Shipping rates set to fall but trouble in MEA region adds to the industry’s woes

Marsh’s market outlook is based on research carried in its latest Marine Market Monitor. It also shows that the falling marine insurance rates in 2010 were driven predominantly by abundant capacity, light claims experience and the slowdown in world trade. “Falling demand meant fewer ships carrying less cargo at slower speeds. This directly led to a reduction in the number and size of claims. In addition, plentiful insurance capacity has encouraged insurers to sacrifice underwriting profit for market share,” said Marcus Baker, chairman of Marsh’s Marine Practice. Best practice risk management is key for companies who wish to take advantage of these market conditions and secure best terms. hide“In most parts of the marine market, underwriters are willing to take a long-term view if they believe their relationship with the client is sufficiently strong. They are also willing to compete aggressively for attractive new business,” continued Mr Baker. Companies building strong relationships with insurers are typically more able to obtain wider coverage conditions at a lower cost and with the greatest choice of quality insurer security, the brokerage added. The slowdown in world trade has contributed to weak operating margins for shipping companies, due to a supply-demand imbalance, rating agency Moody’s has said. This pressure has been ramped up by the turmoil in North Africa and the Middle East that has seen fuel prices rise as fears grow that the current unrest in Libya will spill over into other large oil-producing countries in the region. Last week oil prices reached their highest levels since August 2008. Similarly, bunker fuel prices, or any type of fuel oil that powers a ship’s engine, has risen by over 25% since the start of the unrest in the region. Figures from Bloomberg show that prices have increased to well over $600 per ton, up from around $475 at the turn of the year. If the unrest in Libya is prolonged, or spreads to the major oil-producing countries in the region, it will reduce both trade volume and the viability of routes and lead to sustained higher bunker prices. All of which are credit negative for the global shipping industry, Moody’s said. Throughout the turmoil, the violent unrest has shut down key ports in Egypt and Libya for varying periods of time, disrupting loading and unloading operations for shipping operators with established routes to the region. Libya, unlike Tunisia and Egypt, is an oil exporter, accounting for around 2% of global production. Reports indicate more than half of this has been taken off the market since the start of the uprising. Consequently, petroleum and chemical tankers need to be redeployed elsewhere. This may be mildly positive for tanker rates as reduced oil shipments from Libya are likely to be replaced by higher output from other parts of the Middle East and West Africa, resulting in lengthened voyage distances to Europe and the US. However, the fundamental structural imbalance is still the key negative driver for the shipping industry, Moody’s explained. Besides the oversupply forecasted in the dry-bulk shipping industry, a similar demand and supply structural imbalance exists for liners and the tanker business over the next 12–18 months, it said. Faced with depressed freight rates and limited ability to fully pass through higher fuel costs to charterers, some shipping companies regularly enter into short-term financial derivatives contracts to reduce their exposure to fuel price fluctuations. Such hedging strategies, however, have proven to be tricky, as shipping companies might lock in high bunker fuel prices, Moody’s warned.

Shipping rates set to fall but trouble in MEA region adds to the industry’s woes

Want to read this article?

Read Next

Marsh tracks slowdown in global Q1 rate hikes

Markel names head of terrorism in London

Insurers defend Nord Stream’s €400m lawsuit as act of war

Allstate posts nat cat loss of $343m for March

UAE flash flood losses manageable as insurers adapt to changing weather

Marsh tracks slowdown in global Q1 rate hikes

Markel names head of terrorism in London

Insurers defend Nord Stream’s €400m lawsuit as act of war

Allstate posts nat cat loss of $343m for March

UAE flash flood losses manageable as insurers adapt to changing weather

Want to read this article?

Read Next

Marsh tracks slowdown in global Q1 rate hikes

Markel names head of terrorism in London

Insurers defend Nord Stream’s €400m lawsuit as act of war

Allstate posts nat cat loss of $343m for March

UAE flash flood losses manageable as insurers adapt to changing weather

Related Articles