The shipping industry is poised to emerge from its longest downturn in three decades, buoyed by an end to years of overcapacity that have depressed freight rates since the end of a shipping boom in 2008.

Dry cargo ships are likely to see the strongest recovery, say owners and analysts, as growth in bulk commodity cargoes such as iron ore and coal outpaces supply of new tonnage for the first time in seven years.

But tanker rates will also rise as fleet growth is slowing, while strategic oil reserve projects in China and India should boost already solid Asian demand.

The recovery will bring some respite to shipping firms that have endured years of losses as freight rates failed to cover costs.

Prices of new and second hand ships started to rise last year on expectations of a recovery, though observers warn that some shippers will still only break even this year and any recovery may fade after 2016 when overcapacity could again dampen freight rates.

Key drivers of the pick-up will be China's continued urbanisation and falling iron ore prices, observers say, which should support import growth even though the commodities super-cycle that drove a 2003-2008 boom in shipping markets is over.

The global dry bulk seaborne trade is forecast to grow 5.8 per cent this year to 4.37 billion tonnes, according to Barclays Research, outpacing a 5.3 per cent rise in the global merchant fleet to 753 million deadweight tonnes (dwt).

This is the first time growth in demand for shipping of iron ore, coal, grain and minor bulks such as fertiliser, logs and soya beans has been greater than dry bulk fleet growth since 2007, Barclays said, as the industry finally shakes off a surge in new ship orders in the wake of the boom.

However, ship owners who paid high prices for new tonnage at the peak of the market would still only break even this year, said Jayendu Krishna, senior manager at shipping consultancy Drewry Maritime Research.

The Baltic dry index, compiled from a basket of dry bulk freight rates and which traditionally falls in the run up to the Chinese New Year holiday in China, has halved in the past month to 1,086 points on Feb 5.

Analysts from Barclays and Jefferies forecast the Baltic dry index would average between 1,400-1,600 points this year, compared with 1,060 last year. The index topped 11,500 in mid-2008.

For the tanker market, rates for very large crude carriers (VLCCs) on routes to Asia had climbed since October to their highest level in 18 months, said Peter Sand, chief shipping analyst at industry lobby group Bimco.

At the same time, growth in the VLCC market slowed to 1.9 per cent year on year in December compared with expected import growth in China of around 4 per cent, which should help boost freight rates. "I believe we are about to go from bad to better in the very large crude carrier market," Mr Sand said, adding that rates for VLCCs on routes to Asia had climbed since October to their highest level in 18 months. - Reuters