows and older ships are scrapped, Mr. Driese said.
However, fewer ships will be scrapped in coming years because so many new ones have flooded the market, he said.
“In the past, we had bulkers that were 30 years and older. These are all gone. A vast majority of the vessels in operation today are less than 10 years old,” he said.
The bigger container lines may have turned the corner in terms of profitability, but charter rates for container vessels are unlikely to improve anytime soon, Mr. Driese said, adding that independent owners of container vessels will continue to suffer.
In November, A.P. Moller-Maersk A/S (AMKBY), the world’s biggest container shipper by volume, reported that its liner business returned to profit but warned that demand for seaborne containers will remain depressed.
Write to Gaurav Raghuvanshi at firstname.lastname@example.org
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