Fuelled by globalisation. Growth of the shipping industry has been fuelled by globalisation and international trade. The global trade boom over the past 15 years has led to a 55.6% growth in wet cargo throughput, and a 105.2% surge in dry cargo volumes. Shipping has been, and still is, one of the most cost efficient modes of long haul transport. Demand for shippingrelated services is strongly correlated to global trade and outsourcing. Earnings of operators are therefore exposed to volatility arising from economic cycles.

The China force. China's industrialisation played an important role in the international trade boom. The widespread popularity of low-cost Chinese exports led to strong demand for container trade, while the country's heavy imports of industrial raw materials helped to support demand for bulk shipping. China's active role in international trade elevated demand for the Trans-pacific trade route, which at over 17% of total volume, forms the world's largest container trade.

Trapped with low freight rates and volumes. While thriving economic growth over the past decade fuelled the shipping industry's growth, the recent global economic downturn has conversely brought about a swift and sharp turn in fortunes. Weak consumer demand, slowing manufacturing activities and tight credit markets have crimped demand for shipping-related services. The industry now faces excess capacity, and in the absence of end demand, this has driven freight rates down to precariously low levels. Coupled with the slide in volumes, the shipping industry today is struggling with many even facing losses.

Outlook hinges on economic recovery. The shipping industry needs to see a sustained recovery in real demand before it can stage a resurgence. Freight rates need to be restored to profitable levels, and for this to happen, the problem of overcapacity must be resolved. We are seeing increasing signs of delays in deliveries of new builds and scrapping of old vessels. These may mitigate the anticipated overhang from new capacity coming onboard. However, weak near-term demand signals the likelihood of a prolonged and arduous recovery process for the shipping industry. Among the locally-listed shipping stocks, we have a HOLD rating on NOL (fair value estimate S$1.68).