Thursday, January 08, 2009
Shipping industry gears up to ride another storm
Thursday, 08 January 2009
The year ahead for shipping is bleak but most industry players have seen it all before and are prepared to deal with the downturn while staying hopeful that a recovery will come by year-end. Old hands in the game such as Pacific International Lines deputy managing director Tan Chor Kee sees crunch time coming in the first quarter when even more ships will start to be laid up. 'Most lines have plans to lay up vessels and after February, things will get worse because usually after Chinese New Year there is a lull but this time it will be even more severe,' he says.
Neptune Orient Lines president and CEO Ron Widdows says: 'It is unclear just how long and deep the global economic recession will be. But the over-ordering of very large ships that in the current market have little, if any, deployment options means the container shipping industry has created its own dynamics that will possibly outlast the effects of the broader economic downturn.'
Adds Maersk Line Asia-Pacific chief executive Jesper Praestensgaard: 'The outlook for world trade and container shipping is very uncertain, and there is no doubt that 2009 will be very challenging, and provide a tough market environment. There will be quite a number of new ships from 2009 to 2011 but after that, it may slow down a bit as no major line is ordering new ships at the moment.
'For Maersk Line, we will first and foremost try to hold on to our current business and maintain customer focus in 2009. In our view, we are better prepared than most of our competitors, not least as we will not receive new vessels in 2009. Also, we have already for some time focused on streamlining our company, and are therefore - we feel - prepared for what is ahead.'
From the dry bulk side, Mercator Lines (Singapore) managing director Shalabh Mittal said: 'The biggest challenge remaining is still volatility and to really figure out which way the market is heading in the long term which in turn affects the long-term strategy.'
Many dry bulk carrier operators such as Mercator maintain a balance between long-term time charters and vessels that are put on the spot market. Timing the swings in charter rates can either boost or reduce the bottom line significantly although Mercator has a policy of keeping the majority of its vessels on long-term charters.
The crux of the problem has been and continues to be the credit crunch and its impact on trade flows.
Says Mr Widdows: 'It is our hope that the massive efforts underway by many governments globally will have a positive impact and that we will see an early improvement in economic conditions. We cannot, however, rely solely on the efforts of others to turn our fortunes around.
'If the industry's response to these unprecedented challenges is no different from the past, then the current negative cycle will be prolonged and - unlike past downturns - some players will not survive. If individual carriers respond prudently and continue to focus on providing quality services, the worst effects can possibly be mitigated and a more rewarding way forward will be established.'
Mr Mittal warns: 'For stability, first and foremost, the economies of USA, Europe and China will need to stabilise and demand needs to return. Until trade resumes normalcy, it is difficult for stability to return to shipping. With the credit crises affecting almost all companies, restructuring is bound to happen.'
Indeed PIL's Mr Tan notes that while he expects there to be a lot of rate action in the low season this year, he has also seen an increased willingness among the carriers to cooperate. 'The mindset of carriers has changed to how to do a decent business together rather than fighting each other just to protect their own turf,' he says. 'Everybody is chipping in to work better together, so we all help each other pull through.'
He cited recent examples of PIL's joint services with other carriers on some of the Red Sea trades, among others.
Maersk's Mr Praestensgaard adds: 'Another challenge we are constantly facing is the balance between demand and supply. With declining consumer demand, the container volumes have deteriorated significantly. At the same time, the number of container vessels continues to grow. Many liners have started to lay up vessels in order to cut capacity and save costs, and Maersk Line is no exception. While we continue to adjust capacity in light of market developments, we also seek to maintain or expand our service level and coverage.'
Says Mr Mittal: 'There is still a large order book though we have been hearing of a lot of cancellations and defaults due to the credit crisis. Lack of credit will surely make it difficult for shipowners to go ahead with delivery of ships. Speculative players will certainly find it difficult to sustain and fund their newbuildings.
'Freight stability depends on trade returning to normalcy which will happen once the credit crisis eases out and world economy stabilises. It's difficult to predict any scenario right now but with freight already down more than 95 per cent from highs and running at operating expenses levels, it should stabilise over the next six months to one year.'
Says Mr Tan: 'The picture for the first quarter is quite gloomy but it will turn more positive and the second half should see some improvement as it's just a matter of rebuilding confidence now. There is no question that it will be difficult this year but it will recover some time. The summer must come but it's just a question of how warm it will be.'
Singapore Shipping Association president SS Teo explains: 'Cargo is still there but it's just that growth is slower and in some limited cases has contracted. Things will get worse before they get better but hopefully confidence will return because we cannot go on like that.'
Mr Widdows wraps things up by pointing out that 'we should not lose sight of the fact that container shipping is central to global commerce and will in the long term remain a growth industry'.
As adapted from Business Times Singapore
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