The effects of the dry bulk market downturn and a low probability of recovery are likely to exert the greatest pressure on ship finance lenders in 2016/17. For reasons of a combination of balance sheet risk and regulatory pressure, they are likely to force owners into remedial restructuring and consolidation.

The relentless decline in second-hand vessel values saw the price for a five year-old Capesize fall 45% in the space of a year. In the past, shipping lenders have typically taken action to protect their exposure once a loan to value ratio exceeds 70% but post-2008 regulatory pressure is also weighing on banks’ shipping portfolios.

The resulting consolidation and restructuring over the next 12-18 months potentially increases the number of bulkers being arrested for non-payment, MSI predicts.

This could have further negative impact on vessel values next year because not only would it increase the number of sales candidates, but a significant share of arrested vessels could be sold at auction.
In the crude tanker market, despite a bearish outlook for the oil price, MSI forecasts that oil demand and therefore tanker rates could push higher in 2016. However, the asymmetric relationship between prices and demand inevitably implies a rebalancing.

The last boom in the tanker market was supported by a more robust oil market environment in which all elements of the market benefited. The lop-sided nature of current conditions inevitably implies a rebalancing, which in turn will shape the tanker market over the next couple of years.

The question is what shape this dynamic will take. Oil market commentary and concern centres on a number of themes – the return of Iranian supplies, the build-up of stocks, the extent of falling production in North America, the policy of a divided OPEC and wider macroeconomic concerns centred around China. In a wider context these themes swirl around the outlook for oil prices in 2016, which in turn will set the stage for oil trade and ultimately tanker earnings.

The underlying driver of the MSI forecast view on freight rates, is that the pace of tanker demand growth is likely to slow in the coming 18-24 months. And having been effectively absent in the last three years, fleet growth will become a prevalent market force in 2016, implying that if new highs are reached, they are likely to be the peak of the market.

Driven by multiple factors, the rebalancing of the oil market could occur quickly with the deep trough in oil prices followed by a steeper recovery. This would have the opposite effect of the price drop seen last year, suppressing both demand growth and tanker earnings.

In the container shipping market MSI anticipates a slight improvement in freight rates in 2016 as more carriers layup tonnage. However service withdrawals and reduced demand are expected to have a negative effect on the vessel charter market as vessel availability rises.

Container freight rates continued their decline at year-end while the lines’ attempts to improve earnings with the use of general rate increases (GRIs) produced mixed results.

A reduction in capacity on the water appears more likely to provide a long-term solution, and despite the seemingly endless gloom that surrounds the container industry, MSI believes a limited upturn is possible in 2016 as further sailings are removed and idle capacity increases. However, the forecasts are modest and given the degree of oversupply, no meaningful increase in rates will be achieved until more capacity is removed or trade growth picks up.

Small wonder then that businesses are less concerned about ‘traditional’ industrial risks such as natural catastrophes or fire and are increasingly worried about the impact of other disruptive events such as market competition and cyber incidents.

In its fifth annual Allianz Risk Barometer 2016, published by insurance provider Allianz Global Corporate & Specialty, more than a third of responses cited market developments such as intensified competition or market volatility/stagnation as one of the three most important business risks in 2016.

Business and supply chain interruption remains the leading risk, with market developments ranked second and cyber security third. These ‘market developments’ are a particular concern in the engineering, financial services, manufacturing, marine and shipping, pharmaceutical and transportation sectors and rank as a ‘top two’ concern in Europe, Asia-Pacific and Africa & Middle East.

Many businesses are facing a growing number of challenges which threaten their profitability and possibly also their business models, explains Bettina Stoob, Head of Innovation at AGCS. “Businesses constantly have to be on their toes, turning out new products, services or solutions in order to stay relevant to the customer and to thrive in this rapidly changing and globally competitive environment.”

Innovation cycles are becoming rapidly shorter, market entry barriers are coming down and digitalisation is increasing with new, disruptive technologies being quickly adopted by more agile start-ups, she added. At the same time, many businesses – and shipping is no exception – are also having to comply with changing or enforced regulation, increasing technology and safety requirements or import/export restrictions.