By Richard Greiner
The shipping industry faces some very significant challenges over the coming years, but has a number of reasons to be cheerful as it enters a new decade, according to BDO.
Last year marked the 150th anniversary of the opening of the Suez Canal, which in many ways helped to revolutionise the conduct of global shipping markets. Now, on the cusp of a new decade, whilst there is nothing comparable in prospect, there are nevertheless a number of very important fundamental changes in the offing, and moreover a number of reasons to be optimistic about the fortunes of the industry over the coming decade.
At the end of 2019, confidence in the industry was as high as it has been at any time in the past six years. Despite a general slowdown in global GDP, demand for the industry’s services remains strong, while a contraction in the number of newbuildings on order and a steady stream of recycling has brought supply under stricter control. If supply and demand are in harmony, much good will inevitably follow.
Shipping nevertheless faces some serious challenges in the immediate future, not least the need to comply with new regulations. Environmental Social Governance (ESG) will assume increasing importance. With IMO 2020 in effect, the fuel price differential becomes a significant factor from day one of the new decade, and it will be instructive to see whether freight rates will cover the increased costs thus incurred.
IMO 2020 scrubber retrofits in drydock will continue to keep tonnage off the water, although shipments of low-sulphur fuel will boost the product tanker trades. New fuel solutions will doubtless continue to be trialled, while it will become clearer whether the Poseidon Principles can be the new global framework for responsible ship finance.
Elsewhere, operating costs are forecast to go up, while geopolitics and trade wars and sanctions will continue to exert their customary influence. The first full financial reporting season with the new lease accounting standards in force will no doubt see bigger balance sheets for some in the industry.
We now know that Brexit really does mean Brexit, but what does Brexit itself really mean? There are a number of presidential and parliamentary elections scheduled for 2020, including those in the United States, Egypt, Greece, Hong Kong, New Zealand, Poland, Singapore and Venezuela. Each has the potential to impact shipping in a positive and/or negative way.
Other issues facing the shipping industry at the dawn of a new decade include exchange rate volatility, and the question of whether US interest rates will continue to fall. LIBOR will not be replaced until the end of 2021, but the time to prepare is now.
Perhaps the biggest challenge of all, however, is the need to maintain and increase technical innovation in ship and engine design, and to harness the required technology through the likes of Big Data and Artificial Intelligence – and then not to forget to plan for the seafarer of the future.
Over decades, most markets historically rise as often as they fall. Shipping has weathered the past decade better than many predicted, and so enters the new one all the stronger for that. If it can meet the financial, technological and regulatory challenges which it faces, it will continue to be attractive to existing and new investors alike.
Richard Greiner is Partner, Shipping & Transport at accountancy and business advisory firm BDO