The Shipping Markets
The world relies on seaborne trade
Global seaborne trade
The world relies on ships to move its international trade. In fact around 80% of all internationally traded goods and commodities are carried at some point by a ship. Whilst some high value, urgent goods are moved by air, air transport is an extremely expensive option. Shipping by sea is the most cost effective, efficient and environmentally friendly option for most cargo.
In 2013 the world’s ships carried over 9.6 billion tonnes of cargo, a record volume for seaborne trade.
Oil and gas movements by sea account for around a third of seatrade by weight. Tankers are required to move crude oil, refined oil products and gas. Crude oil is moved from the Middle East, the North Sea, West Africa and South America to refineries in Asia, Europe and USA.
Iron ore, coal, grain, timber and steel are moved by sea on bulk carriers. Huge volumes of iron ore and coal are required by the steel industry, whilst Australian, American, South American and Russian grains feed the world. Indonesian, Australian and South African coal supplies many of the world’s power stations.
The container trade, generally manufactured goods placed into containers, though high in terms of cargo value does not account for the same volume or weight.
The freight market is huge and complex with shipowners, operators and charterers at the mercy of fluctuating freight rates. Thousands of events can have an impact on the cost of sea transport and anyone moving bulk commodities operates in an extremely volatile environment.
World trade is dependent upon the availability of adequate shipping capacity. The global merchant fleet size stands at approximately 55,000 vessels.
Why do freight rates fluctuate?
The freight market is subject to a wide range of external variables, but it is fundamentally driven by the following factors:
- Vessel supply: How many different types of ships are available? How many vessels are being delivered and how many are being scrapped?
- Commodity demand: What are the levels of industrial production? Has the grain harvest been successful? Are the power stations importing more coal? How is the steel industry performing?
- Seasonal pressures: The weather has a big impact on the shipping markets, from the size of harvests to ice in ports and river levels.
- Bunker prices: With bunker fuel accounting for between one quarter and one third of the cost of running a vessel, oil price movements directly affect shipowners.
- Choke points: This factor can particularly affect tankers with almost half of the world’s oil passing through a handful of relatively narrow shipping lanes. These points include the straits of Hormuz and Malacca, the Suez and Panama canals, the Bosporus and other important channels whose closure – either from conflict, terrorist attack or a collision in the overcrowded shipping lanes - would change the entire world’s supply patterns.
- Market sentiment: Because perhaps as little as half of the demand side is known in a timely fashion, market opinion affects the freight market just as much as the actual supply and demand of ships and cargoes.
- Approximately 55,000 vessels of 1000+ dwt make up the global merchant fleet.
- The circa 9,000 ships in the dry bulk fleet are controlled by approximately 2,100 companies.
- Ultra Large Crude Carriers carry 2 million+ barrels of oil.
- The growth of the world economy has seen a huge growth in the volume of seaborne cargo over the past 30 years.
- The Baltic Dry Index hit a record high of 11,793 points on 20 May 2008.
- By 5 December 2008 the Baltic Dry Index had collapsed to 663 points.
- Japan, Greece, Germany, China and Norway control over 50% of the world's merchant fleet.