According to the recent report published by The Baltic and International Maritime Council (BIMCO), a Denmark-based international shipping organisation, the shipping industry is set to face rough seas going forward in 2017 as the International Monetary Fund (IMF) is anticipating the lowest level of global gross domestic product (GDP) growth since 2009. In 2016, the container shipping industry bit the bullet in terms of demolition and consolidation to help the market recover. The dry bulk sector needs to copy that approach, BIMCO explained in its market outlook sector report.
The report mentions that 2017 will see another year of die-hard competition, including the tanker industry. For eight years, the world has struggled to cope with huge changes and challenges brought around by the crash of the financial market in 2008. The resulting issues have not always been dealt with in the best way, leaving many large economies still in the recovery mode.
Ian Chung, partner at Clyde & Co, agrees to the aforementioned report, and explained that the availability of finance remained a problem last year. He said: 2016 was a challenging year with continued pressure on rates for all types of vessels. The availability of finance at what is perceived to be a reasonable cost is also challenging the business models of many shipowners. Notwithstanding the challenge, the expectation is that new ships will continue to be built and delivered, so supply is challenging.
Challenges galore
For GAC, one of the leading providers of shipping, cargo, and marine services worldwide, the company did feel the pinch of the economic slowdown. Fredrik Nystrom, group vice president for Middle East at GAC, pointed out: Inevitably, GAC has felt the effects of the economic slowdown. However, we are responding to the difficulties it presents with greater innovation and agility. Disruptive forces are constantly challenging and reshaping our markets, but in the process, new opportunities for growth arise.
Nystrom believed that there is a global market shift towards innovative technology that enables companies to 
increase efficiency and reduce costs. We are constantly focusing strongly on further elevating our use of smart technologies to optimise efficiency for our staff and value for our customers. At a time, when owners and operators are under intense pressure to cut costs, GAC has developed an online fuel savings calculator that allows owners and operators to compare savings achieved through different hull-cleaning techniques.
The company has recently invested in capital assets such as vessels and warehouses in key locations around the world despite the difficult conditions. In 2016, its total investment commitments have reached more than $65mn, according to Nystrom. Here in Dubai, GAC just completed the ground breaking of its new contract logistics facility that is supposed to bring its total capacity in Dubai to more than 200,000 pallet positions, serving customers active in the local and regional markets.
Construction of the three-chamber warehouse and executive office complex in the Logistics District of Dubai South is due to be completed in the fourth quarter of 2017, with operations expected to go live in January 2018. It will add to
GACs existing contract logistics capacity and complements established facilities in the Jebel Ali and Dubai Airport Free Zones.
On top of it, the shipping sector is also rife with a serious imbalance of supply and demand with too many ships coming into the water. William Bennett, senior analyst at VesselsValue explained: The shipping crash stems from a serious imbalance of supply and demand with far too many ships coming onto the water over the past two to three years and in the future. Demand growth is slowing with China being the major factor in this equation. A weak lending environment has also negatively impacted growth.
UAE-based privately-owned ports and logistics company, Gulftainer, has continued to invest in infrastructure to meet the requirements of its customers serving new, larger ships and step up its capacity despite challenging times.
Flemming Daalgard, chief executive officer (CEO), Gulftainer, explained that the shipping industry is largely predicated on the growth of international trade, which is ultimately affected by economic growth.
He continued: Given this close interlinkage, economic performance is bound to have some impact on the shipping market. The impact of the economic slowdown has been accelerating over the past few years, with the historical multiplier between economic activity and global containerised trade slowing down steadily. The cyclical nature of the industry, in addition to the long lead time between ordering and deploying vessels, mean that the industry has been slow to react to this change, leading to a significant oversupply of vessels, which in turn, has led to worsening returns in the shipping industry.
Another factor to affect the shipping sector are the global oil prices, which have been persistently low for over a year and a half now, and the effects have been felt by all the sectors. Chung said: The offshore marine market is currently challenging and there has been significant pressure on charter rates because of the falling global oil prices from its high a couple of years back. The recent price stability does provide some optimism in the medium term, though in the short term, general issues of oversupply of vessels and limited availability of contracts (due to delayed and cancelled projects) suggests that it will remain challenging for some time.
Future outlook
As volatility and uncertainty continue to sweep through the global markets, industry analysts say that financiers will ultimately need to take a decision on the valuation of assets and the sustainability of the operator. Chung clarified:
We have started to see some of the offshore marine companies restructure and more will continue to do so. The question is what kind of restructuring takes place and how the industry addresses the issue of oversupply of vessels.
Daalgard stressed on the fact that the companys strategy for 2017 will remain focused on continuing to engage customers and partners as well as governments for long-term impact. We are actively pursuing a two-fold investment strategy, which includes capacity expansion in our existing portfolio, and the acquisition of new ports. Our core regions of interest are the Middle East, Africa, Southeast Asia, the US, and South America, with the primary
focus on ports with around one million TEUs in capacity.
He also mentioned that the company plans to continue investing in technology in the ongoing year. He continued: Two milestones we achieved last year include the implementation of SAPs new-generation S/4HANA business
suite as well as the industry-proven Marine and Container Handling (MACH) Terminal Operating System. Both platforms are set to advance our operational and customer service function by streamlining key business processes
and increasing terminal productivity.
Industry experts suggest that the full restoration of shipping markets will need several years of solid improvements to lift fleet utilisation rates, whereas sector overcapacity almost everywhere must be reduced. In addition to it, adequate government support for any industry – including shipping – which is feeling the heat of global competition, might also seem like a good thing.
Nystrom concluded: GACs strategy is to put our customers first, leverage our existing assets and values, continue to innovate, and take advantage of new technologies to find ways to prosper in these turbulent times. At GAC, we have a strong focus on the long term. It is important to be an anchor in the storm and not make sweeping changes just
for short-term results. In fact, we believe that the market downturn is an opportune time for us to continue investing.