When the Storm Borns Opportunities
Today’s compicated world economic system proved vurnerable and unprotected to face the crisis that eroded from a massive violation of basic market rules in the banking sector and the out of control action of speculators in all the commodities markets mainly in oil market.
As a result, the global economy is on its knees, oil is plumbing to new depths of around $35 a barrel and freight rates have been plummeting over the past few months lying today at the impressive low level of 774 points.
With the Dry Baltic Index at such a low level as well, a lot of investors are sniffing out the opportunities that could rise in the shipping industry during 2009. Based on the optimistic scenario that things can’t get any worse, they predict that there is a good chance that the shipping market will rebound to a degree in 2009, as a dearth of new ships and increased consolidation in the sector tighten up capacity.
Shipbuilders are canceling projects as demand slumps and financing runs dry, which could lead to a shortage if international trade and the world economy picks up next year. With an upswing in freight rates now expected, it might not be a bad idea to make a bullish call on shipping futures, known as forward freight agreements.
Anyone interested in investing in shipping companies in 2009, should look at those with little debt. Having the financial room to maneuver is going to be critical moving forward. Until companies know how long this recession is going to last, and most importantly, how long these ridiculously low shipping rates are going to be in play, there’s little to do but wait it out. Going private is especially attractive right now, because companies can be bought for less than net asset value.
For those looking to acquire other companies, one analyst suggests that the combination of oversupply and lower demand makes acquiring troubled companies a tad premature. The reality is that the market could get worse and a company is taking a real gamble acquiring assets it may never need.
It is unlikely that there will be much joy for shipping bulls if the rest of the world economy does not perk up, with Asia a particularly important hotspot for the industry. How China fares will be crucial: the country’s recent slowdown has given many economists a fright, and the effectiveness of the government’s stimulus efforts will be under close inspection in the new year.
But if there is a recovery next year, shipping is sure to feel the benefit. Small shipping firms will struggle to survive, leaving more of the market to fewer rivals, while there will be fewer ships than expected to cope with demand.
Source : hellenicshippingnews
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