Monday, June 1, 2009

MISC liner division will exit Asia-Europe trade

MISC Bhd’s withdrawal from Grand Alliance, the world’s largest container shipping alliance, will result in a pullout of its liner division from the loss-making Asia-Europe trade route which is suffering from plunging freight rates.

MISC has been a member of the alliance since 1998.

Besides MISC, three other members of the Grand Alliance are Hapag-Lloyd, Nippon Yussen Kaisha and Orient Overseas Container Line Ltd, which collaborate to provide shipping services in the European, Mediterranean, trans-Atlantic and trans-Pacific trade lanes.

The move will take effect from Jan 1, 2010 resulting in a withdrawal of MISC’s participation from the European and Mediterranean trade lanes.

The Grand Alliance fleet comprises about 140 vessels with capacities of between 2,900 and 9,000 twenty-foot equivalent units (TEUs) each.

One of MISC's container vessels, Bunga Teratai.

Seven of the vessels are provided by MISC.

The strategic alliances among liner shipping companies, which started in 1994, saw the rationalisation of operations such as joint fleet, slot exchange, slot charter, slot purchase and share of port usage.

“The present global economic downturn has severely impacted the global liner industry with many leading operators having to react radically to manage the downturn,’’ the company said in a filing with Bursa on May 15.

“The withdrawal of MISC’s liner division from the Asia-Europe trade is part of a portfolio restructuring to reposition the business on a firmer footing that will drive future expansion.

“As a result, our liner division’s future focus will be to become one of the leading intra-Asia liner operator, with the Middle-East/India Subcontinent to Asia trade being one of its core trade services.”

An analyst at a local brokerage told StarBiz that MISC’s involvement in the Asia-Europe trade lane via its commitment in the Grand Alliance was the reason for its liner division to post losses.

“By next year, its focus will shift towards the intra-Asia trade lanes which have more resilient freight rates.

“Intra-Asia is more resilient because it leans towards the transportation of foodstuff that is less affected by the global economic downturn,” he said.

Usually, the Asia-Europe trade lane involves the transport of finished goods.

He added that the move was also in line with MISC’s halal shipping and logistics businesses.

“The halal trade routes include South-East Asia to Middle East and China,” he said.

In a recent company update, OSK Research said MISC’s liner division aimed to become one of the leading intra-Asia liner operators, with the Middle-East/India subcontinent to Asia trade being one of its core trade services due to the restructuring.

“MISC has allocated six vessels of 4,250 TEUs to develop its Halal Express Service, and we expect this niche service to offer huge earnings potential in longer term,” it said.

The report said the company’s liner operations’ operating loss, which ballooned to RM990.5mil in the financial year ended March 31, 2009, was expected to return to the black in the next financial year.

“This is because other than reshaping its liner’s business model, cost- saving measures such as a reduction in feeder rates, terminal rates and bunker consumption are the company’s top priorities.

“MISC has also made an aggressive 45% capacity cut by ‘warm layoff’ of its 11 container ships.

“We understand that this may save 75% of the vessels’ operating cost,” it said, adding that MISC also intended to return all of its 15 in-charter container ships upon maturity.

Source: StarBiz

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