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In line with the revised higher estimates of global economic growth and upturn in global consumption, the shipping freight rates have posted some improvement in the current year. Anyways, the outcome of the ongoing European crisis as well as impact of the new-building deliveries would be critical for the future direction of shipping rates.
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While the European crisis is challenging the sustainability of the global economic recovery, thereby regenerating demand side concerns, these are overshadowed by a bigger threat of oversupply for the shipping industry. This looms large in the near future. Out of the existing order books in all the three segments of dry bulk, crude, and product tankers, most of the vessels are due for delivery in 2010 and 2011. This will add to the pressure on freight rates, and would thus impact the profitability of shipping companies.
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Apart from the Euro zone crisis, another concern for the shipping industry the cooling down of the Chinese economy, which can regenerate demand-side concerns. This combined with the supply-side pressures, may just worsen the outlook for the sector.
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The increase in India's refining capacity and a pick-up in oil exploration activity globally will benefit the offshore shipping lines as demand for their services picks up. As a result of the commissioning of large domestic refining capacities, the import of crude is expected to jump in the future. This would benefit shipping majors.
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Under investment in earlier years, surge in Chinese growth and scrapping of vessels built in 1970s have all created conditions for a strong market for tankers, barring the periods of crises. Further, the gap in charter rates between single hull and double hull vessels is widening as more charterers prefer double hull tonnage and many states impose restrictions on single hull tonnage. In the coming years as single hull will be mandatorily required to be phased out, the demand for double bull tonnage will be strong.
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