June 16 - A panel of shipping industry experts have argued that there is no need for either market-based or regulatory intervention to break a period of sustained low freight rates, erosion of asset value and oversupply.

 

The panel, speaking at a debate co-hosted by international law firm Norton Rose Fulbright and Blue Communications, disputed conclusions made by industry leaders at Danish Maritime Days (DMD) 2016.

In 2016, the DMD group concluded that two general approaches could be taken to achieve a rapid reduction of the present cargo fleet capacity: a free market approach, where the book value of assets were realigned to reflect their real market value, and a more interventionist approach.

While admitting that there remained substantial oversupply in the market, the panel largely agreed that intervention in either incentivising the acceleration of scrapping, or in controlling newbuild numbers, was both impractical to implement and unnecessary.

Janina Lam, head of dry bulk research at Howe Robinson, suggested that even if market intervention was feasible at the newbuild stage, shipbuilding was not an industry that reacted to market trends beyond commodity prices, commenting: "Yards might be creating a false demand for newbuilds as they do not price according to the markets. For them it's more about the tonnes of steel."

In terms of incentivising scrapping, consultant and non-executive director for vessel cash buyer GMS, Dr Nikos Mikelis, commented: "The market will sort itself out. I don't see the need for governments to subsidise scrapping. I cannot see recycling intervention working. [The ballast water management convention] will get some ships, but it's a moving feast [in terms of when]."

While the panel disagreed with the conclusion that the market may never recover, it warned that if the current downward cycle reached 2021 it would constitute the longest downturn that the industry has ever seen.

 

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