Shipping rates facing short-term fluctuations

The current downtrend in shipping rates may be no more than short-term fluctuations, although excess capacity could weigh on the Baltic Dry Index (BDI) going forward, analysts said.

The BDI, a measure of shipping costs for commodities, slid 5.3% over a one-week period to 3,355 points on July 23. Year-to-date, the BDI reached its peak at 4,291 points on June 3 while its lowest level was 995 points on Jan 26.

CIMB Research analyst Raymond Yap told StarBiz that the recent downtrend in BDI was a short-term fluctuation largely influenced by iron ore demand and an over supply of ships.

“China, the largest iron ore importer, is overstocked. But, generally, the BDI is expected to be stronger in the next six months,” he said.

According to Lloyd’s List, the volume of iron ore imported into China has dropped in the last two months from a record high of 57 million tonnes in April, with volumes falling to 53.5 million tonnes in May but rising slightly to 55.3 million tonnes in June.

Kenanga Research said it was very hard to pinpoint the factors currently pushing the BDI down but the general view was that index was still very much caught in a downturn, with excess capacity a continuing concern.

“The dry bulk vessels orderbook is still too huge that cannot be absorbed by the current demand,” said analyst Liong Chee How, in reference to the high number of orders for dry bulk vessels.

“It is too large that even stable economic conditions two years ago would not have been able to support the current orderbook.”

“The consensus is that dry bulk fleet growth will continue to accelerate in the next two to three years when demand growth is likely to lag despite very high scrapping,” he added.

In a report on the dry bulk situation, Kenanga noted that “Drewry (shipping consultant) has painted a bleak dry bulk outlook, projecting average annual fleet growth of 8.7% for the next five years which will produce an excess capacity of 105 million dead weight tonnes (dwt) this year, 140 million dwt in 2010 and 200 million dwt in 2011 respectively.”

Even with a forecasted scrapping of 20-30 million dwt, or 5% to 7.5% of the global fleet, “the outcome is still a 6% to 8% net fleet growth for 2009 when demand is clearly on the fall,” the research house said in the report.

Source: StarBiz

Slight recovery in two major shipping routes

Malaysia’s shipping industry has seen a slight recovery in volumes and freight rates in trade routes from Asia to Europe and the United States as the peak season approaches in the next two months.

“There has been a slight increase in volume but it is still weak. And the current freight rates have improved by 15% to 20% from their slump in January,” Wilhelmsen Ships Service Malaysia managing director Winston Loo told StarBiz.

“The current improvement in freight rates is still considered below healthy levels but it certainly helps mitigate, to a certain extent, rising fuel costs,” he said.

Loo said most shipping lines had also implemented a rate-restoration exercise.

Shipping containers are seen at the Port Newark Container Terminal near New York City.-Reuters

The exercise aims to counterbalance the books of shippers due to the high operating costs incurred after the drastic fall in volumes and ocean freight rates since the beginning of the global economic crisis.

Loo said that the end of July was a curtain raiser for the usual traditional peak shipping period in August and September due to preparations for the festive season by year’s end.

United Arab Shipping Co Malaysia Sdn Bhd country general manager Desmond Yong said the rate-restoration exercise was implemented because the previous rates charged, especially in the first quarter, were “beyond survival”.

“The rates then were about 50% less on a year-on-year basis,” he noted, adding that the current freight rates for a container from Malaysia to Europe were about US$300.

Yong said the current container shipping capacity was quite tight due to the rise in exports from China to Europe and the United States.

“Malaysia, too, is currently recording a year-on-year increase in exports to these two markets,” he said.

Trans-Asia Shipping Corp Bhd (Tasco) head of non-vessel operating common carrier, K.H. Lim, said the overall export volumes to both the United States and Europe had picked up as the July–September peak season approached.

“This is the time when major importers start buying all those back-to-school merchandise, summer holiday stuff, followed by Christmas sales goods.

“However, the current numbers are still way behind compared with a few years ago when the US economy was still unaffected,” he said.

He added that December and January were always the slowest months as most of the merchandise had already reached the retail outlets.

Usually, according to Lim, shipping lines will impose peak season surcharges from June 15 to Nov 15 but so far, none of the liners had done so.

“Nevertheless, the capacity of trade routes to Europe from Asia is quite tight now as most of the major lines have withdrawn, consolidated, merged or suspended trade that doesn’t generate enough cargo or considered non-profitable,” he said.

Asean Port Association (APA) working committee chairman Datuk Capt Abdul Rahim Abd Aziz said many, if not all, shipping lines had reported losing US$250mil to US$350mil per quarter since the global economic meltdown.

“Ships laid up as of last month were reported to be about one million 20ft equivalent units (TEUs), corresponding to 400 vessels worldwide – which is about 10% of the world’s capacity.

“The current situation is expected to stay till early part of next year,” he said in Kota Kinabalu recently.

Correspondingly, Abdul Rahim said the decline in Malaysia’s ports’ volume was between 25% and 30%.

“But I am happy to report that it has stabilised somewhat since about a few of months ago. Nevertheless, it’s too early to tell whether this stabilisation is here to stay and improve, or otherwise,” he said.

Source: StarBiz

Piracy Attacks Skyrocketed Worldwide

KUALA LUMPUR, July 15 (Bernama) -- Piracy attacks more than doubled globally, in the first six months of the year as compared to the same period last year.

Between January and June this year, there were 240 reports as compared to 114 last year, the ICC International Maritime Bureau's Piracy Reporting Centre (IMB) said today.

According to its report, attacks in Southeast Asia and the Far East increased 100 per cent, from 10 in the first quarter to 21 in the second, confirming a similar trend seen last year.

The only difference is that the attacks in the first quarter were against vessels at anchor, while during the second quarter, they were against vessels at sea, it said.

Two incidents have been recorded for the Malacca Straits this year, although none were reported for the second quarter.

In Indonesia, the second quarter saw only two incidents compared with six in the corresponding period last year.

"This is a clear indication that piracy and robbery in Southeast and East Asia have the potential to escalate, and shipmasters should remain alert and be aware of the risks involved in the seaway and ports.

"The continued efforts of Indonesian authorities should be noted for bringing piracy and armed robbery down in their waters," said IMB director Pottengal Mukundan in a statement Wednesday.

According to the report, as in the last quarterly report, the rise in overall numbers is due almost entirely to increased Somali pirate activity off the Gulf of Aden and east coast of Somalia, with 86 and 44 incidents reported, respectively.

"The year's second quarter saw 136 reports of piracy as compared with 104 in the first three months of 2009, an increase of almost a third," it said.

Seventy-eight vessels were boarded worldwide, 75 vessels fired upon and 31 vessels hijacked with some 561 crew taken hostage, 19 injured, seven kidnapped, six killed and eight missing.

The attackers were heavily armed with guns and knives in the majority of incidents, and violence against crew members continues to increase, the report concluded.

Nevertheless, the presence of navies in the Gulf of Aden from several countries made it difficult for pirates to hijack vessels and led them to seek new areas of operation such as the southern Red Sea and the east coast of Oman, where Somali pirates are believed to be responsible for a spate of recent attacks.

The report said that the attacks off the eastern coast of Somalia had decreased in recent months, after peaking in March and April, with no attacks reported in June.

The Piracy Reporting Centre attributed the decline to heavy weather associated with the monsoons that are expected to continue in August, however adding that vigilance should nevertheless, remain high during this period.

Nigeria continues to be a high risk area, with 13 incidents reported in the second quarter to the IMB and at least, 24 other attacks which have not been directly reported.

According to Mukundan, the majority of the piracy attacks were against vessels supporting the oil industry.

"There is a need for every incident to be reported and brought to the intention of the Nigerian authorities. This is the only way in which the true risk associated to the area can be determined and accurate advice, given to shipmasters, owners and traders," he said.

Mukundun said, regardless of the location, reporting to independent organisations such as the IMB was the key to identifying piracy hotspots worldwide.

-- BERNAMA

The liberalisation of cabotage policy is to address peninsula-east Malaysia trade imbalance

The recent liberalisation of the cabotage policy is expected to address the trade imbalance between Peninsular Malaysia and Sabah and Sarawak, said Transport Minister Datuk Seri Ong Tee Keat.

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 Malaysia-flagged ships.

Consent for the usage of foreign vessels for the trade route can only be sought from the Malaysian Shipowners’ Association if there is no local vessel to provide the service.

Effective June 3, however, the cabotage policy has been relaxed and foreign vessels are now allowed to carry containerised transhipment goods between ports in the peninsula and east Malaysia.

»Many people blame the cabotage policy for the pricing of goods in east Malaysia, which is generally higher than in the peninsula, when that is not the case« TRANSPORT MINISTER DATUK SERI ONG TEE KEAT

The selected ports are Sapangar Bay Container Port, Kuching Port, Bintulu Port, Port Klang and Port of Tanjung Pelepas.

“The trade imbalance can generally be illustrated in that for every two laden containers bound for east Malaysia, one will return empty,’’ Ong told a media briefing yesterday.

“Hopefully, the presence of foreign vessels that may be larger in size can create the much needed volume,” he said.

Ong said ports in east Malaysia too would be expected to improve productivity in goods handling to cater to the arrival of larger foreign vessels and the projected increase in volumes.

“It’s a chicken and egg situation. We must try to enable them to increase the volume of trade,” he said, adding that he hoped the liberalisation would make the east Malaysia ports take the leading role in the Brunei, Indonesia, Malaysia and the Philippines-East Asean Growth Area regional trade.

According to Ong, the ministry was coming forward to clear any misconception on the cabotage policy.

“Many people blame the cabotage policy for the pricing of goods in east Malaysia, which is generally higher than in the peninsula, when that is not the case.

“Pricing of goods there depends on several other factors that include inland transportation and handling charges. Shipping freight is only one of the cost elements,” he said, adding that the liberalisation would not necessarily lower the prices of goods in Sabah and Sarawak.

Another misconception was that foreign vessels were not allowed to call directly on east Malaysia ports due to the policy, Ong said.

He said the liberalisation was aimed at improving Malaysia’s maritime industry in line with the national port hubbing policy.

“We have been gradually liberalising the cabotage policy that allows the participation of foreign vessels between some ports in Peninsular Malaysia since 2003.

“Since then, we have seen Port Klang as the national load centre and Port of Tanjung Pelepas as the national transhipment centre,” he said.

Furthermore, Ong said the implementation of the cabotage policy had spurred growth in the number of local vessels to 2,321 last year from 380 vessels in 1984.

Source: StarBiz

Butterworth container terminal sees better quarter

North Butterworth Container Terminal (NBCT) registered about 12% increase in the volume of cargo it handled in the second quarter, compared with the first quarter this year, Penang Port Sdn Bhd general manager Obaid Mansor said.

But for the whole of 2009, NBCT was expected to post a slight drop of about 5.5% in cargo volume from last year’s 929,000 TEUs (20ft equivalent unit), he said.

Obaid Mansor . . . "The third and fourth quarters should see a 10% increase in the volume of cargo handled.'

The volume handled in the second quarter was 223,372 TEUs, compared with 199,391 TEUs in the first quarter.

Despite the quarter-on-quarter increase in the second quarter, there was a 10% decrease in the cargo handled at NBCT to 422,763 TEUs in the first half this year against a year earlier, according to Obaid.

“The increase in cargo activity in the second quarter was due to outgoing and incoming cargo such as electrical products, furniture, palm-oil based products, high-technology glass used for the solar industry, and rubberwood.

“We expect more raw materials to be imported from United States and Germany in the third and fourth quarters to support the solar industry in the northern region.

“The third and fourth quarters should see a 10% increase in the volume of cargo handled,” he said.

The pick-up in cargo volumes at NBCT was a genuine indication that the Asean region was recovering as the port in Penang was not used for transhipment of goods, Obaid said.

“The cargo handled here is not on transit to other parts of the world. It is imported and exported to meet the economic needs and activities in the northern region and neighbouring countries,” he said.

Source: StarBiz

Malaysian cargo volumes to recover gradually

Cargo volumes in Malaysia’s container ports are expected to see a gradual recovery going forward after a slump in the first half of this year, according to OSK Research.

Its analyst Ahmad Maghfur Usman told StarBiz that in general, major container ports in the country had experienced only 10% to 15% decline in volumes so far this year.

Northport (M) Bhd, a wholly owned subsidiary of NCB Holdings Bhd, recorded a 13.9% decrease year-on-year in container volume to about 1.3 million 20ft equivalent units (TEUs) in the first six months of 2009.

“Moving forward, the current slump in the port sector in the country might have bottomed out looking at the current situation.

“But do not expect any sharp increase in the container throughput going forward,” he said, adding that airfreight was expected to recover ahead of sea cargo due to urgent shipments when the economy picked up.

An earial view of Port Tanjung Pelepas.

At Port Klang, the country’s maritime gateway, container volume in the first quarter saw a double-digit decline year-on-year.

Checks with players dealing with the port, however, revealed that volume has been rising slowly since the middle of the second quarter this year.

OSK said Northport, one of two ports located in the national load centre in Port Klang, was unlikely to witness a severe fall in container throughput volume as it would be cushioned by indigenous cargo trade as well as its relatively smaller exposure to transhipment containers.

Ahmad Maghfur said although transhipment cargo was expected to pull down most ports’ volumes compared to import and export cargo, that would not be the case for the Port of Tanjung Pelepas (PTP), a 70%-owned subsidiary of MMC Corporation Bhd and a major transhipment terminal in Malaysia.

PTP recorded about a 3% increase in container volume to 1.9 million TEUs in the first half this year compared with a year earlier, OSK said. The port was confident of recording 6.1 million TEUs for the whole of 2009 versus 5.6 million TEUs last year, it added.

Source: StarBiz

Maersk sees stagnation at best for liner sector

AP Moller-Maersk's liner shipping business expects stagnation at best in the industry next year but will not cut freight rates to win more market share, the head of the division told a German newspaper.

"We are pretty disappointed by what we've seen in April and May," the head of Maersk Line, Eivind Kolding told business daily Financial Times Deutschland in an interview published yesterday. He said growth in shipping volumes in 2010 is unlikely.

Kolding said he is currently not trying to increase Maersk Line's market share, which stands at about 15 per cent.

"If we did that we would increase the pressure on freight rates further," Kolding was quoted as saying.

It is hard to predict whether the Danish company will manage to lift rates, he added.

Capacity utilisation in the industry should decline further over the next 12 months, particularly in the first quarter of 2010, the division head also said.

The current downturn could speed up consolidation and capacity reduction and Maersk should play an active role in takeovers in the next few years, even though takeovers are not currently on Maersk's agenda, he said.

Moller-Maersk's tanker business is also anticipating merger and acquisition activity picking up as shippers try to cut costs and boost vessel usage, the division's chief Soren Skou said in an interview on Wednesday.

In another development, Maersk Oil & Gas A/S, Scandinavia's second-largest producer of crude, said it's still interested in opportunities in Iraq and may join in future licensing rounds after failing to win rights in the country's first tender.

"The oil sector of Iraq represents significant business potential for Maersk Oil," Jakob Thomasen, head of exploration and new business, said in an e-mail. "Many of the oil fields in Iraq have carbonate reserves, which are a good match for Maersk Oil's core technologies, given our experience in developing carbonate fields in the Danish North Sea and in Qatar."

Maersk made a joint bid with Repsol YPF SA and StatoilHydro ASA to produce 650,000 barrels a day at the southern West Qurna field at an average price of US$19.30 a barrel (US$1 = RM3.52). The Iraqi authorities requested a recovery cost of just US$1.90 a barrel for the deposit. An Exxon Mobil Corp-led group, which put in the preferred bid out of five received for the field, dropped its application, declining to improve its offer.

Iraq failed to award most contracts it offered this week in a bidding round aimed at attracting foreign partners and their cash, leaving the country seeking new ways to develop the world's third-largest oil reserves. A service agreement for the Rumaila oil field, the largest of the eight oil and natural-gas fields offered, won by a BP Plc-led group was the only contract awarded.

The Middle Eastern country wants to increase production more than 60 per cent from the fields on offer, potentially raising US$1.7 trillion in profit over 20 years for the country, Oil Minister Hussain al-Shahristani said on June 30. Iraq later this year plans to hold a second auction round for 11 oil and gas fields with the aim of boosting production to about 6 million barrels a day by 2015.

Source: BusinessTimes

FISCAL REGIMES TO PROMOTE FLEET DEVELOPMENT

Norwegian Kommandittselskap (“KS”) Scheme

Securitization of debt

Securitization of debt is a financing scheme which facilitates the acquisititon of funds from individual investors who in turn enjoy tax concessions relating to personal and corporate tax.

Funds are collected from individual investors (partners) through the formulation of a consortia (limited partnership.) Once the consortia purchases the vessels it is leased or chartered to prospective shipowners/operators.

The scheme which was first designed in Norway is referred to as K/S (Kommanditt -selskap). Each consortia partner need only contribute a small amount of capital while the tax benefits would be substantial.

German Kommanditgesellchaft (“KG”) Scheme

A similar type of scheme has also been in operation in Germany and its structure is illustrated below. The KG scheme as it is known has been utilized to acquire new full container vessels from Korean shipyards and has been reputed to be a successful portfolio investment.

Read more here.