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How was it for you?
Well, that’s it: the recession is over – officially at least. Recent economic growth, however tiny, means that things are looking up. So how come it feels as though things are still getting worse? Recent prognostications from Those Who Know About Things Like This suggest that the US economy could grow by as much as 3 per cent this year, after an annualised growth of 5.7 per cent in the fourth quarter of 2009. Many of the larger EU nations recorded some improvement late last year and the European Commission is forecasting global GDP growth of about 4 per cent this year, after last year’s 0.5 per cent decline.
Turnover in some industry sectors is tracking these trends. Several transport operators have been reporting improved fourth quarter figures and making optimistic noises about 2010. Many storage terminals report seeing some rebound in chemical throughput. There seems to be some improvement in tanker demand, particularly for smaller parcels of chemicals and petrochemical gases from the Middle East. For plenty of other operators, though, things are still tough: railfreight volumes in Europe are currently something like 40 per cent below year-earlier figures, according to at least one major operator; demand for rigid packaging continues to be weak; and overall storage tank utilisation has slipped lately.
Then there are earnings: rising fuel costs are impacting the transport sector and many ship operators are reporting much weaker timecharter earnings in the fourth quarter as the cost of bunkers has increased, even where there is a tighter supply/demand position that might be expected to improve the market.
On the other hand, there looks like some improvement in the tank container sector. In our annual review of market conditions (see page 32), a number of operators are sounding positive about the current situation. Some have even been taking advantage of low newbuild prices to add to their fleets – at a time when others are still off-hiring lease tanks because of overcapacity.
One problem for them – and for manufacturers around the world – is the increase in slot rates being charged by the major container shipping lines. They have had a particularly hard time of the recession, not least because they had been building up their fleets during the good times and are still taking delivery of new ships ordered before the downturn kicked in. Worse still, one of the lines’ responses to rising fuel costs and over-capacity is to slow down their vessels. Such ‘slow steaming’ is a regular feature of weak shipping markets across the board; in the commodity markets it is not a great problem but for the fmcg and retail sectors it can cause issues in terms of the scheduling of just-in-time deliveries.
Moreover, when a leased asset is kept at sea for longer, then the cost of delivering that asset and its contents rises disproportionately. Passing those costs on to the end user is not easy at a time when many shippers are still suffering from the effects of the downturn.
What all asset operators have had to get used to in recent times is a series of sharp changes to trade flows. Ships have found themselves empty on what used to be loaded legs but full on the backhaul; tanks have been in short supply in regions where there used to be a surplus; and storage tanks that once handled imports are now used for export consignments. This situation is unlikely to change in the near future, as different territories emerge from the downturn at different rates and different product groups are affected in different ways.
All trade ultimately depends on consumer demand, of course, and this must be where concern still exists. In some of the more mature markets, consumers have shown themselves reluctant to return to their old profligate ways: massive levels of consumer debt need to be serviced and even current low interest rates are not encouraging any further borrowing. Rising unemployment in many countries, together with the looming threat of inflation and likely interest rate rises, will hardly help things.
So we will probably have to take a cautious approach to 2010. The good times are not going to be back any time soon and many of us will probably feel like we are still in the midst of the recession for a while yet.
Peter Mackay
