Chinese demand for raw materials is driving Middle East ship owners to invest in new vessels.
Shippers build up fleets for Asia runs
Middle East shipowners are gearing up to cater for the rise of China in the world economy by taking delivery of new tankers and container ships.
This summer United Arab Shipping Company (UASC), which is jointly owned by several Gulf states, will take delivery of the first of nine container ships capable of handling 13,000 20-foot containers at once.
The 2007 order with Samsung Heavy Industries of South Korea is worth Dh5.5 billion (US$1.49bn) and is the largest ship order ever for a Middle East company.
"Most of the trade coming to the Middle East is coming from Asia," said Ken Bloch Sorensen, a managing partner of the advisory company Econships, at the Gulf Ship Finance Forum in Dubai yesterday.
The UASC ship arrivals are "a major, major step to cover the demand growth".
Amid a wobbly recovery in the West, shipping analysts and owners say China will become the heart of new trade corridors for crude oil, commodities and consumer goods. The demand has already driven regional shipping companies to invest more than $1bn in new ships.
The developing world, led by China and the rest of Asia, accounted for two thirds of the GDP growth last year, said Shady Shaher, an economist with Standard Chartered Bank.
At the same time, the West is suffering from deleveraging debt levels and deflation, Mr Shaher said. "It is a tale of two worlds."
Globally, demand for container ships is back to levels recorded before the global downturn, Mr Sorensen said.
Despite the financial crisis, last year container shipowners shared the spoils of $15bn in profits, he estimated, largely through care management of their fleets. That included slower speeds to lower fuel bills and laying up ships to reduce capacity.
"Ships can cut their fuel bill by up to 50 per cent by slowing down by five to six knots," Mr Sorensen said.
The shipping brokerage Clarksons forecasts worldwide growth in shipping volumes to be 10 per cent this year.
But profits are expected to shrink to between $2bn and $6bn for container shipping companies because of falling freight rates, Mr Sorensen said.
Forecasts in the tanker market show an undersupply of crude-oil-carrying vessels serving the route between the Middle East and the Asia-Pacific, requiring more than $8bn worth of new very large crude carriers (VLCCs), said Per Wistoft, the chief executive of Gulf Navigation Holding based in Dubai.
Chinese demand will require the number of ships travelling from the Gulf to rise from 256 today to 337 by 2013, Mr Wistoft said.
The shipping company plans to acquire three of the vessels, which are three times as long as a football field and as tall as a seven-storey building, and sell for about $100 million.
A total of 156 VLCCs will be needed by 2013 to satisfy global demand for oil, according to Gulf Navigation forecasts. There are 177 of the carriers on order, but due to expected cancellations that number may shrink to about 135 crude-carrying vessels, it said.
Last week, the National Shipping Company of Saudi Arabia agreed to buy four ships from Hyundai MIPO for general and projects cargo, and several types of roll-on, roll-off cargo. Including two options, the deal is worth $411.4m.
The new ships will be serving between the US and the Middle East, and to the Indian subcontinent via Europe.