More businesses diversifying as shipping industry suffers

A key measure of commodity shipping costs - the Baltic Dry Index - has barely recovered from its plunge during the 2008 crisis. That meant shipping lines that carry raw materials
are not earning as much as they want to.
This has prompted businesses that invest in vessels for charter to then diversify their fleet.
The survival of shipping business trusts such as First Ship Lease Trust, Pacific Shipping Trust, and Rickmers Maritime depends on how buoyant the shipping market will be. 

Demand for shipments has started to pick up along with revived global trade, but a glut of vessels has resulted in cheaper freight rates, which are the lifeblood of ship liners. 

The Baltic Dry Index, which measures the price of moving raw materials by sea, stood at 1,405 points on June 15, hardly clawing back from losses during the 2008 financial crisis, when the reading plunged to 663 points.
It hit a post-crisis peak of 4,661 points in November 2009, but had since been on a downtrend, according to data from the London-based Baltic Exchange. 

Philip Clausius, CEO of FSL Trust, said: "Our assessment is that clearly the shipping industry is still going through tough times. In particular, we're not positive on the dry bulk sector.
"We think that the dry bulk sector will be suffering from significant oversupply of ships for an extended period of time. I'm afraid we will all have to live with market circumstances which I'll broadly describe as lacklustre for another year or two." 

That is why FSL Trust, for instance, is not betting on dry bulk cargoes, or those that carry raw materials including coal and steel. It recently acquired two product tankers as part of its diversification strategy, bringing its fleet to 25 vessels. 

Analysts said the ship leasing industry is coping by investing in ships that carry petrochemicals and containers. The move comes on the back of prospects of demand from markets such as Australia and Japan - the former cultivating gas fields while Japan is doing rehabilitation work.
Investment house CIMB said its outperform call on container shipping stocks is under review while SIAS Research is neutral on lease shipping counters. 

Ng Kian Teck, and investment analyst with SIAS, said: "Our outlook on the industry is actually neutral. We're seeing quite a number of vessels coming over the next couple of years. And that will put pressure, probably the charterers won't be willing to renew the current lease at rates they have right now. So that poses challenge on the yields going forward." 

Shipping companies with offshore oil services appear to be an attractive clientele for those in the leasing business, given high crude oil prices. But analysts said that will not be a likely route to generate stable dividends.
Source: CNA