India’s leading shopping companies GE Shipping, Shipping Corporation of India (SCI), others managed to sail safely in globally uncertain times due to the US-China trade tariff standoff.
However, as both countries have decided to settle the issue amicably over a period of time and prepare to resume trading activity between them, the day’s high freight rates and truncated Shipping capacity will soon be over.
Oil and petroleum products are among the top traded commodities between the two countries as well as globally.
With US-China involved in tariff war and also sanctions imposed by the US on several other countries saw freight rates skyrocketing while people getting nervous with the cost of shipping
Last year, nearly 300 oil tankers globally have been placed off-limits as companies fear to violate US sanctions against Iran and Venezuela.
With the Phase-1 of a deal signed between the US and China, the global uncertainty is put to rest.
This means, most of China’s idle shipping capacity will return to operations.
Meanwhile, the industry fundamentals are looking significantly better than they were at any time over the last decade or so.
There is a large amount of order book building up.
An order book is the supply of new ships compared to an existing fleet.
For instance, if the existing fleet is about 100 ships and the order book is 25 new ships, that is a 25% order book.
That is not a good thing for shipping because shipping rates are an interplay of demand and supply and the addition of 25% of new ships means that rates are going to be significantly lower.
The order book which around 10 years ago was at 20-25% for tankers and probably about 50% for bulk carriers now between tankers and bulk carriers both are below 10%, which is probably the lowest level it has been in the last 15 plus years.
And that gives a little bit of hope for better market fundamentals going forward.
Overall we feel that the shipping sector which is cyclical in nature could be looking at better days hopefully as the China trade starts improving again and freight rates which have hit rock bottom should improve from here onwards
Companies like GE Shipping could be interesting considering the fact that the company has used the downturn in the industry to build its asset base at relatively cheaper prices and has been able to keep its head above the water despite competitive market conditions for a long time
Hence FY21 could turn out to be a much better year operationally for GE Shipping after earlier years of underperformance.
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