A revival in global trade is helping boost profits for container shipping companies but tanker and dry-bulk segments are still lagging behind owing to an oversupply of vessels.
The challenge is the most acute for the commodity-transporting dry-bulk shipping segment, whose thin profit margins are becoming further eroded by the low barriers to entry that have resulted in a crowded market.
The Baltic Dry Index, a measure of commodity-shipping costs, has slumped 66 per cent since May last year.
"For container shipping, about 27 per cent of the global existing fleet is on order and that is implying a capacity growth of about 10 to 11 per cent for this year.
"This is only slightly above the projected demand growth of 8 to 9 per cent," said Ms Corrine Png, head of Regional Transportation Research at JP Morgan.
The global order book for dry-bulk ships, however, accounts for 41 per cent of the existing fleet, and "we are looking at a capacity growth of 15 per cent, which will be significantly higher than demand growth",Ms Png added.
"There was an ordering frenzy when the bulk shipping earnings were very high.
"That prompted a lot of vessel ordering," she said.
Oil prices rose past US$105 a barrel in New York this week, their highest level since September 2008.
Rising energy prices are pushing up transportation costs for shippers and, with heightened concerns about piracy and security in the Middle East, analysts say it is possible that marine insurance costs may also increase.
"What could happen is that the insurance costs that fall on shipowners will likely be passed on to operators and eventually to end-users in the form of higher freights, said Mr Eng Aik Meng, president of transportation and logistics company APL.
"You can expect that if this situation happens, costs will go up," he added.
Analysts who are recommending shipping stocks to investors are of the opinion that they are currently cheap and have potential for strong earnings growth next year.
Both Nomura and Goldman Sachs have a buy rating on container shipper Neptune Orient Lines (NOL), while China Cosco Holdings, which operates in both dry-bulk and container shipping segments, is rated a buy by UOB Kay Hian as well as Citigroup.
China Cosco shares, which trade in Hong Kong, are changing hands for approximately a fifth of their October 2007 value.
NOL shares in Singapore are now worth about 40 per cent of their peak price three-and-a-half years ago.
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