Wallenius Wilhelmsen Logistics Americas LLC

The big question facing all operators, (not just car carriers) as we enter 2009 is: What will be the duration and the depth of the economic slowdown resulting from the global financial crisis? The answer regarding duration varies, with opinions ranging from a recovery occurring as early as the second half of this year to as late as the first quarter of 2011. In any case, it’s fair to say that a recovery is fairly certain, especially considering likely economic stimulus packages under discussion by government authorities worldwide. The answer regarding the depth of the economic slowdown is far more complicated. The financial crisis and the subsequent government intervention have quickly brought creditworthiness and sound loan-underwriting principles back into vogue. It will take some time, therefore, to sort out how much of the growth enjoyed by global car carriers in recent years was driven by easy credit on the consumer side. Fortunately, the global car-carrier fleet has largely been short versus demand, so some contraction in demand will bring supply and demand more into balance. Furthermore, the shortage of capacity means that a number of vessels more than 25 years in age are still operating despite being technically inferior and heavy on fuel consumption. Market contraction and slower growth, even in a recovery, will allow most, if not all of these older vessels to be recycled. I believe that the car-carrier industry has the ability to come through the economic slowdown in fairly good shape, and that a serious overcapacity situation is unlikely to occur. This is especially important given that new ships being delivered now, and in the near future, are 50 percent more expensive than they were in 2004, and will require improving freight levels in order to sustain profitable operations and encourage ongoing investment for the longer term.