Shipping association BIMCO has highlighted the potential for industry consolidation, a greater focus on risk management and higher financing costs within the dry bulk shipping sector.
The report forms part of a series of reports looking at the “road to recovery” for dry bulk shipping and builds on the conclusion from previous analysis that the current crisis in the sector can only be solved if shipowners deliver zero supply side growth year-on-year to 2019.
“This report gives the industry much-needed analysis on the wider impact of the current severe – and enduring – shipping crisis,” said BIMCO President Philippe Louis-Dreyfus. “This crisis will affect shipping companies, not only economically and financially, but also sociologically. We will see deep changes in the fundamental structure of the shipping world and in shipping companies, mainly the smaller ones. A new business model will emerge, not just for shipowners but also for brokers, shipyards, financial institutions and other stakeholders.”
The report concludes that “the fragmented ownership of the dry bulk fleet cannot be sustained over the length of the downturn”, with consolidation of the industry into fewer and larger companies the result.
The shipping industry will also see increasing demands from company stakeholders for “more sophisticated business models” focusing on better quality information and a great focus on risk management, echoing changes that have taken place in other industries.
The new larger shipping companies will need to deal directly with larger companies on major trade routes, according to BIMCO, while longer-term contracts of affreightment and digitalisation of the sector will place brokers under pressure to widen the services they offer.
The BIMCO report also suggests that new banking regulations known as Basel III will increase the cost of bank finance for the sector, with banks focusing more on customer credit risk. As a result, smaller ship owners may have to tap alternative sources of finance in the future.
A final result of the shipping crisis will be the need for shipyards to close or consolidate – although the requirement to retrofit environmental equipment to ships could provide opportunities.
Read the article online at: https://www.drybulkmagazine.com/shipping/07102016/consolidation-ahead-for-dry-bulk-shipping-sector/