Talks on iron ore benchmark prices push down Baltic Dry Index

THE Baltic Dry Index (BDI) fell 59 points in three consecutive days last week to 1,714 on Thursday due to ongoing negotiations on annual benchmark prices for iron ore imports.

The negotiations will likely be concluded after April 1.

China, the world’s biggest steelmaker, is looking at lower iron ore prices while suppliers such as Rio Tinto, BHP and Vale are waiting for demand to revive.

According to China Daily, an online news portal, talks between miners and Chinese steelmakers may drag for a longer time compared with last year as negotiations are more complicated this time.

As the world’s largest iron ore consumer, China expects to have a bigger say in negotiations, according to the daily.

Iron ore takes up a large chunk of dry-bulk shipping capacity.

The other common cargoes that are carried on dry-bulk vessels are cement, grain, coal and fertiliser.

The decline in BDI is also in line with the world’s crude steel production that is on the downtrend.

The production of the 66 countries reporting to the World Steel Association was 84 million tonnes in February, a drop of 22% year-on-year.

“Crude steel production showed a continued decrease in nearly all the major steel-producing countries in February compared with the same month in 2008, except for Iran and China,” the association said in a statement.

It said Iran recorded an increase of 15.9% in February and the Middle East was the only region showing production growth this month.

“China’s crude steel production for February 2009 was 40.4 million tonnes, an increase of 4.9% compared with the same month last year,” it said.

World Steel Association represents about 180 steel producers (including 18 of the world’s 20 largest steel companies), national and regional steel industry associations, as well as steel research institutes.

Association members produce about 85% of the world’s steel.

The BDI had shown signs of recovery early this year on stronger bookings for iron ore and coal transportation to China before the Chinese New Year and on advanced demand for raw materials to make steel.

The index took a beating last year due to slower iron demand from China post-Olympics, coupled with the global economic downturn that has affected the construction and shipbuilding industries.

The BDI stood at 2,298 points on March 10. It slumped almost 92% last year from its peak of 11,793 points.

Source: Star Online

Daily charter rates fall for offshore support vehicles

DAILY charter rates of offshore support vessels (OSVs) may fall by 10%-15% this year due to the uncertainty in the oil and gas (O&G) sector.

According to AmResearch in its latest O&G sector update, the average daily charter rates this year may return to 2007 level of between US$1.70 and US$1.80 per brake horse power (bhp).

But, the forecast on the slim rate slide this year may not be too detrimental to OSV players as the rates had previously undergone significant increases over the last two years.

The report said that from its checks with the sector players, the average daily charter rates rose between 11% and 25% last year against 2007, with the strongest increase recorded for anchor handling tug and supply (AHTS) vessels.

It added that contracts signed for 5,000-bhp range AHTS vessels last year were at daily rates of US$2 per bhp versus US$1.60 to US$1.80 per bhp in 2007.

AmResearch also told StarBiz in an e-mail that the current daily charter rates were still holding strong at US$1.80 to US$2 per bhp for a 5,000-bhp AHTS vessel.

“For Malaysian OSV operators, we believe that current charter rates are still holding up at last year’s level despite the negative outlook on the sector,” said the research house, acknowledging that Petroliam Nasional Bhd (Petronas) continued its support for local OSV companies.

“But realistically, we do not feel that Petronas will be willing to award contracts at previous levels (US$1.80 to US$2.10 per bhp).

“This is due to rates that are already showing weaknesses elsewhere and the weak oil price that may actually force Petronas to phase out its capex over longer periods although the oil major does not plan to reduce its capex,” said the report.

For example, the North Sea charter rates have been slashed by 33% in January on a month-on-month basis for 8,000-bhp range of vessels.

The report said that while OSV operators such as Tanjung Offshore and Alam Maritim had vessels that had mostly secured long-term charters until 2011 or 2012, the research house expected lower charter rates for new deliveries of vessels this year.

It added that there were fears that new construction of vessels would lead to an excess supply in the market and result in charter rates declining.

Source: Star Online

Accreditation of freight forwarders

The Federation of Malaysian Freight Forwarders (FMFF) has agreed in principle to introduce accreditation to players in the logistics industry, in an effort to raise the quality of freight forwarders in the country.

Selangor Freight Forwarders and Logistics Association (SFFLA) president Tan Ah Beng said the idea is to accredit proven, financially sound and professional companies providing logistics services.

He was speaking to reporters in Port Klang recently, after signing a memorandum of understanding with Celcom (Malaysia) Bhd, for the telecommunications provider to offer its members Celcom Business mobile solutions at attractive rates.

SFFLA has also implemented a professional capacity building programme for its members which will lead to a diploma and even up to a degree in logistics.

The organisation has conducted five foundation courses and the first certificate module in freight forwarding will be ready soon.

"The professional capacity building programme is imperative if we are to ensure professionalism in the logistics industry," Tan said.

The Special Services Capacity Development programme proposed by the Ministry of International Trade and Industry is also expected to work well with the overall strategy of SFFLA/FMFF.

The fund would support among others accreditation, training, information technology investment and merger and acquisitions.

Under the strategic partnership, Celcom will provide voice and data plans to SFFLA's 500-odd members, who will have the choice to select the business postpaid plan that fits their specific needs and budget.

"Communications systems and tools make up about 20 per cent of costs, so by ensuring savings in that area we are reducing our costs significantly," Tan said.

In conjunction with the event, a talk by the Malaysian Industrial Development Authority was also given on incentives for integrated logistics service providers.

"This is part of our ongoing education and training programme to keep our members up to date with the latest information and development relevant to the logistics industry," Tan said.

Doing away with Sabah cabotage policy 'inevitable'

LIBERALISATION by doing away with the cabotage policy for Sabah is inevitable in the long run if the state wants to be more competitive, according to the Institute of Development Studies Sabah (IDS).

IDS executive director Datuk Dr Yaakub Johari said, at the moment, protectionism for Malaysian-flagged ships was considered a short-term agenda and in principle, not healthy to continue for too long.

"We believe it's part of the global trend. Liberalisation in the long term helps to reduce cost," Yaakub said.

"Definitely, in the long run we have no choice, it's an open economy. Eventually, if we do not open up, our neighbours (countries) will do something against us," he said on the sidelines of the Gabungan Badan Ekonomi Masyarakat Bumiputera Sabah convention.

He was asked to comment on repeated calls by various local bodies here for the cabotage policy for Sabah to be abolished to do away higher shipping costs.

Yaakub, who presented a paper on "Sabah Development Corridor: Development Concept and Strategies" at the convention, said one of the challenges faced by the corridor was the cost of doing business due to high shipping costs.

He said the high cost of doing business in Kota Kinabalu was compounded by the existing cabotage policy, which was a factor impeding economic growth.

The progressive removal of cabotage policy, leading to forging of alliances with other major ports and shipping liners and liberalising shipping licences to increase competition among local operators, will contribute to lower freight costs, according to Yaakub.

The Federation of Sabah Manufacturers recently reiterated the need to abolish the policy, saying that the move could also pave the way for the Kota Kinabalu Sepangar container port to become a hub for the BIMP-EAGA region.

Its president Datuk Wong Khen Thau said if the policy was lifted, some industries would be able to compete better, with direct impact on the exports market and growth of business volume.

Sabah, he said, needed to rely on shipping for transporting goods from the peninsula due to the absence of road links and railways.

Besides the federation, various other parties have been asking the government to do away with the cabotage policy and the government last year announced an independent study to review the mechanism but so far the results have yet to be released.

Source: Business Times

Port Klang feeling the pinch

MOST maritime players in Port Klang have experienced double-digit drop in cargo volume in the first two months of this year on a year-on-year basis due to the global economic downturn.

Although many of them have embarked on initiatives to sustain their cargo volume throughout the year, some are still unsure about the outlook beyond March.

Port Klang has projected an average 10% fall in cargo volume this year. - Reuters

Port Klang, the national maritime gateway, has projected an average 10% fall in cargo volume this year. Port operators there recorded a 16% drop in cargo volume in January against the same month in 2008.

The port posted a 12% increase in cargo volume to 7.97 million TEUs (20-ft equivalent units) last year.

United Arab Shipping Co (UASC) Malaysia Sdn Bhd country general manager Desmond Yong told StarBiz its cargo volume for January and February dropped by 25% to 30%. UASC is a major container shipping company based in the Middle East.

Yong said although the volume for the first two months was not encouraging, it had started to show signs of revival this month.

“We have begun to see positive cargo volume movements contributed by local companies involved in overseas construction projects and commodities such as palm oil, rubber and cocoa.

“These are the key factors that we expect will sustain cargo volume at healthy levels this year,” he said.

"We are managing our business plan on a month-to-month basis" - DESMOND YONG

Yong said it would be difficult to predict the outlook for 2009 due to the global economic uncertainty.

“We are now managing our business plan on a month-to-month basis until future prospects become clearer,” he said.

Meanwhile, Kudrat Maritime Sdn Bhd, a shipping agent representing more than 300 principals (shipping companies) worldwide, recorded fewer vessel calls for the first two months of this year.

“We recorded 20% to 25% fewer ship calls for January and February. Usually, we receive an average 200 ship calls per month,” said its executive director Faizul Kamaruddin.

“A large chunk of the contraction was due to fewer calls from the dry-bulk carriers and palm oil tankers,” he added.

To sustain the current volume, he said Kudrat Maritime planned to embark on an aggressive marketing initiative in the Mediterranean, Europe and Far East.

Kudrat Maritime usually does its own marketing in South-East Asia only. The company relies on network alliances to carry out marketing works in other areas.

Taipanco Sdn Bhd, a haulage operator, recorded about 30% drop in cargo volume for the first two months of this year.

Its executive director Nazari Akhbar said Taipanco had started implementing cost-cutting measures due to the slump in both imports and exports.

“These include a freeze on new staff recruitment and rationalisation of repair works.

“We should be able to weather the storm until year-end but I am unsure what lies ahead next year if the economic downturn persists,” he said.

Source: Star Online

Cabotage policy affecting Sabah & Sarawak

Shipping rates not the only factor in high prices of goods in Sabah, Sarawak

THE higher prices of consumer goods in Sabah and Sarawak, compared with the peninsula, should not be conveniently attributed to the high shipping cost to east Malaysia in relation to the implementation of the cabotage shipping policy, said Malaysia Shipowners Association (Masa) chairman Nordin Mat Yusoff.

The Federation of Sabah Manufacturers recently urged the Government to remove the policy on account of its adverse effects on the prices of goods in Sabah.

Nordin Mat Yusoff

Under the cabotage shipping policy, implemented since 1980, domestic trade between any two ports in the country can only be served by Malaysian-owned shipping companies with Malaysian-flagged ships.

Nordin said that if the high prices of consumer goods in east Malaysia were caused by high shipping cost, the current downtrend in freight rates should have lowered prices of the goods, but this was not the case.

“Total ocean freight rates declined by about 41% in the last six months in Peninsular-east Malaysia trade but this has not been reflected in the landed prices of the current consumer goods there.

“Also, total freight rate comprising basic freight rate and bunker adjustment factor has actually dropped quite dramatically by about 10% and 300% respectively due to the slide in oil price.

“But, it is unfortunate to note that consumers in east Malaysia are not beneficiaries of our lower prices,” he told a press conference last week.

Masa, in its recent study that compared the retail prices of goods between August and February in Sabah and Sarawak, found that the prices there had either been maintained or increased.

Furthermore, Nordin said shipping rates were only one of eight components in a total supply chain involved in the transportation of goods.

Among other costs involved in total supply chain are charges related to port, forwarding, trucking, storage and terminal handling services.

Vessels often return to Port Klang from east Malaysia with empty containers

“We have always maintained that the shipping cost is only one component of the total transportation and logistics cost and that it makes up 46% of the total transportation cost.

“From this, shipping freight makes up between 5% and 7% of the retail price of consumer goods.

“It is therefore unfair to assume that shipping cost is the only arbiter of the landed cost of consumer goods,” he said.

Explaining why freight rates from Port Klang to places such as Hong Kong are cheaper than to east Malaysia, Nordin pointed out that the Port Klang-east Malaysia trade route often resulted in vessels coming back from east Malaysia to Port Klang with empty containers as east Malaysia had more imports than exports.

“The Port Klang-Hong Kong freight rate is cheaper because Hong Kong is usually lacking in containers due to its high volume goods transportation activities while vessels from Port Klang need to bring extra empty containers to carry goods out of Hong Kong.

“And these extra containers going there are usually given low freight rates by shipping companies as the cost will be covered by the higher freight rates transporting goods out of Hong Kong to Europe and many other places,” he said.

It was also misleading for anyone to suggest that shipping charges from Kota Kinabalu to Southampton were twice that of similar charges from Port Klang to Southampton because of the cabotage policy, he added.

“In fact, the argument is wrong because the policy only involves domestic shipping among local ports,” he said.

Describing it as “barking up the wrong tree,” he said the removal or relaxation of the cabotage policy would in no way change the situation.

This is because the question of freight rates between Kota Kinabalu and a foreign port of destination would be influenced by, among other factors, volume of cargo, geographical factors such as the remoteness of a market, port infrastructure and performance.

Nordin said Masa would resist any attempts to remove the cabotage policy, as it could cause huge collateral damage to the Malaysian shipping industry and also undermined national interests.

Source: Star Online

____________________________________

Local shipping trade not under any cartel

THE domestic shipping trade operating under the cabotage policy is not controlled by shipping cartels, said Malaysia Shipowners Association (Masa) chairman Nordin Mat Yusoff.

“There is no such thing as cartels – Masa is not a cartel and neither are shipping companies serving the cabotage trade.

“There is an open market out there for shippers (importers/exporters) to shop around for freight rates which suit them from the several companies providing shipping services,” Nordin told a press conference last week.

There are about 3,400 Malaysian-owned ships engaged in the domestic trade with 85% of the tonnage belonging to 10 shipping companies, according to Masa.

Under the cabotage policy, the domestic shipping industry had grown significantly since 1980 and a relaxation of the cabotage policy which allowed foreign ships to serve the domestic market would have negative impact on local shipping companies, Nordin said.

The larger national interest of Malaysia as a maritime nation was served under the cabotage policy as employed, he added.

On the claim that the cabotage policy had resulted in the high prices of goods in east Malaysia compared to the peninsula, Nordin said it was evident that the prices of consumer goods had not gone down in tandem with the current lower freight rates and that the cause of this must be investigated by the relevant government agencies.

Masa is willing to sit down with the relevant government agencies as well as manufacturers in Sabah and Sarawak to help determine why the costs of goods are higher in east Malaysia, Nordin said.

Source: Star Online

MISC says downcycle in shipping will linger

MISC Bhd (3816), the world's largest carrier of liquefied natural gas, said the downcycle in the shipping industry is here to stay for the next two to three years.

Its president and chief executive officer Amir Hamzah told analysts during a recent briefing that the group has taken steps to safeguard assets as part of its response to the global financial crisis, Citi Investment Research said.

"(These include) moving towards more term business, and where opportunities are, to withdraw capacity in the liner business," Citi wrote in a report dated March 4 2009.

"MISC will take delivery of contracted new buildings, which it will gradually replace with chartered-in capacity. It is more a replacement strategy now than the addition of capacity," it added.

MISC's integrated liner segment loss ballooned to RM229.5 million in the third quarter ended December 31 this year, from RM156.2 million in the second quarter. That was the fourth consecutive quarter of losses, which continue to widen.

Citi said unlike last year when MISC had to deal only with declining liner rates, this year the group is facing a double whammy of declining container volume and softening freight rates.

As a result, the research com-pany expects MISC's fourth-quarter loss to come in higher at RM361 million.

For the nine months ended December 31 2009, the LNG and petroleum segments accounted for 64.8 per cent and 57.8 per cent of the group's pretax profit, respectively. Integrated liner logistics, chemical and non-shipping business reported losses.

Citi is also slashing its net profit forecast for fiscal 2009 to 2011 by 12-24 per cent, mainly to factor in higher losses for the liner segment.

"The liner business will continue to be a drag on overall group earnings," it said, maintaining a "sell" rating on MISC, with a new price target of RM7.80, down from RM8.53.

Source: NST Online

Credit crunch hurting Malaysian shipping industry

THE financial crisis and global recession have resulted in slumping trade, loss of consumer buying power as well as credit squeeze; in turn contributing to a slowdown in maritime financing.

Nazery Khalid

Maritime Institute of Malaysia (MIMA) senior fellow Nazery Khalid said the Wall Street meltdown and the resulting global economic panic had an adverse impact on trade-facilitating businesses – shipping, port operations as well as offshore oil and gas exploration and production.

“However, it should be noted that 90% of the global trade volume is carried by ships and facilitated by seaports while oil and gas found offshore remain critical sources of energy to power the world economy.

“As such, financial institutions and investors must not lose sight of the opportunities and potential in the maritime industry, amid the doom and gloom of the global financial crisis,” he said at the MIMA-OCBC Bank Maritime Financing Seminar 2009 recently.

Nazery said there was concern among maritime industry players over the impact of the credit crunch on the development of maritime activities, which depended heavily on the availability of competitive, sizeable funds and the fluid, trans-boundary flow of capital.

“Despite the fact that several maritime sectors, such as offshore oil and gas and offshore support vessels, have weathered the storm well, players will inevitably feel the pinch of the tightening of lending and cutback in investments should the economic crisis prolong,” said Nazery.

He expects the impending credit squeeze following the crisis will make banks more cautious in lending.

“Traditional players in maritime financing will no doubt continue lending but will do so more conservatively and prudently,” he said.

However, banks that are not familiar with the maritime sector might stay on the sideline altogether and concentrate on their mainstay areas of lending.

“As less debt financing becomes available, the terms of lending will also become more stringent, hence making it more expensive to raise funds from the banks,” Nazery said.

This can be off-putting to companies looking to embark on ambitious expansion plans that require huge borrowings and capital raising.

“As a direct result of the reduction in debt financing, the maritime industry players will have to seek financing from alternative sources,” he said.

However, Nazery said the underlying sentiment towards activities such as port operations and shipping – crucial facilitators of global trade – and offshore oil and gas exploration and production should remain positive as long as the global economy did not collapse.

He expressed confidence that once the financial market woes subsided, financial institutions, capital providers and investors would re-focus on the fundamentals of the maritime industry to consider their involvement in this crucial sector.

“No doubt, the slump in the world economy has affected many activities, including the maritime sector, but a sense of perspective is needed to assess the value and potential of the industry,” he said.

Source: Star Online

Maersk maintains keen interest in PTP

The AP Moller-Maersk Group, a Danish shipping giant, says it maintains a "keen interest" in the Port of Tanjung Pelepas (PTP) in Johor, Malaysia's second largest container port.

It owns 30 per cent of PTP through its port unit APM Terminals, while MMC Corp Bhd holds the rest. MMC has received government nod to talk to foreign parties on the sale of PTP, sources had told Business Times.

MMC wants to sell almost a fifth of PTP to raise funds for expansion.

Maersk did not directly reply to questions on whether it was interested to raise its stake in PTP or if it had approached MMC for this.

"Naturally, we maintain a keen interest in the terminal and in its running efficiently because this is what our customers want, regardless of who eventually takes the stake," Maersk Line country manager Omar Shamsie told Business Times in an e-mail reply.

Sources had told Business Times that interest from foreign companies, including shipping lines, remained strong and that MMC had received about four to five expressions of interest.

One had even offered to buy up to 70 per cent of the port. Large shipping lines, such as Taiwan's Evergreen Marine Corp, have made their interest known, while Maersk could not be ruled out due to its "pre-emptive rights" as an existing shareholder.

This means that whatever offer MMC makes for its PTP stake to another party, it has to make the same offer to Maersk first.

Although it holds only 30 per cent of PTP, Maersk also manages the operations at the port, which has been important for the global group.

"From a container shipping line point of view, we depend on having efficient terminal operations and that is where PTP serves Maersk Line well today, as our transhipment hub for the Asia-Pacific region," Omar said.

Earlier last month, PTP chief executive officer Captain Ismail Hashim had said that the port was looking for a further RM4 billion in capital expenditure to expand over the next five years.

Some RM2.5 billion was allocated under the first phase of the expansion plans and PTP was looking at RM4 billion more for phase two.

"For further expansion, we have to see as we move along," Ismail had said in an interview with Bernama.

In the wake of the global economic slowdown, Ismail said that PTP was looking at new businesses this year to improve revenue.

"The financial crisis is affecting most shipping lines and they are keen to hear options which can improve their cost structure," he said, adding that PTP was also working aggressively to attract more shipping lines.

Source: Business Times