Gulf of Aden

HOW important is the Gulf of Aden to the shipping industry?

About 11% of the world’s seaborne petroleum shipment passes through the Gulf of Aden to enter the Suez Canal or to go to various regional refineries. The main ports located in the area are Port of Aden in Yemen and Port of Djibouti in Eastern Africa.

The 192km Suez Canal, located in Egypt, is the main waterway for oil shipments from the Persian Gulf to European and US ports, with more than 3,000 oil tankers passing through it annually.

It is the shortest water transportation route between Europe and Asia without navigating around Africa or carrying goods overland between the Mediterranean and the Red Sea.

The canal makes significant distance cuts between countries. It cuts about 22% of the distance between the Japanese and Dutch ports.

The canal averages about 8% of the world shipping traffic. Sea journey along the canal takes between 11 and 16 hours at a speed of around eight knots.

Source: Star Online

The Blithe Pirates of Somalia

The unflappable pirates of Somalia are daunted neither by Western warships, nor the threats of the otherwise influential Islamic militants in their midst. And, according to the Central Intelligence Agency’s former supervisor for the region, there really isn’t much anyone can do to stop them.

The AP’s Mohamed Olad Hassan has a piece today describing how, when the fiercest Islamic group in Somalia threatened local pirates who are holding a gigantic oil tanker, the men simply moved the ship from the Somali port of Harardhere out to sea.

Somali pirates have now hijacked forty ships this year. The Nov. 15th oil tanker seizure was the most audacious. The pirates somehow found and seized the Saudi-owned Sirius Star some 500 miles out to sea, even though it’s the size of an aircraft carrier and carryies some 2 million barrels of oil. The pirates may be asking for $25 million in ransom.

Mel Gamble, the CIA’s former Chief of Africa Division and Deputy Chief of the European Division, says that he and his former colleagues sometimes attempted to track the pirates at sea. But Somalia’s coast is so long, and there are so many hidden inlets, that “we tended to lose them once they moved inland,” Gamble says.

Gamble spoke today over a conference call with institutional investors organized by a New York brokerage called Wall Street Access. Since retiring from the CIA earlier this year, Gamble has become an adviser to a New York business intelligence firm called Veracity.

The pirates only began venturing out so far into the sea, Gamble said, because Somali warlords crowded them out of the criminal action within the ports themselves. The size of the sea at their feet is enormous, and specifically how the pirates find their targets isn’t certain. However, Gamble said he wouldn’t be surprised if they get tip-offs from acquaintances at ports-of-call where the ships or tankers stop along the way.

Can the area be effectively patrolled by the U.S., European and other navies now present in the area? “No,” Gamble said. “But the military can conduct deterrent operations.”

Also on the phone call was John Blaney, former U.S. ambassador to Liberia, and before that the State Department’s director for a ten-country region in southern Africa. Bret Stephens over at The Wall Street Journal today fretted over what to do with pirates — hang them, like in the old days, or mete out modern justice. But Blaney warned against anything approaching the former. For one thing, he said, some of the pirates are now arming themselves with “shape charges,” ultra-powerful armor-piercing warheads. Such warheads could pierce an oil tanker’s hull. “What are you going to do if three or four pirate boats approach an oil tanker and have seven or eight of these shape charges that can penetrate the cargo?” Blaney asked. “The answer is you surrender the boat.”

Some captains are now equipped with diversionary tactics, such as taking a meandering ‘S’ route until help arrives. Many ships are avoiding the area entirely through a long route around the southern tip of Africa.

Ultimately, Blaney says, the answer may lie in finding a way to work with Somalia to reduce criminality.

Source: Businessweek

More Than Just Pirates

Businessweek reports that because of the global recession, the world's shipping industry has spent recent months in a slow-motion collapse:

As Somali pirates hold captive the Sirius Star, a Saudi ship with almost $100 million in oil on board, and Indian, British, Russian, and German ships battle pirates up and down the Gulf of Aden, one might imagine that the battle against piracy (BusinessWeek.com, 11/18/08) is the largest crisis faced by the merchant navy industry.

After all, since January of this year, some 580 crew members have been held hostage, according to data collected by the International Maritime Bureau, and many millions of dollars have been paid in ransom. Insurance rates are up, ships are trying to avoid the Suez Canal (which ships get to via the Gulf of Aden, along the coastlines of Somalia and Yemen), and crews from India to Britain are refusing to board ships that pass through that zone. "This sort of thing can't be shut down immediately," says an aide to Indian President Pratibha Patil, who advises her on naval affairs. India's navy has fought at least three different pirate groups in the last week. "To some extent, the world's navies have to flex their muscles, and that takes time."

But what's missing in the news reports about the modern-day pirates and the political repercussions is a simpler fact: The world's shipping industry is already on its knees and has spent the past six months in a slow-motion collapse kicked off by the . And the pirates, it would seem, are the least of the problem. Just six months ago, despite the fact that the economy in the U.S. was already slowing down, the industry was steaming ahead. As ships of every flag, color, and size were crossing oceans, carrying in their often cavernous cargo bays the essentials of trade—oil, steel, cement, iron ore, and coal—shipping rates worldwide in June hit their highest peak ever. It cost nearly $234,000 a day to rent one of those large capesize vessels, the ones so big that they don't even fit through the Suez Canal.

Last week, you and your friends could have rented one of those ships for a weekend bachelor party and football game for less than $4,000, according to data collected by the London-based Baltic Exchange.

Low Shipping Costs

What happened? And what does it mean for the world economy? Not good news. Let's start with shipping rates. They are the lowest they have been in six years, as measured by a relatively obscure indicator called the Baltic Dry Index. The index, which measures the cost of shipping most commodities other than oil, has been in free fall since the middle of the year, down 93% from its peak of 11,793 in May 2008. As a result, daily rates for chartering a merchant ship are still down by as much as 98% from just six months ago.

With shipping rates so low, the first casualties, not surprisingly, are shippers. Stocks for companies that construct ships and operate container carriers have languished. For instance, Singapore-based Neptune Orient, the largest shipping carrier in Southeast Asia, on Nov. 19 announced it was cutting nearly 1,000 jobs, or 10% of its workforce. All of the lost jobs are in the U.S. and Canada.

Not too many people pay attention to the BDI other than shippers, but economists trying to read the tea leaves of global trade see it as a solid leading indicator of whether the world's economy is headed up or down. There's a good reason for that: A ship leaves from somewhere in the world with a cargo load of iron ore, cement, or coal, heading most likely for China, India, Western Europe, or the Americas; two months later, when the ship finally docks, that cargo gets used for roads, dams, cars, buildings, airplanes, anything that generates economic activity. As global trade hums along, the index gains, because the number of ships in the world is pretty steady at about 22,000, so increasing demand increases shipping costs.

But when the index drops, eyebrows go up, since lower demand for commodities today means lower economic activity a few months down the line. "These rates represent the cost of shipping goods that are maybe two to three weeks from being put on a boat, and about a month or so from being delivered," says Phillip Rogers, a researcher at Galbraith's, a London shipbroker. "A falling index means fewer of these goods are actually getting shipped."

Most of the index's fluctuations are tied to the cost of shipping steel around the world. China, which makes up almost 60% of the index and is among the world's biggest steel consumers, has seen its annualized rate of steel production drop from 570 million tons in June to less than 475 million tons in September, according to data provided by the Chinese government. The International Monetary Fund predicts the global economy will slow the most since 1982, primarily on the back of reduced trade that's exacerbated by the credit crisis. "We really are at the point where there is no real trade," says Jon Windham, an analyst with Macquarie Securities. "The recent correction in dry bulk freight rates is very troubling for industrial production numbers over the next few months."

"Reversal of Sentiment"

But the falling demand for commodities—and their falling prices—is also a wait-and-watch game for manufacturers, who are delaying shipments as far out as possible to let commodities correct from the peak reached during the last bull run in commodities. Steel prices, for instance, are dropping almost every day and are down almost 20% globally from their July prices, mostly due to reduced demand. "The dry index has fallen for several factors, but the clearest factor is the reversal of sentiment," says Jeremy Penn, chief executive of the Baltic Exchange, which compiles the index. "But there are short-term factors, including [the drop in] the letters of credit."

Letters of credit are the second part of the equation. Before shippers can put commodities on a boat, they like to get letters of credit from the eventual purchaser—a bank guarantee that their client is capable of paying when the cargo arrives. But since the credit crisis has tightened, manufacturers are having more and more trouble getting letters of credit. "With the credit crisis causing banks to shy away from lending to one another for much longer than overnight, there have been reports of banks refusing to honor letters of credit from other banks," said Matt Robinson, an Australia-based analyst for Moody's (MCO), in a report issued on Oct. 23.

Nearly 90% of the world's shipments rely on letters of credit, according to the World Trade Organization. While the drop in the availability of letters of credit is still largely anecdotal—there is no centralized data available—reports of shipments being stranded are doing the rounds of transportation companies. Galbraith's, the London shipbroker, said in a news release in late October that "stories [are] coming from all parts of the globe referring to early redeliveries, withdrawal by buyers from ship purchase agreements, bankruptcy of numerous steel traders, credit facilities being closed without notice to companies with previously unblemished records."

And then there's the falling price of steel. Steel prices peaked earlier this year, leveling off demand, leading to a drop in the Baltic dry index. But now, even as steel prices have dropped significantly and shipping rates are ridiculously cheap compared to a year ago, nobody is ordering more steel or iron ore. So the movement of commodities across the globe has slowed to its lowest rate in six years. The credit crisis is making it tougher for the manufacturers to import, even at a time of falling commodity prices, and steel consumption is refusing to increase, even as both purchase and shipping rates drop.

Srivastava reports for BusinessWeek from New Delhi.

Straits safety not just littoral states' burden

There is a dire need for the international shipping community to ensure sustainable development of the Malacca Straits, one of the world’s busiest sea lanes, writes H.M. IBRAHIM

"CARRYING capacity" refers to the number of individuals that can be supported in a given area within natural resource limits and without degrading the natural, social, cultural and economic environment for the present and future generations. Simply put: there is a limit to the number of eggs that a basket can carry without breaking the basket or dropping the eggs.

This basic concept of "carrying capacity" can be applied to all situations: the passenger capacity of a bus or an aircraft, cars on a highway or a roomful of people; indeed, in tourism, ecology and all other situations. The greatest danger when a system exceeds its carrying capacity is irreparable damage, impairing the system's ability to heal itself. This is well-accepted science in ecology, conservation and any natural system.

Between 1978 and 2003, there were 888 accidents in the Straits of Malacca. Fortunately, only a few were major accidents that damaged the environment, depositing oil sludge on tourist beaches, destroying the fishing nets and livelihood of fishermen, and reducing the fish supply to the population centres of the west coast of peninsular Malaysia.

These accidents included the MV Showa Maru in 1975, Nagasaki Spirit and Ocean Blessing in 1992, the Evoikos and Global Oripin in 1997, the MV Sun Vista and Natuna Sea, causing a total of 392,000 barrels of crude and fuel oil to be discharged into the straits.

The Straits of Malacca, connecting the Andaman Sea of the Indian Ocean and the South China Sea of the Pacific Ocean, is the shortest sea route between India and China and one of the oldest and busiest shipping lanes in the world.

The alternative route, through the Lombok and Makassar Straits, is 1,000 nautical miles longer and takes a modern ship an extra three days to traverse, adding hundreds of thousands of dollars more to costs. For this reason, the straits carries more than 50 per cent of the world's trade and 30 per cent of worldwide shipments of oil and gas.

The vessel traffic in the straits increased from 43,965 in 1999 to 70,718 last year (see table) -- a 60.85 per cent increase. More than 60 per cent of these ships transported hazardous and noxious cargo. Through the efforts of the littoral states to enhance navigational safety in straits, with the support of Japan and in collaboration with the International Maritime Organisation, there has been a marked decrease in the number of maritime accidents.

Utilising innovations such as the Vessel Traffic System (VTS), Traffic Separation Scheme (TSS) and mandatory ship reporting system (STRAITREP), shipping accidents decreased from 63 in 2001 to 23 last year.

However, traffic in the straits is expected to increase to more than 100,000 vessels by 2010 and 141,000 by 2020 (not counting cross-straits traffic). There may well be a "tipping point", beyond which any further increase would be too costly and hazardous.

In short, there is a limit to the carrying capacity of the straits -- at least, if current conditions are projected into the future. Congestion may even become self-limiting, in that increased accidents will cause insurance rates to rise and deter some traffic, or congestion may reach a point where it is safer, cheaper and faster to bypass the straits.

The Straits of Malacca is in one of the world's recognised "mega biodiversity" regions. To ensure the sustainable development of these resources, the government has formulated various policies on biodiversity, environment, fisheries and other natural resources related to the land and sea areas of the nation, entrusting the relevant departments to enforce the attendant regulations.

The establishment of the Malaysia Maritime Enforcement Agency (the equivalent of a Coast Guard) is another example of Malaysia's commitment to ensure safety and security in this important Sea Lane of Communication (Sloc).

More than half the vessels using the straits do not call at any littoral state's ports, and thus these ports receive no direct benefit from their passage. Yet they have borne the brunt of the burden of maintaining the safety of navigation and protecting the environment.

Deputy Prime Minister Datuk Seri Najib Razak recently revealed that the nation spent more than RM200 million on providing and maintaining various aids to navigation in the straits, as part of Malaysia's commitment to ensuring the safety, security and environmental protection of the straits.

The littoral states bear the costs and risk, while users reap the benefits of transit passage. In addition to the accidental risks, operational discharge from ships and actions by some unscrupulous ship masters in dumping sludge and solid waste further aggravate the situation.

As a responsible member of the international community, Malaysia takes the comprehensive and functional management of the Straits of Malacca very seriously. The carrying capacity of the straits must therefore be determined, to ensure the waterway continues to play its important role as a Sea Lane of Communication, provider of natural resources for the prosperity of the littoral states, and a mega biodiversity region.

Dialogue on these matters may at least educate littoral states and users alike on ways and means to cooperate. The Centre for the Straits of Malacca of the Maritime Institute of Malaysia is able and willing to offer such a forum and follow-up research.

---

Prof Dr Capt H.M. Ibrahim is director of research at the Maritime Institute of Malaysia

Source: NST Online

Shipping sector riding on choppy seas

KUALA LUMPUR: The local shipping sector has hit some rough seas with freight rates expected to experience a choppy phase stemming from the disruption in trade globally.

RAM Holdings Bhd chief economist Dr Yeah Kim Leng has a negative outlook on the local shipping sector, due to lower traffic volume as well as lower Baltic Dry Index, the general rate for dry bulk carrier.

“The sector has seen a double impact. Contraction of trade is severe and demand has fallen to negative territory. The lower oil prices can’t offset the drop in shipping rate either,” he told The Edge Financial Daily.

“The slowdown on the sector will depend on how long and how prolonged the economy turmoil will be.” Yeah added that shipping companies with global trade would a see sharper downturn, compared with companies with involved in regional trade.

“Shipping companies with trade within the Asian countries as China and India will see a lesser impact, compared with companies in global trade involving advanced countries such as Japan, the United States and United Kingdom,” he said.

Yeah said Asian countries, except for Hong Kong, Japan and Korea, were expected to post low to modest growth next year.

His view is in tandem with the recent Moody’s Investors Service’s rating on the Asia-Pacific shipping sector.

Moody has a negative outlook for all three shipping sectors of dry bulk, tankers and liners in the Asia-Pacific over the next 12 to 18 months, due to the global economic downturn, tightening bank credit, increased volatility in currencies and financial markets.

The Baltic Dry Index has plunged more than 90% in end-October from its peak of 11,793 points on May 20 this year. It stood at 847 last Friday.

OSK Research analyst Chris Eng has pegged a neutral call on the industry, saying that local small players would face less volatility, compared with the volatile global industry.

“There are only two major shipping companies in Malaysia, which is MISC Bhd and Malaysian Bulk Carriers Bhd (Maybulk). MISC is chartered by Petronas Bhd and they are paid at market price. They are somehow protected from the volatility,” he said.

Eng said the order book going forward was large for new ships and there was concern of an over capacity.

He said some excitement might descend upon MISC upon the completion of its subsidiary Malaysia Marine & Heavy Engineering Sdn Bhd’s reverse takeover of Ramunia Holdings Bhd.

He held a “defensive buy” call on MISC at RM8.20 with a target price of RM9.75, after paring down its price-earnings ratio valuations for the oil and gas section. MISC fell 10 sen to RM8.25 last Friday.

On Maybulk, Eng said the company “traditionally outperformed their peers” and it had a contract of affreightment from Tenaga Nasional Bhd awarded in April 2005 for the transportation of about two million tonnes of steam coal annually to Malaysian ports. Maybulk fell six sen to RM2.19 last Friday.

With a neutral call on Maybulk at RM2.36, he has lowered the stock’s target price to RM2.22, from RM3.58 previously, due to the fall in its share price as well as its decent yield. He added that all bulkers might report losses if the Baltic Dry Index stayed below 1,000 points, but expected it to recover by year-end.

Source: Edge Daily

Sittin' on the dock of a bay

Trade slows and gloom mounts. But Asia’s economic downturn will be milder than the one it endured a decade ago

eyevine

EARLIER this year most businessmen and investors hoped that Asia’s emerging economies could withstand the economic and financial turmoil in the developed world. Now, however, stockmarkets seem to be betting on a rerun of Asia’s deep recession after its own crisis in 1997-98. Share prices in the region have plunged by an average of two-thirds (in dollar terms) from their peak in 2007—almost as much as they fell during the Asian financial crisis. Is Asia really heading for such a painful economic slump?

The latest figures are certainly worrying. Japan is now in recession. China’s economy is slowing much more sharply than expected, with the 12-month growth in its industrial production falling from 18% to 8% over the past year. Indian spending is being squeezed by the credit crunch: commercial-vehicle sales fell by 36% in the year to October. Hong Kong and Singapore are already in recession, with GDP having fallen for two consecutive quarters.

Asia is more reliant on exports than is any other region, so it is bound to be hurt by the rich world’s worst recession since the 1930s. China’s exports have so far held up surprisingly well, growing by 19% in the 12 months to October. South Korea’s have increased by 10%. But in Singapore and Taiwan exports have plunged this year. An Indian official has said that exports in October were 15% lower than a year ago.

Asia’s foreign sales are being choked by the global credit squeeze as well as weak demand. Cargoes pile up on the dockside and ships wait empty because exporters cannot get letters of credit to secure payment on delivery. Robert Subbaraman, an economist at Nomura in Hong Kong, reckons that over the next year exports from Asia (excluding Japan) could fall by 20%—roughly the same drop as during the 2001 dotcom crash. Weaker exports will dent investment and consumer spending. Yet Mr Subbaraman reckons emerging Asia as a whole will see GDP growth of 5.6% in 2009. That would be well down on the 9% seen in 2007 and perhaps 7% this year, but it would be slightly faster than during the 2001 downturn and much stronger than the 2% average growth in 1998.

In 1998 Hong Kong, Indonesia, Malaysia, South Korea and Thailand all suffered slumps in GDP of more than 6%. Even the gloomiest forecasters do not expect anything so dire this time. A few, such as JPMorgan, expect GDP to decline next year in Hong Kong, and Hong Kong’s chief executive, Donald Tsang, expects growth to be flat or negative in all the region’s “mature” economies, including his own and Singapore. But everywhere else should see positive growth (see chart), and generally remain stronger than during the 2001 dotcom crash. Only Taiwan is likely to have a worse year in 2009 than in 1998.

Mr Subbaraman also believes that Asia will recover sooner than other parts of the world, because most governments have ample room to ease policy and their economies are in better shape than those elsewhere. China, India, South Korea, Singapore, Taiwan and Hong Kong have all cut interest rates in the past two months. Falling energy and food prices will push inflation lower, and so allow further rate cuts.

All the main Asian emerging economies, apart from India’s, have public debt-to-GDP ratios well below the average in rich economies, giving them room to boost public spending or cut taxes in order to spur domestic demand. China, Malaysia, South Korea, Taiwan and Thailand have already announced fiscal stimuli. Singapore is expected to fire its hefty fiscal ammunition soon. Hong Kong’s Mr Tsang is “up to his eyeballs in contingency plans”.

In contrast to the late 1990s, most Asian economies are in relatively good shape, if not Pakistan’s (see article). Elsewhere, foreign-exchange reserves exceed short-term foreign debts. Almost all the region’s countries have current-account surpluses, though India and South Korea have deficits, which explains why they have seen large currency depreciations this year.

Most Asian households and companies are also modest borrowers. The black sheep is South Korea, where households and firms are even more indebted than in America. But total domestic debt (private and public) fell to 143% of GDP in emerging Asia in 2007, compared with 251% of GDP in America. As its exports stumble, Asia faces a nasty cyclical downturn. But it is spared the deep structural problems, such as excessive debt, which could depress growth elsewhere for several years.

Tortoise or tiger?

All the Asian economies will slow sharply next year, but some more than others. As the most open economies that are also big financial centres, Singapore and Hong Kong have been hit hardest. India is the least dependent on exports, at only 22% of its GDP, compared with a regional average of over half. So, in theory, it should be the least affected by the global slump. But India has two disadvantages. First, it is more exposed to the global credit crunch as a result of its previous reliance on large capital inflows. The sudden reversal of capital has sharply increased the cost of borrowing, forcing firms to cut investment—an important driver of growth in recent years. The Reserve Bank of India has cut interest rates and pumped liquidity into the banking system, but borrowing rates remain high.

A second problem is that, unlike China, the Indian government has little room for a fiscal stimulus. Its budget deficit is running at an estimated 8% of GDP (including off-budget items). Whereas China is boosting infrastructure spending to prop up demand, India’s plans to build roads and power plants with the help of private money may be delayed by the credit squeeze. The finance minister, Palaniappan Chidambaram, declared this week that growth will “bounce back” to 9% next year. Many economists reckon it is likely to be closer to 6%, while China’s slows to 8%.

Among the South-East Asian economies, Indonesia seems to be holding up best, with GDP up by 6.1% in the year to the third quarter. As a big exporter of commodities it will be squeezed by falling prices. But Malaysia, which is much more dependent on foreign demand, will be hit harder. Its exports are equivalent to over 100% of its GDP—proportionally, more than three times bigger than Indonesia’s. Thailand, where Asia’s financial crisis began in 1997, has learnt its lesson the hard way. Its foreign-exchange reserves are now four times as large as its short-term foreign debt, and it has a current-account surplus. It is not about to suffer another crisis. But as exports fall, business and consumer confidence remain depressed by political uncertainty. Thailand will remain one of Asia’s slowcoaches.

On the surface, the massive debts of South Korea’s households and firms might suggest serious trouble ahead. However, the government has been quick to bail out its banking system, and most economists reckon that a large fiscal boost and the cheaper won (down by 29% this year) will help to cushion the economy, resulting in modest growth, of around 3% next year.

In contrast, Taiwan is already in recession. Its GDP fell by 1% in the year to the third quarter, dragged down both by a collapse in exports and by weak domestic demand. Some economists forecast growth of only 1% next year. To lift consumer demand, the government this week said that it would give everybody NT$3,600 ($108) in shopping vouchers to spend in shops and restaurants.

Such measures are a far cry from 1997, when rather than urging households to spend, governments in Asia begged them to hand over their gold jewellery to be melted down to bolster official reserves. Times have changed. Asia is certainly not immune to the rich world’s recession, nor will its economies quickly regain their previous rapid growth trajectory. But the current gloom and doom among investors in the region might yet prove overdone.

Source: The Economist

Moody's downgrades shipping industry outlook

Business Times Malaysia reports that rating agency Moody's has downgraded the Asia-Pacific's shipping industry's outlook from 'stable' to 'negative' for the next 12 to 18 months.

The agency cited continued vessel overcapacity, weaker demand for commodities, and volatile prices for bunker fuel.

The negative outlook applies to all three sectors: dry bulk, tankers and liners.

"The excess of supply in vessels has worsened as growth in commodities demand has slowed, in line with the global economic downturn, the freezing in credit, lower consumption in the US and Europe, and volatility in currency and other financial markets. An easing in demand for oil is another factor," Moody's said in its report entitled "Asia-Pacific Shipping Sector: Preparing for Volatile Times".

It said the excess supply is apparent in all three sectors and expected to take a long time to correct.

Today, the order book for capsized bulk carriers is similar in size to that of the current global fleet. For the tanker sector, the order book for Very Large Crude Carriers (VLCCs) and Suezmax tankers is about half the size of current fleet capacity, and these new- builds will be delivered over 2008-2012.

As for the liner sector, it has an order book for 6.5 million TEUs (20-foot equivalent units), representing 55 per cent of current fleet capacity.

Moody's said rated issuers facing over-supply in vessels include PT Humpuss Intermoda Transportasi in dry bulk; MISC Bhd and BW Group Ltd in tankers; and Wan Hai Lines Ltd and MISC in liners.

"However, MISC benefits from business with (parent) Petroliam Nasional Bhd and other major oil companies, and is thus partly protected from the over-supply situation," it added.

Apart from vessel overcapacity, unstable operating costs - due primarily to volatile bunker costs - have also undermined profitability in all three sectors.

Meanwhile, Moody's said while its industry outlook is negative, the rating outlook for most of its rated issuers is stable.

The reason for this disparity is that rated shipping companies such as MISC, BW Shipping, NYK and MOL are supported by use of many of their vessels under long-term agreements, adequate liquidity, based on good access to bank financing, and diversified trade and vessel types.

Gloomy prospects for shipping rates

MISC Bhd’s chemical and container shipping rates are also facing a gloomy outlook as rates weaken due to slower demand and greater supply.

According to a local bank-backed research house, this would impact MISC, which has 13 chemical tankers.

An analyst with the research house said the slowdown in global crude oil demand would reduce refinery runs and petrochemical output, directly affecting cargo availability for the chemical tanker trades.

MISC Petroluem Tanker

Meanwhile, the weaker consumer demand for vegetable oils and excess vessel supply from high newbuilding deliveries will also have a negative impact on rates, the analyst said.

“As a result, we expect MISC’s chemical tanker earnings to remain weak this year and next year.

“However, the division should not go into losses because two-thirds of the capacity is tied-up contract of affreightment (COA) that is naturally on a long-term basis and falling bunker prices will reduce voyage costs,” said the report.

Its container shipping division is also facing a bleak outlook as freight rates continue to fall, especially in the Asia- Europe trade route, due to lower demand as a result of the global economic crisis.

“As a member of the Grand Alliance, MISC deploys most of its capacity on routes between Asia and Europe, which have seen per box year-on-year rates fall by 75% to 80%,” the research house pointed out.

Source: Star Online

NOL cuts 1,000 jobs

SINGAPORE, Nov 19 - Singapore’s Neptune Orient Lines Ltd, Southeast Asia’s largest container shipper, said it will cut 1,000 jobs to help save $200 million next year as a global slowdown in trade accelerates.

Most of the layoffs will take place in North America, the company said Wednesday. Some 50 workers will be let go in Singapore.

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“The negative conditions we are seeing in the market place are unprecedented in our industry’s history,” president and chief executive Ron Widdows said in a statement.

Slowing global economic activity has hurt company profits and led to widespread job cuts. Japan and Europe recently slipped into recession, while banking giant Citigroup Inc. said earlier this week it planned to cut 52,000 jobs.

Neptune Orient said last month it would lower capacity to reduce operating costs.

“Now, in view of the deteriorating market conditions, we take these additional steps,” Widdows said. “This reflects our considered view that what we are seeing goes beyond a normal cyclical downturn.”

The restructuring will incur a $33 million charge in the company’s fourth quarter financial results, and additional charges for 2009.

“The outlook for profitability in 2009 is grim,” the company said.

Neptune Orient will also move its regional headquarters in Oakland, California, to a less expensive area, the company said, without specifying where.

Source: Malaysian Insider

Volume at Westports slowing

WESTPORTS Malaysia Sdn Bhd, one of the fastest growing ports in the country, expects slower volume growth next year due to the weakening US and European consumer markets.

Executive director Ruben Emir Gnanalingam said the port did not expect double-digit growth next year as it had recorded in the past. However, the port would achieve the target growth rate of 16.3% or five million 20-ft equivalent units (TEUs)this year.

Year-to-date, the port has handled 4.3 million TEUs.

“Based on our daily average volume of about 13,000 to 14,000 TEUs, we are sure to reach our target by year-end,” he told StarBiz.

Ruben said in the year to August, Westports had achieved faster-than-expected volume growth but that had since slowed down.

“We recorded the highest monthly volume ever in August of about 475,000 TEUs. In September, which is usually slow, we handled 425,000 TEUs and in October we handled 435,000 TEUs,” he added.

“At this time, it’s too early too tell whether the current situation is the normal cyclical downturn or it is the global economic meltdown that has affected trade as there are many other issues that have led to slower volume,” Ruben said.

He said that in the last couple of months there were many typhoon and fog incidents in China, Hong Kong and Taiwan that affected shipping schedule.

“The Middle East ports also experienced some congestion due to inadequate crane drivers,” Ruben said, adding that these factors were not related to the current global economic turmoil.

He said if the slowdown in volume persisted over the next three months, there was a higher likelihood that the industry was not just undergoing a cyclical downturn but was affected by the economic slump.

However, Ruben said, Westports, like other ports in the region that were dependant on Asia-Europe and Asia-Middle East trades, would start to feel the pinch of shaky consumer markets in the US and Europe next year.

“The majority of trade volume depends on China’s export to Europe and that has seen a decline. Shanghai used to pose double-digit annual export growth of about 15% to Europe but now it is posting single-digit growth,” he said.

Ruben Emir Gnanalingam

Ruben said that according to Westports’ customers, intra-Asia trade would still be strong.

“Even our biggest customer, CMA-CGM, which is involved in the Asia-Europe trade, still anticipates growth next year,” he said.

Ruben said Westports was only looking at slower growth and not a decline.

The slower growth in volume would not affect the port’s RM800mil expansion plans. Container terminal five of the port has just been completed, adding a capacity of another 1.2 million TEUs for a total of 7.2 million TEUs.

“Going forward, the construction of container terminal six will be carefully examined based on customer projections of how much capacity is needed,” Ruben said.

He said Westports was also bidding for overseas port management jobs. “We’ve won a contract to manage a port in Kerala, India,” Ruben said.

He said Westports’ Indian partner, a construction firm, would build the port while Westports would come in as port manager.

“Kerala has the prospects to be a successful transhipment hub as it does not have much import and export activities while its strategic location at the tip of India is near the main trade lane. The water depth there is also conducive to container vessels,” Ruben said.

Source: Star Online

Malaysian Maritime Enforcement Agency

PORT KLANG, Oct 16 (Bernama) -- Scene 1: Three pirates hijacked a fishing boat, 10 nautical miles off Klang Port.

Within minutes, the Malaysian Maritime Enforcement Agency's (Maritime Malaysia) elite crack team known as Star team, boarded the fast assault craft, Rubber Hull Inflatable Boat, to rescue the fisherman and the boat.

Two Maritime Malaysia helicopters, Eurocopter Dauphin AS365 N3, were also despatched to the scene.

Scene 2: The fisherman was saved, the boat was recovered and the three pirates were captured.

Both scenes were part of the Maritime Malaysia demonstration on its capabilities in countering piracy/terrorist, smuggling, illegal immigrants as well as search and rescue operation.

Maritime Malaysia Director-General Admiral Datuk Mohd Amdan Kurish said the scene of ships being hijacked by heavily-armed and well organised pirates in the Gulf of Aden two months ago was unlikely to occur in Malaysian waters.

"Apart from Maritime Malaysia, the country has a strong and credible armed forces which could react quickly to such situations.

"It is very unlikely for such big pirate organisations to establish their footing here. We may have some isolated piracy cases, to be specific those involving petty theft only but not to the extent like the case occurred in Somalia because Somalia is a lawless country," he told reporters on board the KM Langkawi after witnessing the demonstrations recently.

He said Maritime Malaysia would ensure that whatever occurred in the Gulf of Aden would not take place in Malaysian waters.

Furthermore, the littoral states of Straits of Melaka such as Indonesia and Thailand also possessed strong and credible armed forces, thus making big piracy organisations think twice before operating in this region.

Two Malaysian International Shipping Corporation (MISC Berhad) tankers, Bunga Melati 2 and Bunga Melati Lima and their crews were released last month upon payment of ransom.

It is very difficult to hijack a ship for ransom in Malaysian waters," Admiral Mohd Amdan said.

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NEW SQUADRON

He also said Maritime Malaysia was beefing up its capability with plan to set up fixed-wing and helicopter squadrons.

It hoped to form several squadrons with each squadron consisting of six fixed-wing aircraft or six light and medium-sized helicopters.

For a start, the enforcement agency would receive one amphibious aircraft next month and another one later with the two aircraft costing about RM240 million.

Maritime Malaysia had also set its priority right by acquiring 20 interceptor boats with 60 knots speed soon instead of the original plan for two offshore patrol vessels in safeguarding the country's shoreline.

Set up in Febuary 2005 under the Malaysian Maritime Enforcement Agency Act, Maritime Malaysia was tasked to safeguard the peace, safety and sovereignty of the country's maritime zone.

Maritime Malaysia had identified areas to set up their five bases throughout the country as at the moment they share or lease bases from other agencies.

A plot of land adjacent to the Royal Malaysian Air Force base in Subang has also been identified for its permanent air wing squadron, said Admiral Mohd Amdan.

On the illegal immigrant issue, he described locals who harbour illegal immigrant as traitor for willing to sell the country's sovereignty for a few hundred ringgit.

"We have detected various kinds of their modus operandi in smuggling in illegal immigrants. For example, they transfer illegal immigrants from a big ship to several fishermens' boats in the middle of the sea at night," he said.

He called on the locals to help the agency in combating the illegal immigrant problem by providing information.

Source: BERNAMA

Freight costs drop sharply

THIS year’s sharp fall in sea freight costs is a mixed blessing for developing countries, making it cheaper to ship their exports but signalling waning demand for their goods, a United Nations agency said recently.

And the fall in demand for shipping from recent record levels spells trouble for countries like China, South Korea and Vietnam that have built up shipbuilding industries, the UN Conference on Trade and Development (UNCTAD) said.

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Demand for shipping hit a record high earlier this year in a global boom that saw prices of food and fuel soar. The financial crisis has punctured that boom and demand is down.

The Baltic Exchange Dry Index which measures the cost of moving raw materials by sea, has plummeted more than 11 fold to an eight-year low since peaking in May this year at 11,793, UNCTAD said in its 2008 Review of Maritime Transport.

The index, a composite of shipping prices for various dry bulk products such as iron ore, grain, and coal, closed on Monday at 827, a level last seen in February 1999.

“This shows that the unfolding financial crisis has spread to international trade with negative implications for developing countries, especially those dependent on commodities,” UNCTAD said.

Economists point out that freight charges can be a more significant barrier to trade than tariffs are, so a fall in shipping costs should be good news for exporters, especially as bulk commodities are more sensitive to transport costs.

UNCTAD noted that both exporters and importers of food and other commodities were benefiting from the lower freight costs, which also eased inflationary pressures.

But a rapidly falling index also reflected reduced demand for shipping services and the commodities they transported, negatively affecting many developing countries, it said.

International seaborne trade rose 4.8% to surpass a record eight billion tonnes in 2007, while demand for shipping services jumped 4.7% to 32.93 trillion tonne miles.

World container throughput rose 11.7% to 385 million twenty-foot equivalent units (TEU) a measure of containerised cargo equal to a standard 20-foot container.

”However, port investment, will now be curtailed until the international trade flow situation becomes clear,” UNCTAD said.

Trade experts say that investment in ports and similar infrastructure is vital for developing countries to help them take advantage of more open trade conditions.

The total capacity of the world’s merchant fleet had grown to a record 1.12 billion deadweight tonnes by early 2008, with record orders for 10,053 ships with further capacity of 495 deadweight tonnes on the books, UNCTAD said.

By the middle of this year some of these orders were being cancelled, hurting major shipbuilding nations, it said.

UNCTAD added that the collapse in shipping rates could force operators to scrap older vessels. That would put further downward pressure on steel prices but boost employment in ship-breaking nations such as Bangladesh and Pakistan.

Source: Star Online

Northport scanner operational by January

PORT KLANG: The Selangor Customs Department will start installing a scanner to screen containers at the Northport and expects to have it fully operational by January.

Currently, the department has a scanner at Westport.

Its director Datuk Roslan Yusof said the Westport scanner was helping to speed up the inspection process there as well as save costs for the department.

He said the quicker screening had proven effective in allowing the department to reduce the waiting time for goods being brought into or taken out of the port.

“We can also carry out integrated inspections with other government agencies like the Road Transport Department and this can help to further speed up the release of goods,” he told a press conference yesterday.

Roslan said the move would help the Port Klang Authority (PKA) meet its target of releasing goods brought in or taken out of the ports within three days or less starting Jan 1.

He said the department would start workshops for shipping and freight agents soon to ensure that they would be ready when the new system was implemented.

At the same press conference, Roslan also announced the seizure of 47,500 cartons of smuggled Texas 5 and Halftime 5 brand cigarettes on Wednesday.

He said no arrests had been made so far but his officers were working to trace the importer.

The contraband was worth RM712,500 with unpaid taxes of about RM3.9mil.

He said the container with the cigarettes was brought in through Westport on Oct 23 but had remained unclaimed until the department scanned it and found the contraband.

Source: Star Online

Mergers will strengthen Malaysia as logistics hub

KUALA LUMPUR: The merger or formation of alliances among service providers will further strengthen Malaysia’s position as a logistics hub, Datuk Seri Najib Tun Razak said.

The Deputy Prime Minister said the moves would allow the build-up of integrated services that could take advantage of outsourcing activities by multinationals and local com­panies.

Najib said Malaysia was ready and willing to listen and accommodate all parties having interests in playing a role towards further nurturing the country’s aspirations of becoming a regional logistics hub.

“Towards this end, other measures will be taken (to enhance Malaysia’s position) including capacity en­­hancement to handle more transhipment cargo, provide bulk-breaking and introducing other value-added services to the logistics chain,” he said in his address at the Air Cargo Forum 2008 dinner here yesterday.

Najib said Malaysia had logistics service providers capable of engaging in supply chain management directly with their clients locally and globally.

On the forum, he said it was a timely opportunity for the aviation and logistics fraternity to examine problems faced by the industry.

He said the latest figures released by the International Air Transport As­­sociation were not encouraging.

“Air freight has declined for the last three months,” he said.

Source: Star Online

Malaysian Logistics no longer just a supporting industry

KUALA LUMPUR: The logistics industry plays a key role in facilitating Malaysia's external trade and can no longer be considered just a supporting industry, Minister of International Trade and Industry Tan Sri Muhyiddin Yassin said yesterday.

In the first half of 2008, the industry, comprising transport and storage services, contributed 11.3% to the country's gross domestic product (GDP) compared with 10.1% a year ago, he said.

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The air-cargo sector was an important component of the logistics industry, said Muhyiddin, and air-cargo volume in Malaysia rose by 5.6% to 416,070 tonnes during the first six months.

"This involved a 44.6% increase in the total value of exports, imports and transshipments handled, to RM1.1 billion from RM760 million in the corresponding period of 2007," he said when opening the 24th International Air Cargo Forum & Exhibition 2008 (ACF 2008).

Muhyiddin called upon Malaysian logistics providers to enhance the quality of their services to prepare themselves to face competition both globally and regionally. He noted that Asean member states would be undertaking equity liberalisation to allow up to 70% Asean equity by 2013.

"This Asean initiative complements the ongoing work in Malaysia, through the Malaysia Services Development Council, which aims to strengthen and promote the services sector in Malaysia," he said.

Source: Edge Daily

Malaysian Logistics providers told to enhance services

KUALA LUMPUR: Malaysian logistics providers have been called on to enhance the quality of their services in preparation for increasing equity liberalisation in the years to come.

International Trade and Industry Minister Tan Sri Muhyiddin Yassin said Asean member states would undertake equity liberalisation to allow up to 49% of foreign equity by this year.

“This will increase to 51% by 2010 and 70% by 2013.

“This means that Asean, and specifically Malaysian logistic providers, must enhance the quality of their services to prepare themselves to face competition both globally and from the region.”

Muhyiddin, who was making his opening remarks at the 24th International Air Cargo Forum & Exhibition 2008, said the logistics industry was a strategic industry now.

“No longer can it be considered a supporting industry. In 2007, it contributed 12.2% to the country’s GDP. The value of air cargo being transported in 2007 was worth RM1.1bil.”

He added that Malaysia was well placed geographically to serve as a transport hub for the region and that the Government was working hard to facilitate and streamline processes in the industry.

“For example, the clearance of cargo can now be done in a day compared with three days previously.”

The exhibition, which is organised by The International Air Cargo Association (TIACA), began Tuesday and ends Thursday and saw the participation of logistics and cargo companies from all over the world.

Source: Star Online

Silver lining for Malaysian freight and logistics sector?

AS the saying goes, there are opportunities in every crisis.

Selangor Freight Forwarders & Logistics Association (SFFLA) president Abel Tan Ah Beng said local freight forwarders and logistics players that had already felt the impact of sluggish trade volume due to the global economic slump should be optimistic on other possible business ventures.

“As multinational logistics players in Malaysia are expected to go slow on their expansion, we should reposition ourselves to go into their market share.

“Now is the time to expand and explore the Asean market,” he told StarBiz.

In term of logistics infrastructure, Tan said Malaysia was in good position with readily available and world class infrastructure as well as professional workforce.

“As freight forwarders, we can make Malaysia Asean’s distribution hub via our free trade zone.

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“We can still strive to grow our business as the country would not be as badly affected by the slowdown in trade as compared to Singapore.

“This is because we do not rely solely on transhipment as 30% to 40% of our trade are from import and export activities,” he said.

Tan, however, said Malaysia had to buck up on its free commercial zone (FCZ) policy to make it conducive in attracting foreign and local investors.

“Currently, although the setting up of business in the FCZ has been made easy, we still have to deal with the relevant Government agencies that slow down business process.

“Because the business in FCZ is mainly for value adding and transhipment, we expect less red tapes unless the goods are taken out of the FCZ for the Malaysian market.

“The Ministry of International Trade and Industry and Ministry of Transport Ministry should probe into these matters,” he said.

He added that the customs brokerage business should also be liberalised from the 51% bumiputra equity policy.

“This will enable the industry to grow and expand faster,” he said.

On the current freight forwarding industry market, Tan said the volume of export and import to and from Malaysia with the US, Europe and Australia had decreased significantly in the fourth quarter.

SFFLA vice-president Alvin Chua said the global credit crunch and economic instability had led to fluctuation of currencies that affected Malaysia’s import and export.

“The majority of importers have deferred their shipments from the US due to the 15% appreciation of the US dollar against the ringgit.

“Our exporters have also deferred their shipment to Australia due to a 30% depreciation of its currency against the ringgit.

“And this currency fluctuation problem is on top of the current lower demand from the US and Europe due to weakening consumer power there,” he said.

In general, Chua expected trade volume to be flat this year due to a 20% drop in trade volume including the Asia-Europe sector since October.

“We are experiencing a situation we have never faced before. Usually the last quarter of the year is the peak season with increased demand due to Hari Raya, Christmas and the Chinese New Year.

“But, this time around Port Klang has been very quiet with no port congestion and hauliers’ backlog,” he said.

A shipping agent said the current freight rates, especially the Asia-Europe route, had dropped tremendously against the same time last year due to an oversupply of space on vessels following the lower trade volume.

Source: Star Online

Slower demand from US and Europe affecting freight rates in Malaysia

WITH every major barometre that measures the maritime industry weakening in the last few months due to the sluggish global growth, it will just be a matter of time before the tsunami hits our shores.

Container freight rates for the Asia-Europe route have fallen due to slower demand from the US and Europe.

Transpacific Stabilization Agreement (TSA), a research and discussion group of 15 major container shipping lines, reported a 6.9% year-to-date drop to 3.07 million 40-foot containers in Asia-US cargo volumes over January to June, compared to the same period a year earlier. In July, the year-to-date gap widened to 7.5%.

TSA forecast that this year cargo demand could decline by as much as 8%.

Source: Star Online

This has affected many multinational shipping companies’ bottom lines.

According to a recent Bloomberg report, China Shipping Container Lines Co, China’s second-biggest shipping line posted a third-quarter loss as the credit crunch curbed demand for Chinese-made furniture, toys and other goods in the US and Europe.

It said the loss amounted to US$39.7mil.

But, declining cargo volumes did not greatly impact TSA’s 15 carriers, which experienced a 1.8% decline in liftings during the first half of 2008 due to efficient management in reducing operational cost.

Even in July and August, when TSA carriers reported an overall 7% drop in cargo volumes, vessel utilization remained around 90% across all trade segments.

The TSA group includes APL Ltd, China Shipping Container Lines, CMA-CGM, COSCO Container Lines Ltd, Evergreen Line, Hanjin Shipping Co Ltd, Hapag Lloyd AG, Hyundai Merchant Marine Co Ltd, Kawasaki Kisen, Kaisha Ltd, Mediterranean Shipping Co, Mitsui O.S.K. Lines, Ltd, Nippon Yusen Kaisha (N.Y.K. Line), Orient Overseas Container Line Inc, Yangming Marine Transport Corp and Zim Integrated Shipping Services.

“Clearly we’re in a slow down right now, but the current freezing up of the global credit system is unsustainable,” TSA chairman Ronald D Widdows said in a recent statement.

He added that TSA expected to see an orderly de-leveraging of the financial markets over the next year that would begin to restore confidence with year-on-year cargo demand growth resuming in late 2009.

On bulk shipping, the Baltic Dry Index, a measure of shipping cost for commodities, continued to drop to 982 points on October 28, the lowest it has ever been in six years. This is a 91.7% drop from 11,793 points on May 20.

The crash is partly due to Chinese steel mills having reduced production because of sluggish economic growth with lower demand from development and automotive industries.

The warmer winter in Europe also contributed to the lower demand of coal.

The tanker market, particularly the cost of shipping Middle East crude to Asia, the world’s busiest route for supertankers, according to Bloomberg, is also softening.

It said the rate for shipping Saudi Arabian cargoes has fallen for the past 21 sessions, sliding 4.1% to 76.63 Worldscale points on October 27, according to data from the London-based Baltic Exchange.

Local players with international exposure, such as Malaysian Bulk Carriers Bhd (Maybulk), Hubline Bhd and Halim Mazmin Bhd are also not immune to the global trade slump.

Maybulk and Hubline, which operate bulk carriers, are expected to be affected by low freight rates, softer demand and looming overcapacity. However, Maybulk’s diversification into offshore oil and gas support services could place the company in better prospects during this especially “difficult” period.

MISC Bhd, on the other hand, would feel less of an impact because of its transportation services to the oil and gas industry, which is still at a healthy level.

Major local ports namely Port Klang, Johor Port, Penang Port and Bintulu Port would also be affected when transhipment volume starts declining.

This will then have a domino effect on our logistics providers as well as domestic shipping operators.

Currently, many terminal operators are still optimistic in achieving their targeted volumes this year as Malaysia’s total exports grew by 11% to RM60bil in August versus the same period last year despite the drop of exports to the US.