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Wednesday, April 08, 2009

NOL chief says order glut will extend woes for container lines

Wednesday, 08 April 2009

Container shipping faces a long recession because container lines have failed to cancel enough of the excess ships ordered during the sector’s boom, one of the industry’s most respected executives said. Ron Widdows, chief executive of Singapore’s Neptune Orient Lines, told the FT that the position of container lines was worse than that of dry bulk shipowners, the other group landed with excess ship orders. Dry bulk operators were on average far smaller than container lines and found it easier to argue they could no longer afford the ships after a collapse in vessels’ earning power last year, he said.
“In the container sector, you have a lot of companies of a lot of substance,” Mr Widdows said. “It’s a bit harder to go cap in hand [to shipbuilders] and say: ‘I’m going to go out of business unless you cancel these orders’.”
Mr Widdows was in London for Containerisation International’s Global Liner Shipping Conference last week. The conference, which was preoccupied with the collapsing demand for container shipping and the looming oversupply of ships, heard from Brett Whitfield, head of global ocean transport for NestlĂ©, the Swiss food conglomerate, that his company was avoiding some container lines out of fear they would collapse.
London-based Drewry Shipping Consultants has forecast container lines will collectively lose $32bn this year because of collapsing rates for their services.
Yet container lines have ships on order amounting to 49.1 per cent of the existing world fleet’s capacity, according to AXS-Alphaliner, a Paris-based consultancy. Almost none of these vessels was now needed, Mr Widdows said.
“There is quite a large percentage of the order book that is simply not required,” he said. “It will take quite a number of years to chew through it to get back to some balance [between supply and demand for ships].”
Market forecasts estimated only about 40 per cent of orders would be cancelled, Mr Widdows said. Some observers say half of the orders for new dry bulk ships have been cancelled, with more to come.
A small number of lines with very large order books had created most of the container industry’s problem, according to Mr Widdows. “How those guys deal with that problem certainly is going to be interesting to see,” he said.
Among container lines, France’s CMA CGM has enough orders to expand its fleet capacity 59.7 per cent, China’s Cosco plans an 88.6 per cent expansion, Korea’s Hanjin 71.7 per cent.
Alphaliner’s figures also show Israel’s Zim as having enough orders to double its fleet capacity, although that will have reduced after CSBC, a Taiwanese yard due to build some of its ships, last week announced the order’s cancellation.
NOL’s orders total a more modest 39.1 per cent fleet expansion.
“I have no idea what in the world they have in mind,” Mr Widdows said of those with the largest order books. “What would you do with that number of ships?”
Some smaller lines had also ordered vessels far too large for companies their size to fill regularly with profitable cargo.
Average earnings per container shipped are known to have slumped 80 per cent or more on many routes, but no data are made public.
Source: The Financial Times