Monday, December 28, 2009

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

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