Thursday, March 15, 2012

Shipping industry highlights challenges of overcapacity, rising oil prices

SINGAPORE : Oversupply of vessels, rising oil prices and falling freight rates: these are among the woes that are hotly discussed by shipping companies at a maritime conference in Singapore.

Industry players say it will take another two years for shipping liners to regain profitability.

Hyundai, ExxonMobil and Siemens are among the 1,300 companies promoting their wares at the 12th Asia Pacific Maritime conference.

Plagued by overcapacity and low freight rates, the shipping industry has been in a slump for more than a year and the slump looks set to continue.

Shipping consultancy Alphaliner forecast that growth in the Europe to Far East container traffic would slow to 1.5 percent in 2012.

This is in contrast to an 8.3 percent growth in container vessel fleet in the same period.

But whether boom or bust - business must still go on.

And industry players are upbeat that they can overcome the current challenges.

Speaking at the conference's opening ceremony, Maritime and Port Authority of Singapore Chairman Lucien Wong said: "As the fastest growing region in the world, strong domestic demand continues to keep Asian economies resilient and trade volumes in Asia healthy. With this, the maritime industry is optimistic about Asia's ability to ride out the storm and steer towards a positive forecast as Asia grows to become a centre of influence for shipping."

Director of Rickmers Maritime Trust, Lim How Teck, said: "Overtonnage is not something that sticks around in the shipping industry - it doesn't last forever. It takes a few years to absorb it all but we've through at least five cycles in the last twenty years, so this is not something new."

Fuelled by cheap credit, companies placed large orders for ships in 2007.

Many of these ships are being delivered this year, and this caused ship asset values to be depressed.

Mr Lim said: "Most of the lines have a covenant called loan-to-value ratio. And that's a problem, because as the ship value comes down, the loan-to-value ratio may be breached. But so far most of the banks have seen it fit to renegotiate - and instead of pulling the line down, they ask for more fees, more spreads."

Funding continues to be an issue for shipping companies after credit-constrained European banks pull out from the ship financing business.

Early this month, shipping liners got the rate hikes they were after but industry players say this is not enough to keep shipping firms out of the red this year.

Since the beginning of March, Asia-Europe rates have shot up US$680 to US$700 per twenty-foot equivalent units (TEU).

Shipping liners have been seeking a rate hike of US$700 to US$800 per TEU.

A CIMB report says rates are still on the uptrend "with transpacific rates scheduled for a mid-March hike and another Europe hike planned for April".

Chairman and CEO of Transworld Group, Mahesh Sivasamy, said: "Though the rate restoration is for the better, on the other hand we have a scenario where there are more and more ships getting laid up. And it may probably be at least two years before we start seeing a turnaround in the industry."

Adding to the woes of shipping liners are high oil prices.

As Brent crude rise to more than US$120 a barrel, marine fuel sales have slowed.

In Singapore, for example, latest marine fuel sales have dropped to a two-year low, at 3.09 million tonnes in February.

- CNA/ch

View the original article here

Source From Cnannel News Asia

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