As the financial tide rides high over the industry, shipping experts explain how they are holding on tight and weathering out the storm.
Despite so-called media hype and what some would see as sensationalised reporting, nobody can deny that there is a very real financial crisis that is leaving several shipping companies stranded on dry land.
Ships are being laid up, some shipping banks have stopped lending, and, as a result, companies are beginning to put a halt to the purchasing of orders.
It is the collective view of these shipping companies however, that this big problem can, with the right strategies, be turned into a huge opportunity to diminish old bad habits and grow stronger.
The volume of trade has begun to decline and the plans for adding to ship capacity over the past years have resulted in more orders and additional numbers of ships. Shipping companies are not able to handle the cost of these new orders now and revenues that those ships are able to generate across all sectors have been declining fairly significantly, so they are feeling strong financial pressure.
The economic downturn has undesirable consequences and is affecting most businesses around the globe. And, according to financial experts, it is shipping companies' own actions that have lead to a significant fall in the industry.
The executive director of Braemar Shipping Services, Denis Petropoulos believes that if the industry carries on spending without careful planning then this will ultimately lead to a recession.
"Last summer, the price of crude oil peaked at US$150 but nobody budgeted for it. Now the price has nosedived to just under US$50 in the last 6 months," he says.
"If people carry on travelling to expensive destinations via expensive transportation then there will be a recession but if people go on cheaper holidays via cheaper travel means then there will be light at the end of the tunnel. In the same way the shipping industry must be budgeted."
In container shipping, many companies around the world are beginning to lay off ships and adjusting their capacity to meet its future demand. In boat shipping there are similar kinds of activities and very rapidly dropping charter rates particularly in the stock market.
But, Manny Hontoria, senior partner of international management consulting firm, Oliver Wyman explains that over the long term, this is also an opportunity for businesses to think carefully about their network designs and fleet plans, their approach to the market and how they run the business.
"As a company we are helping in the restructuring effort to fine-tune businesses to account to the new economic environment. We continue to help them think about what the outlook at the end of this process can look like," he says.
"We are seeing signs that people are taking huge steps to secure their future through both mergers and acquiring assets."
For example, Petropoulis says that 40-60% of dry dock orders were cancelled in the last six months. But he also notes that shipping companies are putting in place temporary measures like this to avoid further financial strain.
Rohan Shetty, marketing director for Kellet Singleton Group, a fast growing business, which offers support functions such as financial help to shipping companies, adds: "Do you really think that our industry is going to rewind back to 4,000 years ago when this business started? I doubt it. We are a well renowned industry and we are not going to stop now."
Indeed, regardless of the economic state, people will not stop flying, the lights will not turn off and orders will not stop being shipped. There will always be a need for these things.
"The life blood of the world depends on oil and therefore the transportation of this is essential," adds Petropoulos.
Shetty also says that many shipping companies are becoming very aware of the global economic downturn and this reality check could be just what the doctor ordered. He uses the population's eating habits as a metaphor for the way the shipping industry is handling its finances.
"There are seven billion people in the world and we all need to eat. But, if we watch our cholesterol and listen to health advice we will be fine. This is how it works for the shipping industry, it needs to exist to meet the public's need but if it does not tighten its belt, there will be dreadful consequences."
For many of these companies, particularly the ones that are very well capitalised, there are likely opportunities for shipping companies to make the most of low prices of ships that are being sold.
"This is the time to take advantage of the opportunities that are going to be coming up to re-secure a healthy future," Hontoria says.
"Things that affect the price of ships are the supply and demand from the shipyards and the price of the steel that the shipyards have to buy to build the ships. The demand has dropped very significantly and the underlying cost of steel has also dropped. Because of this, the price of ships is decreasing and this is perhaps where the greatest opportunities lie now."
But can change happen? One thing's for sure; no industry is immune to economic downturn and, for many companies, the main solution is to reflect on how to run the business well and through careful navigation, decide on which route to take to resecure a healthy future going forward.
"It is simply a question of severity, I think there is a consensus that growth will moderate but whether we will go into an actual technical recession is a very open question," concludes Hontoria.
Maersk Lines is one of the leading shipping companies in the world with a fleet of 470 container vessels and over 1,900,000 containers. It is therefore no stranger to the Middle East and last May enhanced its ME3 service between Europe and this region, bringing the total number of ME3 TEU vessels to 6250.
Despite this successful background, the shipping line has not been sheltered from the effects of the credit crunch. Container shipping is an integral part of world trade and therefore it is expected to be hit by the downward trend.
"The financial crisis and economic slowdown has an impact on all of us; today we are faced with a market situation characterised by uncertainty," says Hanne B. Sorensen, CCO for Mearsk.
Maersk is being realistic about the tough times that will inevitably come however and is preparing for challenges ahead. "Maersk Line is part of the A.P. Moller - Maersk Group, a financially strong and well consolidated conglomerate. We have since early 2008 initiated a focused streamlining of our organisation, aimed at making us more efficient and customer focused," Sorensen adds. "We understand the impact disruptions can have on supply chains.
When completed, Dubai Maritime City will be a hub for the maritime industry, not just for the Middle East but across the globe. It will provide a world-class environment for businesses such as those from the shipping industry and because of this the global crisis is a big cause for concern for this business centre.
"It would be naïve and stupid to say that the financial crisis is not affecting the shipping industry because it is one of the first industries to be hit," says Nawfal Al-Jourani, chief marketing officer for DMC.
Like many industry professionals, however, Jourani believes that this so-called crisis comes at a perfect time for shipping companies. "Before the news of the crisis, the world was sitting on too many goods and there were too few ships to carry them and that's why there was a huge demand to build more ships. But now there is a balance coming back into the market where there are enough ships to deliver the goods," he explains.
According to Jourani, shipping companies need to be based on solid foundations with clear visions and careful strategies in order to survive the storm. But, it isn't the first time that this sector has had a fight on their hands.
"In the 1970s, the shipping industry was hit by an economic crisis but it picked up and I think it can do this again. It will get better and we will be there to support the industry. Gulf Agency Company
With rich economies such as Japan and many Euro-Zone countries already in recession, there is likely to be an onset of a global recession. All businesses are now entering a period of uncertainty as the effects of the financial turmoil ripple across the world, 2009 looks set to be a tough year ahead, according to Gulf Agency Company (GAC).
GAC is a leading shipping organisation offering global port and hub agency services and it is now obvious to this company that the affects on the shipping industry will inevitably spill over to the agents.
Lars Heisselberg, GAC group vice president of shipping services explains: "The key risks to agents relates to cash flow as invoice settlements may be deliberately slowed down and, of course, defaults. It's not all negative as we also see ways to benefit from the present situation when vessels are idle in the traditional lay up locations."
Indeed, it is also an opportune time for agents to explore more innovative shipping solutions to enable principals to reduce their operation or procurement costs. For example, GAC's recent weather routing solutions introduced in conjunction with the Swedish Meteorological Hydrological Institute help principals navigate with the most efficient route under any weather conditions. This helps to reduce bunker costs for the principals.
With banks tightening their lending and credit terms, the effects could be devastating particularly for agencies that are small or without a firm foundation to begin with. According to Heisselberg, however, the GAC Group is financially independent, has a high degree of liquidity and a strong solidity to come stand firm through the crisis.
"Businesses which are well financed and have sufficient resources to ride out the tough times and recover will capitalise on the inevitable opportunities that always arise at times of economic downturn," concludes Heisselberg.
Kanoo Shipping Company
Established in Bahrain, 1890, Kanoo is one of the largest family owned shipping businesses in the gulf region handling every type of ship from oil tankers to military vessels.
Kanoo operates in 19 countries across the Middle East and is now looking to expand globally. According to this well established company, cruise liners are being affected the worst and people are walking away from deposits they have put down for holidays. When it comes to the freight forwarding ships, however, it is a different story.
Steve Blackney, shipping manager of Kanoo UAE and Oman says that there will always be demand for cargo ships. "Oil tankers will continue to go out no matter what happens and it is the same with container ships because they are a necessity. There may be less cargo on the ships but they will still come out" he explains. "On the positive side, if there are fewer ships then there will be less congestion at the Jebel Ali port, which is a big problem at the moment."
The shipping industry needs to get back on its feet but Blackney explains that this is not the first time this sector has had to pick itself up again. He says: "The shipping industry never gets it right, when times are good they build ships and when times are bad people walk away from them. It seems to run like this in an eight-year cycle and the aircraft industry does the same thing."
At the moment the company does not expect a big growth from 2009 but it also believes that it can avoid financial loss by tightening the purse strings. Blackney adds: "We are now battling down the hatches by cutting any unnecessary expenses and freezing pay increases, we have not cut any jobs but I think it will take a few years for the shipping industry to recover from the economic downturn."