Wednesday, February 18, 2009
Liners take drastic steps to ride out economic storm
Wednesday, 18 February 2009
Liner companies are taking drastic measures to get through the economic downturn. Maersk got the ball rolling with a lay-up programme, idling eight ships at the start of December and setting the trend for other lines to follow suit. Singapore's national carrier Neptune Orient Lines (NOL) said at its recent full-year results briefing that it has laid up 15 ships and chartered out six - a capacity reductions that will help cut costs US$200 million this year. NOL forecast - and turned in - a fourth-quarter 2008 loss of US$149 million. Maersk Line's parent AP Moller-Maersk has tipped a full-year 2008 profit of US$3.4 billion, flat from the year before.
The future is cloudy, says Maersk Line's Asia-Pacific chief executive Jesper Praestensgaard.
'As we continue into 2009, the outlook for the container trade remains uncertain,' he said. 'There is no doubt the rest of the year will be challenging, with a tough market environment characterised by low demand. At Maersk Line we will remain focused on our current business and customers. We will plan for the worst and hope for improvements, and would consider a 2010 rebound a pleasant surprise.'
NOL chief executive Ron Widdows said: 'We have not yet seen the floor in demand but we are probably pretty close. We expect to see some improvement in Q2, but it's hard to forecast demand.'
The common refrain among liner executives is that the sharpness of the downturn surprised everyone. 'You normally expect to see a drop in Q4, but last year was unprecedented,' said Mr Widdows.
Mr Praestensgaard said: 'All markets have been hit. For a long time it was thought that Asia would escape the impact of financial crisis in US and Europe. But it is apparent that this is not the case in today's integrated global economy.'
Due to the cyclical nature of shipping, the industry has plenty of experience to fall back on. 'This has taught us to be prepared for downturns,' said Mr Praestensgaard. 'You need to control your costs and take care of your customers - run a tight ship. The current downturn will again focus attention on prudent financial management, including low leverage as a critical component, to get companies through the downturn and be prepared for the upturn when it comes.'
Mr Widdows said: 'There is a very large order book and the challenge is determining how much of this tonnage comes to market. With rescheduling there may be some alleviation of supply. But there is no question that there will be a supply overhang. The only question is how much.'
Mr Praestensgaard said: 'For some time we have been focused on streamlining our company, starting with an organisational restructure in early 2008. Many liner shipping companies, including Maersk Line, have started to lay up vessels to cut capacity and save costs. Maersk Line has also made changes to some key routes, saving costs while maintaining or in some cases even expanding, our coverage and service level.
'We will continue to adjust capacity in light of market developments by optimising our schedules, consolidating services, sharing vessels, enhancing port productivity, economical sailing (reducing speed) and - unless current market conditions improve - additional vessel lay-ups.'
Mr Widdows said: 'Carriers are putting a lot of energy into trying to find ways to improve their cost structure. Whether it's terminal agreements, charter agreements or overhead costs, they are being pursued with vigour.'
NOL is looking at everything from laying up tonnage to hedging with options where possible to negotiate later deliveries and rationalising its capital expenditure plans.
Mr Praestensgaard said: 'Maersk Line will continue to explore new opportunities with our competitors in terms of vessel sharing and slot swops et cetera in an effort to deploy our assets most optimally and secure low cost.
'We will also continue to pursue efficiency advancements for the industry at large. As an industry we have, over the decades, provided customers with ever-increasing efficiency in terms of lower freight cost and higher service levels.
'The industry has come to a point where we cannot continue to extract additional efficiency. We cannot, in the foreseeable future, see the need to deploy even larger container ships.'
The upcoming SeaAsia 2009 conference programme features a panel discussion on container shipping and logistics, chaired by Pacific International Lines managing director and Singapore Shipping Association president S S Teo, which will discuss these and other issues related to the container market.
The panel includes K Line president and CEO and Japanese Shipowners' Association president Hiroyuki Maekawa, Mr Praestensgaard, Mr Widdows, PSA International CEO of South-east Asia and Singapore Terminals Kuah Boon Wee, Sinotrans executive director and president Zhang Jianwei and Wan Hai Lines special assistant to the president Randy Chen.
Source: Business Times Singapore
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