Monday, April 27, 2009

Recovery not yet in sight for container sector

CONTAINER shipping companies returning to viable business conditions may still be a far-fetched scenario although the sector has seen a slight pick-up since last month due to improvements in global trade volumes and recovering rate charges.

Freight rates, usually determined by demand, fell more than 80% since the last quarter of 2008 due to falling global trades.

But shipping companies are now “restoring” rates spurred by the slight pick-up in demand and the need to at least break even in their operations.

Maersk Line, the world’s largest liner company, will increase its rates for the Europe-to-Middle East and South Asia trades effective May 1.

“Unsustainable rates and continued improved demand lead to rate increases,” said the company in a statement.

Maersk Line raised rates by US$100 per 20-footer container and US$200 per 40-footer container on eastbound services from Northern Europe, North Africa and Mediterranean to the Middle East and South Asia.

Since late last month, Maersk Line has been announcing rate increases that included North America-to-Mediterranean and North African trades, North America-to-Middle East and Indian-subcontinent trades as well as Europe-to-Asia trade.

CMA CGM, France’s largest liner company, also decided to implement a rate restoration exercise on its main trades on April 1.

United Arab Shipping Co (UASC) Malaysia Sdn Bhd country general manager, Desmond Yong told StarBiz that the rate restoration was only a measure for shipping companies to continue providing services rather than pulling out from certain trade routes.

“We just cannot lay up our vessels or pull ourselves from a trade route as there are still exporters and importers that need to do business,” he said.

He believed that the restoration was driven more by business survival rather than demand as the trade volume was only inching up.

“The container shipping sector has suffered so much that we cannot even meet our operating costs since the rate slump.

“For example, the freight rate in certain Asia-westbound trade routes are cheaper compared with the trucking cost from Selangor to Melaka,” he said, reiterating that the rate restoration was certainly not a profit-making move.

Jardine Shipping Services country manager Richard Tan said the restoration of rates would not even cover shipping companies’ operating costs.

“If there is any improvement in the container shipping business, it is expected from intra-Asia trade rather than Asia-US or Asia-Europe trade.

“This is because our financial institutions are still strong while countries with huge population, such as China and India are encouraging domestic population,” he said.

CIMB Research said in its latest sector update that a rebound would be more apparent in months to come and the uptrend would probably last for two to three quarters.

“This could be due to typical seasonal trend of restocking of inventories in the United States and Europe.

“We may actually see positive growth in the fourth quarter of this year,” it said.

The research house said container trade volumes could recover sequentially in the second and third quarter this year due to seasonal factors such as back-to-school shopping in the United States and the coming Christmas.

“Given the sharp decline in Asian exports and US/Europe imports over the past six months, we believe some level of restocking should materialise by the second and third quarter of this year.

“This will help boost volumes in the main East-West trades and provide a lift to spot container shipping rates.

“The key risk is continued weakness in retail sales in the major consuming nations, which may lead importers to maintain a lower baseline of inventory than before,” it said.

CIMB Research said another looming danger that might adversely affect the industry would be the supply growth of container vessels.

“The order book is currently about 50% of the existing fleet.

“Even after adjusting for negotiated delays, cancellations, slippage and scrapping, Drewry Shipping Consultants Ltd expects the global container fleet to grow by 10.5% this year, followed by 8% in 2010 and 5.4% in 2011,” it said.

Source: Star Biz

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