Economic growth set to recover

Economic growth set to recover
The latest update of the IMF’s “Economic Outlook”, dated July 2008, came as a surprise as it revealed that the level of economic activity in the US had not been hit as hard as expected and that the growth estimates for 2008 and 2009 have been revised up compared to the more pessimistic forecast in April 2008.
While the current status of the world economy remains tense and the world GDP growth forecasts of 4.1 per cent and 3.9 per cent for 2008 and 2009 respectively are not too exciting per se, the IMF did not revise its expectations for the long-term economic growth between 2010-2013, which were an average annual growth rate of 4.9 per cent in world economic output and 7.5 per cent in world trade.
However, in the short run, many market analysts have reduced their estimates of the growth in world container traffic. The latest market observer to revise its growth estimates for 2008/2009 is Clarkson Research (August 2008), which now forecasts that the world container traffic will grow by 7.9 per cent in 2008 - an earthquake to an industry which has been used to double-digit growth rates during the past few years. At the same time, it must be noted that Clarkson remains quite confident about the outlook for 2009, forecasting that growth will speed up again and reach 9.2 per cent, and that other analysts are not as pessimistic even for 2008.

Fleet expansion en route
Based on LR/Fairplay, the fully cellular vessel fleet has grown by 7.1 per cent so far this year, reaching a total volume of 4,489 units and a capacity of 11.5m TEU in July 2008. According to the order book, the fleet will grow by another 305 units over the course of the year, increasing the capacity by probably another 7.5 per cent. Although the first half year so far saw a relative slowdown in contracting, the order book is still near to the all-time it reached in the first quarter of 2008.
The foreseeable nominal capacity expansions currently amount to 14.1 per cent in 2009 and 14.2 per cent in 2010 before dropping to an estimated 9.7 per cent in 2011. While it is always possible that the yards will accept additional orders for delivery in 2011, the recent decline in rates could persuade ship-owners to proceed with caution when ordering additional tonnage in the short-run.

Market outlook
Regardless of the current nervousness in the charter markets, there is relatively little danger of severe over-capacities in the long run as the current order book focuses primarily on the large container carriers. These will be deployed on the long trade routes and thus contribute less to meeting the overall demand for box transport (expressed by the demand indicator ‘port handling’).
Additionally, scrapping has been virtually non-existent in recent years and, with as little as 19,000 TEU sold for demolition so far this year, the number of ships which are long overdue for scrapping keeps piling up and constitutes potential short-term relief for an oversupply of TEU capacity, although it must be noted that all of these vessels are below 4,000 TEU. The level of order activity is relatively low, especially in this latter sector. This is odd as the high number of large vessels on order will spur additional demand for feeder ships while at the same time the intra-Asian traffic is booming and demanding bigger units.
Over the course of the next months, the charter markets are likely to remain volatile – despite the good forecasts – as shipowners anxiously wait for the demand growth to gain momentum again in mid/late 2009.