Shippers set sail for better times

After sailing through choppy waters this year, the shipping industry seems to be heading towards recovery next year, buoyed by increasing global trade.

The Baltic Dry Index, a measure of shipping costs for commodities, was at its lowest on Jan 5 this year at 772 points from the record high of 11,793 points on May 20, 2008.

The Shipping Association Malaysia predicted in the middle of this year a 20% contraction of throughput volume by year-end due to the fall in demand and overcapacity.

At the height of the global economic downturn in the first quarter, container shipping freight rates – usually determined by demand for goods from Asia to the West – had dropped 50% to 80% from the previous quarter.

Maritime Institute of Malaysia senior fellow Nazery Khalid said barring any wild swings in the global economy and major shifts in the geo-political order, 2010 would be the year when shipping markets recover.

“Next year, global trade should pick up steam on the back of growing consumer confidence and consumption, as well as a rebound in business, manufacturing and production activities.

“Ports should register higher throughput volume compared with this year and more money should flow into shipping while shipyards should start to see a pick-up in orders,” he told StarBiz.

This would also benefit support service providers and players along the logistics chain such as freight forwarders and hauliers, Nazery said.

“Players in the sectors that have performed well amid the shipping slump, such as those in the tanker and offshore support vessel sectors, should continue sailing smoothly.”

However, Nazery said, amid the bullish forecast, players should not forget the bitter lessons from the economic recession.

“They should be mindful of their own contribution to one of the worst slumps in the history of modern merchant shipping.

“Unrestrained expansion, excessive speculation, reckless business decisions and greed on the part of shipowners and many other players in the maritime sector had contributed significantly to the severe overcapacity in the industry after enjoying a period of tremendous growth prior to the crash,” he said.

Meanwhile, Gagasan Carriers Sdn Bhd expects the shipping industry to see rates increasing in the second half of next year.

Managing director Captain Johari Mohd Noh said the industry went through a period of shock as a result of the US credit and financial crisis.

He noted that the past one year had been very challenging, with low freight rates and rising costs.

Additionally, financial institutions became “super prudent” in this trying time, thus making things worse, he said.

“But on a positive note, we are currently seeing some supply side adjustments due to an increase in (ship) scrapping, some cancellation of new (ship) buildings and an almost stagnant new orders.

“The recovery depends on an increase in confidence in the financial sectors and positive economic growth in major economies which we hope to see in the first half of next year.

“With that, the shipping industry should see rates increasing starting from the second half of 2010,” he said.

On the lessons to be learned from the crisis, Johari said there should be a better understanding between financial institutions and local shipping companies.

“A win-win solution is vital to ensure the survival of local shipping companies and that financial institutions continue to make their lending feasible in the long run.

“Additionally, the Government’s intervention is required to safeguard the survival of local shipping companies for long-term growth of the maritime industry,” he said.

A special fund should also be allocated not to rescue but to help struggling local shipping companies weather the current crisis, he added.

Standard & Poor’s Ratings Services, in a recent report, said the creditworthiness of transportation companies in the Asia-Pacific remained under downward pressure amid a significant slowdown in transport volume and intensifying pricing pressure.

“Standard & Poor’s has made seven rating downgrades and three downward outlook revisions or credit watch listings with negative implications over the last six months among regional transportation companies.

“The recovery prospect in cargo volume looks weak, given the fragile global economy,” it said.

Source: StarBiz

Local logistics companies hope for a sustained cargo volume

Domestic logistics players are looking forward to the sustainability of the industry’s recovery next year after a pick up in cargo volumes since the middle of this year.

The local logistics industry had suffered a double-digit drop in volumes earlier this year, especially in the first quarter, due to the global economic downturn.

Century Logistics Holdings Bhd deputy managing director Mohamed Amin Kassim said the current economic climate had clouded the industry outlook for next year.

“Although there was an increase of freight volumes in the second half of this year compared with the dismal performance in the first half, we should still be cautious until we see the growth continuing beyond the first quarter of 2010,” he told StarBiz.

Amin said the road to recovery might be hampered by upheavals in currencies, devaluation of assets and an overhang of idle transportation assets such as ships and aircraft.

“Going forward, the light at the end of the tunnel seems to be coming from the Asian economies and the economic performance of Brazil and Russia. The logistics industry will rebound with the rise in global trade,” he said.

But despite the bearish economic environment, Century Logistics is expecting its best financial results for the financial year ending Dec 31.

“This expected remarkable achievement will be the result of strategic development after our re-engineering exercise in 2003.

“The building blocks of innovative products and solutions are now bearing fruits,” Amin said.

Freight Management Holdings Bhd (FMH) managing director Chew Chong Keat said while the company was still cautious on the outlook for the next calendar year, it believed it would still chart growth in earnings in the current financial year ending June 30 (FY10).

“This is because we have always adopted a strategy to expand our business in line with industry’s growth. We minimise outsourcing so that we can effectively manage our costs and level of services.

“We are able to withstand the economic slowdown mainly due to this strategy,” he said.

FMH managed to record an 11.5% increase in net profit to RM13.6mil in FY09 amid the economic downturn.

Infinity Logistics and Transport Sdn Bhd managing director Chan Kong Yew said the market expected cargo volumes to return to 2008 figures next year.

“This is supported by the increase of local container volume in October. And if the trend continues, we will see an overall grow on containers (local volume) of between 15% and 18% next year compared with 2009,” he said.

Multi Cargo Express group executive group managing director Hoh Ding Wei expects the market the market to improve after the first quarter of next year.

“Today, China plays an important role in the world’s economic development and is anticipating 9% growth next year, followed by India at 8% and Indonesia 6%. This will help the shipping industry to improve in terms of volume,” he said.

Hoh said Multi Cargo had been preparing for the expected growth next year by hiring more qualified professionals.

“Our mission has always been to scout for new and improved services to cater to the demand of our shippers,” he said.

He added that Multi Cargo’s plans for next year included increasing its existing fleet of trucks for domestic shipments and inland transport, procuring two additional sets of tugs and barges to increase bulk cargo deliveries and expanding into courier and parcel deliveries.

“With these expansion plans, new equipment and services, we are looking at an additional RM3.5mil in earnings and RM20mil in revenue to meet our forecast of RM90mil revenue and RM 7.5mil profit next year,” Hoh said.

Source: StarBiz

Not smooth sailing yet for container shipping

The global container shipping market will remain tough next year and is unlikely to see a return to healthier sustained revenue and volume growth until at least 2011, shipping analysts say.

Many analysts are predicting minimum growth next year at best.

"This year will be the worst-ever year for the market with no growth. Shipping lines have cut capacity, laid up vessels and scrapped older ones earlier, (and) combined services, but are still losing money," Shipping Association of Malaysia chairman Ooi Lean Hin told Business Times.

"In 2010, the market should brace for another tough year, even though there are some signs of recovery in volume, including in the local market," he said.

Ooi cited the increase in throughput of laden containers at Port Klang, the country's largest port, to some 200,000 TEUs (20-foot equivalent units) a month since August this year, compared with some 140,000 TEUs a month at its lowest level amid the global economic crisis. Pre-crisis volume was between 220,000 TEUs and the peak of 230,000 TEUs in July last year.

"Having said that, volume traditionally slows during the period from January to March due to the festive holidays. Normally, volume moves up in the second and third quarters," he added.

However, according to Drewry Shipping Consultants Ltd's most recent projections, the market will have to wait until 2012 before global container port volume exceeds 2008 levels again. It expects Far East and Southeast Asian container traffic to recover faster than that in other regions.

Ooi projects that the global container shipping industry will lose about US$20 billion (RM68 billion) this year, adding that the figure could have been smaller had industry players responded quicker in addressing overcapacity.

"Contrary to the perception of the Federation of Malaysian Manufacturers and the Malaysian National Shippers' Council, we shipping lines do not operate like a cartel.

"If we had (worked as a cartel to set rates), we would not be losing so much money today," he said.

Ooi said freight rates had recovered from their crisis lows, but were still below the pre-crisis levels.

"Rates hit bottom in the last quarter of 2008, but we can see that rates are recovering. For example, rates for containers shipped from Malaysia to Europe today hover at about US$1,500 to US$1,600 (RM5,070 to RM5,408) per TEU, compared with US$250 (RM845) when they fell to their lowest."

Ooi expects the rates to be restored to profitable levels once the imbalance between vessel supply and demand is arrested.

"But until that is achieved, we are not going to see a lot of improvement in shipping companies' bottom line," he said.

According to a report by research firm Alphaliner, third quarter financial reults just published by the main shipping lines suggest that carriers need to remove additional capacity from the market before any sustained recovery in freight rates can be achieved.

"Freight rate increases achieved in the market since July helped little to improve the carriers' bottom line," it said.

Alphaliner said that this year will likely see more than 350,000 TEUs capacity scrapped in total, about 3.5 times more than the 2008 record of 103,000 TEUs.

"Despite these moves, carriers will need to do more to overcome the supply-demand imbalance. Delivery referrals have only served to delay the eventual injection of surplus capacity at a time when the industry does not require the ships.

Further order cancellations will be needed," it added.

Source: Business Times

East M’sian ports more open now

The International Trade and Industry Ministry has partially liberalised the policy governing the entry of international ships into ports in east Malaysia.

It has allowed ocean liners from Japan to deliver goods directly from Japanese ports to Sarawak and Sabah.

Deputy Minister Datuk Jacob Dungau Sagan said the decision was made by the Cabinet two months earlier.

“Before this, foreign container ships were not allowed to call at ports in Sarawak and Sabah directly. They had to go to ports in Peninsular Malaysia, like Port Klang, to unload their cargoes onto Malaysian ships that will then forward these foreign goods to Sarawak and Sabah.

“Now, this partial liberalisation will see big ships from Japan commuting directly to east Malaysia without stopping at any transit port,” he told a press conference yesterday.

“The Government felt that it is important to slowly liberalise this shipping policy so that companies in Sarawak and Sabah need not incur additional costs in importing and exporting goods.”

Sagan said his ministry had proposed the move three months ago because it had found that many local shippers who forwarded foreign goods from west Malaysian ports to Sarawak and Sabah had charged exorbitant fees. These fees eventually translated into higher costs for consumers in east Malaysia because the overhead costs were included in the market price.

Source: StarBiz

MMEA Propose To Buy Two Large Vessels To Enhance Security In Malaysian Waters

The Malaysian Maritime Enforcement Agency (MMEA) hope to purchase two large vessels that can be used for deep sea patrolling covering about 200 nautical miles from the shore.

MMEA director general Admiral Datuk Mohd Amdan Kurish said the vessels measuring 85m long will have the capability to carry helicopters that can be used for patrolling purposes along the Malaysian waters and to monitor activities at oil rigs.

As part of the Langkawi International Maritime and Aerospace Exhibition (LIMA 2009), the MMEA are carrying out a number of demonstrations in the waters off Awana Porto Malai here.

Mohd Amdan said the MMEA's current fleet comprise of 120 vessels of various sizes, class and make, plus six helicopters and two Amfibia Bombardier CL415 aircrafts.

Source: Bernama