The slump in world trade has left all shipping companies, from car carriers to container operators, struggling to fill their vessels. On trade routes between Asia and Europe alone, container volumes have fallen by up to 25 per cent this year.

It is a very different picture from just 12 months ago, when the world's shipyards were turning away orders as owners jostled to replace ageing ships with ever-larger vessels to meet increasing demand.

Now ship owners are struggling to pay for their existing orders and thousands of vessels, from oil tankers to container ships, have been laid up at anchorage. Ship owners able to meet their financial commitments are turning down options for additional orders.

According to London-based shipbroker Clarksons, there was a 55 per cent drop in orders for new ships worldwide in 2008 compared with the previous year. Last year, 2,174 vessels were ordered with a combined size of 153.9 million deadweight tonnes, but by December, fresh orders were drying up.

The Middle East's shipping companies have not escaped the downturn. According to Clarksons, Middle East companies placed orders for ships worth $10.2bn in 2008, a 19 per cent drop from $12.6bn in 2007.

"Recession has had an effect on Gulf investment," says Alec Emmerson, a Dubai-based industry consultant to UK law firm Clyde & Company. "While local players are still taking delivery of previously ordered tonnage, very few are placing new orders. Worldwide, it is difficult to secure finance for all but the most specialist shipping tonnage. In the Middle East, though, there is continued investment in government-backed shipping lines."

Those that can afford to buy new ships are finding prices have fallen by 30-35 per cent since the peak of the market in August 2008. However, with trade levels falling, some investors may find they have excess capacity.

One firm that is continuing to expand is Dubai-based United Arab Shipping Company (UASC). In 2008, it took delivery of eight container ships able to transport 6,921 20-foot equivalent units (TEUs) each, and will add a further 10 vessels to its fleet this year, each with capacity of 4,200 TEUs.

In June 2008, on the eve of the downturn, UASC placed an additional order worth $1.5bn for nine 13,100-TEU vessels.

Changing landscape

Jorn Hinge, president and chief executive officer of UASC, says the most recently ordered ships will not come into service until 2011 or 2012, when the industry landscape could look very different.

"The way things stand, the later they come the better," says Hinge. "We will also be returning nine ships [that we have] on long-term charter to their owners in the second half of this year. So although we are looking at a net increase in tonnage, our costs per TEU will be lower due to economies of scale."

Overall, few regional shipping companies are investing in container ships, roll-on, roll-off vessels, or car and truck carriers. But several are adding bulk and liquid bulk carriers, which can transport loose, unpackaged cargo.

In March, Saudi Aramco's shipping arm, Vela International Marine, took delivery of the last of the six crude carriers it had ordered from South Korea's Daewoo Shipbuilding & Marine Engineering. Vela plans to order four more super-tankers from Daewoo, but sources close to Vela say it is delaying a $1.5bn programme to renew its fleet in an effort to secure more competitive prices.

National Shipping Company of Saudi Arabia (NSCSA) and United Arab Chemical Carriers (UACC), a joint venture of UASC and Riyadh-based Arabian Chemical Carriers, are also adding to their capacity. NSCSA is spending $1.8bn to double the size of its fleet of chemical carriers to 32 by 2011, and will add four large crude carriers before the end of this year. UACC will add eight crude and 10 chemical carriers this year, and a further 16 chemical carriers by 2011.

The government-backed Oman Shipping Company, meanwhile, is targeting bulk and petrochemicals carriers, as well as liquefied petroleum gas and methanol tankers.

In July, it placed a $483m order for four ore carriers with Shanghai's Jiangsu Rongsheng Heavy Industries. Due to be delivered in 2011 and 2012, the vessels will be chartered to Brazilian company Vale, to ship iron ore from Latin America to Sohar.

Regional companies are increasingly investing in such specialist ships. At one end of the scale is Qatar Gas Transportation Company (Nakilat), which has invested $11bn in 54 liquefied natural gas (LNG) carriers. Nakilat already has 16 wholly owned and 28 part-owned vessels in operation, and a further 10 will be delivered by mid-2010.

Muhammad Ghannam, managing director of Nakilat, views the company's fleet as a floating pipeline that, unlike traditional shipping companies, is protected from the vagaries of the markets by Qatar's position as a leading gas producer.

"By 2011, Qatar will export 77 million tonnes of LNG annually," he says. "All our tonnage has charter agreements in place. We are protected from risk by our captive customer base."

At the other end of the scale, there has been a boom in orders for small craft servicing offshore oil and gas facilities in the Gulf.

"There is a real need for replacement and modernisation of service vessels for the oil and gas industries," says Emmerson. "Companies such as [Sharjah-based] Lamnalco have seen a real opportunity in this niche."

Lamnalco is a joint venture of Royal Boskalis Westminster of the Netherlands and Saudi Arabia's Rezayat Group. It owns and operates more than 100 vessels and is continuing to expand.

In January, the UK's Standard Chartered Bank structured a $125m loan for Lamnalco to fund new orders.

Fluctuating volumes

However, shipping firms still face uncertainties. Although container trade volumes to and from the Middle East have proved more resilient than on other routes, figures from the European Liner Affairs Association show huge monthly fluctuations in container volumes, with an average drop of 4.75 per cent a month from January to May this year (see chart).

The more serious downturn in other regions means that many shipping companies are diverting larger ships to the Gulf to take advantage of what traffic remains. In the second quarter of 2009, the container services linking the Far East and Middle East had an average size of 4,307 TEUs each, compared with an average 3,220 TEUs a year earlier.

"For the first time ever, players such as [Denmark's] Maersk and [France's] CMA-CGM are deploying vessels of 8,000 TEUs on the Asia-Middle East trades," says Mark Page, director of liner shipping at the UK's Drewry Shipping Consultants.

"The global downturn has created a surplus of vessels, with deployment in regions such as the Middle East the only alternative to laying them up. The Far East-Middle East trades have seen a sharp increase in vessel size, as ship owners try to consolidate what little cargo they have."

With more space for less cargo, by January 2009, rates for container traffic from south China to Dubai had plunged to a third of their level in January 2008, from $1,820 a TEU to $620 a TEU.

"Internationally, pricing has reached rock bottom," says Page. "Carriers have done all they can to get rates up."

Regional ports are also feeling the downturn. Last year, they struggled to keep pace with the growth in cargo volumes and there was congestion at many ports. However, all the ports that have published figures for the first quarter of this year report a downturn in year-on-year throughput. This ranges from a 1.1 per cent fall at the Port of Dammam in Saudi Arabia to a 25 per cent drop at Yemen's Port of Aden.

The five-year boom in regional trade, which has now ended, had prompted the governments of the GCC, Iraq and Iran to earmark $45bn to expand their ports. While there are no reports yet of port expansions being cancelled, progress on many projects has slowed.

Dubai-based DP World dominates Red Sea trans-shipment, operating terminals at Aden, Djibouti, Jeddah, Sokhna and Cosco in Egypt. But competition between Gulf ports is intense.

DP World's home port of Jebel Ali is competing with the Port of Salalah, operated by the Netherland's APM Terminals, and the Port of Khorfakkan, in Sharjah, run by the local Gulftainer. In the upper Gulf, the Port of Dammam, a joint venture involving Hong Kong's Hutchison Port Holdings, faces competition from the new Bahrain Gateway terminal being developed by APM Terminals.

Next year, Abu Dhabi's Mina Khalifa port will be launched, managed by DP World. Kuwait's Bubiyan Island container terminal is also finally moving forward and Qatar will open a new port for Doha in 2014.

All of these projects were launched before the downturn. One of the few new developments to emerge since is the Port of Salalah's decision to add a seventh and eighth berth.

The new berths are being developed in partnership with Singapore-based shipping line APL, one of the port's major trans-shipment customers. But Salalah is an exception and Page predicts that few other new projects will materialise this year.

"Any port with any sense will adjust its pace of expansion to reflect market conditions," he says. "This year, we expect Middle East ports to see a 5-10 per cent drop in volume. It takes about two years to deliver new capacity, and even if there is some return to growth in trade, the region cannot expect to return to double-digit growth in the short term."

The outlook for growth among shipping companies in the region is likely to follow the same trajectory.