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GLOBAL SHIPPING – SECTOR NOTE

​The shipping industry is highly correlated to the global economic situation. Being an industry significantly dependent on global trade flows, it has witnessed cyclical highs and lows following the volatility of the world economy. This report provides an outlook on the investment opportunity embedded in the shipping industry as it rides the wave of recovery.

• ​Cargo segments: The three primary cargo segments are container ships, dry bulk carriers and tankers. Freight rates for tankers (carrying crude oil or products) were driven by the decline in oil prices from mid-2014.
•  China and Hong Kong: China being a large commodity importer and product exporter and Hong Kong being a trading hub, enjoy prominent positions in the global shipping industry : The New Silk Route serving as a platform for trade development; Gradual uptick in China’s export and import numbers, beating consensus for August 2016 
• Concentration on the supply side: The shipping industry is controlled by a limited number of players and the consolidation is set to intensify with impending mergers. The 14 largest players accounted for 73.1% of the market share as of January 2016. All the major players are part of one of the four major alliances dominating the industry which are: 2M, Ocean, G6 and CKYHE. The industry has been characterized by these trends: Internal reorganization and divestment in non-core businesses; Mergers to consolidate transport capacities and counter the industry oversupply
• Shipping indices – heralding a gradual recovery in freight and trade numbers: The Baltic Dry Index takes into account multiple shipping rates for different routes and serves as a yardstick for dry bulk shipping freight. The BDI bottomed at 290 in February 2016 but has since recovered some lost ground by reaching 941 as of September 23, 2016.