Delicate outlook for container, dry bulk

Container and dry-bulk shipping sectors in the Asia-Pacific are still facing uncertain times.

Slower demand from Europe and a stream of newbuildings that was anticipated to enter the market this year were factors impinging on the container shipping sector, said investment banking group Nomura International (HK) Ltd in a report recently.

Meanwhile, the dry-bulk sector continued to suffer from oversupply of vessels, and was currently hampered by low freight rates due to the recent floods in Australia, it said.

Nomura remains cautious on the container shipping sector as demand growth in Europe is set to be slower than that in the United States.

The key earnings driver would be the Asia-to-Europe routes, which experienced higher margins and profitability last year.

“Supply of vessels is likely to be focused on those exceeding 10,000-TEUs (twenty-foot equivalent units).

“The order book is skewed towards this segment, which accounts for 45%. The supply of vessels of this size is set to grow by 98% this year,” it said.

However, Nomura said port and route limitations were preventing these large vessels from operating on many Asia-to-US routes.

“Carriers also face cost pressures from higher bunker oil prices and terminal-handling charges, primarily from Chinese ports,” it said.

Nomura estimates that Asia-to-Europe freight rates would drop by 4% this year while trans-Pacific freight rates would increase 1% despite the fact that annual contracts, for which negotiation usually ends in May, are likely to be concluded marginally lower this year.

“The main reason for these diverging freight rates is the way the routes are structured, mainly on a quarterly basis for the Asia-to-Europe routes and annually for the trans-Pacific routes.

“We also estimate that Asia-to-Europe routes would have higher spot contracts and a greater percentage of freight forwarders on the European routes than end-users on the US routes,” it said.

For dry-bulk shipping, Nomura said oversupply, slower demand and inflation concerns continued to plague the outlook for sector.

“While we believe these are valid concerns, we estimate that current freight rates are at artificially low levels due to bad weather and flooding problems in Australia,” it said.

With iron ore and coal each accounting for 30% and 27% of total volumes, Australia is a key export region of the raw materials, given that the continent is the largest exporter of iron-ore and second-largest of thermal coal globally.

“Once the Australian flooding problem eases, we expect a rebound in freight rates, although this will still be lower than historical highs, given the problem with the supply of vessels,” it added.

Nomura said supply growth remained a concern for the sector. Despite record newbuilding deliveries last year, orderbook as a percentage of current fleet remains at 52%.

“We estimate net supply growth of 11.3% in 2011 and 2012 respectively, after factoring in a 42% newbuilding delivery slippages in both years.

“This is higher than in 2010 with newbuilding slippage of 36% due to lower freight rates this year and 2012,” it said, adding that scrapping was the wild card, given that 31% of the existing fleet was over 20 years old.

Newbuilding delivery slippages refers to new vessels that do not enter the market.

Nevertheless, Nomura remained relatively optimistic that demand for iron ore and coal (thermal and coking) would remain strong.

Source: BizStar

Economic woes in US, Europe still cast shadow on local shipping sector

Despite the rosy outlook of seaborne container trade anticipated this year in continuation of last year’s growth, there are several negative variables that could still cloud the positive sentiment.

Maritime Institute of Malaysia senior fellow Nazery Khalid said Malaysia, being a trade-dependent country, would be subjected to the economic performance of countries it traded with and the economic woes of the United States – a key trade partner – were not likely to improve soon.

“The eurozone crisis might add to the gloom; already Portugal is feeling the contagion effect of a crisis that has hit Ireland and Greece.

Naery Khalid says the US economic woes are not likely to improve soon.

“And China’s effort to ease economic growth to prevent overheating could also have an adverse effect to Malaysia’s trade and ports’ performance in the near term,” he toldStarBiz.

According to Nazery, the World Bank projected that China’s economy would grow at an average of 8.4% over 2011-2015 and 7% over 2016 to 2020, compared with the double-digit average annual growth it registered in the past decade.

“Other quantitative easing measures by several major trading countries may also dampen a sharp rebound in global economic and trade growth, and this will obviously have a telling effect on Malaysia,” he said.

Although Malaysia’s economy emerged largely unscathed from the global recession, Nazery said recently-released domestic figures suggested that the country was not entirely immune to the devastating effects of the downturn.

Malaysia’s exports in October 2010 slumped to an 11-month low, with a mere 1.3% growth recorded year-on-year, despite the economy posting a strong growth of 8.1% in the first three quarters of 2010.

“Also, the specter of huge new tonnage coming into shipping trades such as container and bulk will add downward pressure to freight rates.

“It would be unlikely that these vessels would be able to find demand for such cargos to be able to match the supply of the vessels carrying them,” he said.

To recap, Minister of Transport, Datuk Seri Chong Kong Ha recently announced that that Malaysian ports handled a total of 18.4 million 20-foot equivalent units (TEUs) last year.

This commendable figure was a 14.8% increase from the 16.04 million TEUs of total container throughput recorded by local ports in 2009.

The minister has forecast a 7% year-on-year growth in total throughput in 2011.

Nazery said the confidence of a productive year for local ports this year was not misplaced as economic indicators pointed to decent growth for Malaysia’s trade and economy this year, in line with improving global economic sentiment.

World Trade Organization projected global trade to grow 13.5% this year, compared with its earlier growth forecast of 10%.

Meanwhile, Bloomberg recently reported that Asian exports that helped power the world recovery last year were poised to grow more slowly as the region’s manufacturing rebound eases and the US unemployment restrains consumption after a post-recession spending spree.

According to the newswire, Container traffic growth in Shanghai, Singapore and Hong Kong, the world’s busiest ports, has cooled since the first half of last year.

Singapore exports in 2011 may rise at a third of last year’s pace of as much as 24%, according to DBS Group Holdings Ltd. The island’s government joins Taiwan and South Korea in predicting smaller gains in overseas sales.

While seaborne container trade outlook is still on cautious mode, shipping companies that were severely battered when freight rates plunged during the height of the global economic crisis, were slowly “restoring” their rates in tandem with the increase demand for their services.

Maersk, the largest container shipping company globally, had on Dec 22 announced general rate increase for its Middle East- Europe service for the first quarter of this year.

CMA CGM in its revenue restoration programme has also embarked on new rate restoration and surcharges for a few of it services this month.

Rising trade strains Malaysia's top ports

Malaysia's growing international trade is putting a strain on main ports, with delays in cargo handling being reported despite an increase in throughput volume, according to a business report on Malaysia.

Publisher and consultancy Oxford Business Group (OBG) said as majority of Malaysia's foreign trade as well as its domestic cargo transfer is moved by sea, delays in clearing the ports can have a direct impact on the economy.

"Bottlenecks add to the costs of both shipping firms and their clients, especially those with perishable freight or cargoes being transported on a tight deadline.

"Though there has been an increase in the number of 20-footer container units being handled by Malaysia's ports this year, some of the main cargo facilities are being stretched, with complaints coming from representatives of the shipping industry and producers," it said in its latest Economic Updates on Malaysia.

International Trade and Industry Ministry's (Miti) figures released in early December show a continuing surge in overseas trade, with the 10-month import and export data rose over 20 per cent from the same period in 2009 to RM967.58 billion. Exports climbed by 18 per cent to RM529.56 billion, while imports increased by 24.7 per cent to RM438.02 billion.

The government has revised upwards its projected economic growth for 2010 to 7 per cent from 6 per cent, due partly to a solid increase in foreign trade.

In the south, Johor Port Shipping and Forwarding Association said delays at the Johor Port were slowing the flow of imported raw materials, disrupting production, and resulting in missed deadlines for shipments. These are potentially harming Malaysia's reputation as a supplier. 

The port has little room for further expansion, having been designed to handle a maximum of 800,000 20-foot equivalent units (TEUs) a year, a limit it has now reached.

In mid-November, a number of shipping companies operating through Johor Port said they would be imposing a surcharge on exporters due to high levels of congestion and delays at the facility. 

The surcharge is to offset losses stemming from the delays, including the costs of operating vessels, charter fees and charges resulting from missed connections. 

This is expected to hit industries in Pasir Gudang, with manufacturers having to fork out US$25 (RM77) or more per container in extra levies.

OBG said port operators in Johor are trying to improve the situation, but there have been no quick-fix solutions to that. 

MMC Corp Bhd, which operates both Johor Port and Port of Tanjung Pelepas (PTP), recently floated a proposal to shift all container-handling activities to PTP, leaving Johor Port to deal with other cargoes.

However, the move to consolidate port activities was rejected by the government, with Miti Minister Datuk Seri Mustapa Mohamed saying the decision had been taken after considering views and concerns from companies and industries operating in Pasir Gudang.

Geodis Wilson Freight Management general manager Donovan Niap believes the government should reconsider its decision, given the continuing congestion at Johor Port.

Johor Port's operators have announced plans to improve cargo-handling capacity, including acquiring more cranes and replacing ageing equipment. 

"However, the space constraints will mean there is only so much improvement that can be wrung out of the upgrades," said OBG.

Up north, the operators of Penang Port are taking a different tack, hoping a US$100 million (RM307) dredging project to deepen the main channel leading to the port's container facility will enable it to attract more trade and handle larger vessels.

The project has the potential to turn the North Butterworth Container Terminal into a major facility, capable of handling up to two million TEUs a year.

The expansion of the port is timed to coincide with work to electrify and lay duel track on the Ipoh-Padang Besar railway, which should be completed by 2013.

OBG reckons that despite the private sector and state authorities' additional investments to improve port facilities and infrastructure to clear the bottlenecks, these projects will take time.

"This means freighting delays will continue to pose problems for Malaysia's economy," it added.

Source: Business Times

CMA-CGM hopes for a repeat performance

The CMA-CGM Group expects to grow its container volume in Port Klang between 12 per cent and 13 per cent again this year, if everything goes reasonably well.

"It's very difficult to predict. We don't want to be too optimistic and tempt fate, because there is still a lot of uncertainties in the European and US economy but we think with the good recovery last year we can continue," CMA-CGM & ANL Malaysia managing director Simon Whitelaw told reporters during an appreciation lunch to mark CMA-CGM's for breaching 2 million twenty-foot equivalent units (TEUs) in Port Klang.

CMA-CGM registered between 12 and 13 per cent growth in container volume in Port Klang in 2010, due to good growth in transshipment as well as local cargo.

Last year the company contributed about 26 per cent to Port Klang's overall throughput volume. 

Local cargo makes up about 10 - 12 per cent of the cargo CMA-CGM handles while the remainder is from transfer of containers and transshipment.

Whitelaw said however that the fourth quarter of 2010 saw some softening in cargo movement, as China's consumer demand eased off.

"The fourth quarter was definitely softening a little bit partly because business tailed off, and China was not the big consumer demand everyone was expecting. Fourth quarter was a little bit softer from the third quarter," Whitelaw said.

CMA-CGM started out in Port Klang in 1998, handling some 20,000 TEUs.

Meanwhile Port Klang Authority chairman Datuk Lee Hwa Beng said he is confident that the port would be able to at least maintain its world ranking of the previous year. Port Klang was ranked 13th in the world's busiest container port in 2009.

"We improved by 21 per cent last year, we still don't know the world ranking for 2010 but we expect to at least maintain it. I don't think many ports in the world have seen such a large jump," Lee said.

Port Klang, which comprises Westports and Northport, recorded a 21 per cent rise in container volume in 2010, to 8.9 million TEUs.

Source:Business Times

Malaysian navy thwarts Somali pirate attack on MISC tanker

GULF OF EDEN: Malaysian navy commandoes thwarted an attempt by Somali pirates to hijack a Malaysian International Shipping Corporation (MISC) tanker early Thursday.

Sources said the commandoes on board the Royal Malaysian Navy's Bunga Mas 5 were on a routine escort mission of MISC's chemical-laden MT Bunga Laurel and another LPG carrier out of the dangerous gulf waters enroute to Singapore.

But hours out of the danger zone, when the RMN would cease their escort, the pirates struck.

At least seven pirates began attacking the MT Bunga Laurel firing their assault rifles and machine guns when trying to board the vessel.

The crew of MT Bunga Laurel activited the alarm and the commandoes, which were about 30km away, reacted immediately by dispatching a helicopter to the scene.

The sources said the commandoes boarded the tanker and subdued the pirates.

They said the swift action saved the 20-odd Malaysian crew and the vessel. At least three pirates were injured in the shoot out with the commandoes.

In another incident, South Korean navy commandos stormed a ship hijacked by Somali pirates in the Indian Ocean on Friday.

All 21 crew were saved and eight pirates killed.

The hijacking came two months after another Korean supertanker was released by Somali pirates after being held for seven months.

Piracy has surged off lawless Somalia in recent years. Pirates are currently holding 29 vessels and about 700 hostages.

Source: Star

Malaysia’s cargo handling to grow 7pc

Competitive pricing and efficient services, including a speedy turnaround time, is expected to drive Malaysian ports to achieve a seven per cent growth in cargo handling in 2011, said Transport Minister Datuk Seri Kong Cho Ha. 

He said Malaysian ports handled 18.4 million twenty-foot equivalent units (TEUs) last year, up 14.8 per cent, compared to 16.04 million in 2009. 

"We expect further growth for this year and ahead. We are projecting a seven per cent growth in terms of TEUs and it is a conservative figure," he told reporters after opening the National Maritime Conference here today

Source: Business Times

Forwarders cry foul over port deposits

PORT KLANG (Jan 2, 2011): Freight forwarders are crying foul over the requirement of shipping lines that they deposit up to RM2 billion a year to cover damage; and the Port Klang Authority (PKA) is seemingly powerless to do anything.

The Selangor Freight Forwarding and Logistics Association (SFFLA) is furious that the PKA is allowing the 100 foreign shipping lines that call at our ports to dictate terms to terminal operators and refuse to adopt internationally-accepted rules which protect terminal operators, freight forwarders and shippers.

SFFLA honorary secretary-general Wee Ah Sah said the Equipment Interchange Report (EIR), a document accompanying containers stating the condition of the boxes at each point of exchange, have been replaced by deposit takings of between RM750 and RM1,000 per container.

"The deposits were imposed in early 2010 and have to be paid as insurance to ensure that shippers are protected if the boxes are damaged although this is already covered by the EIR," Wee told theSun.

He claimed that in almost all cases, 10% of the deposit is retained due to damaged containers, although these boxes are prone to wear and tear due to extensive use.

"There have been cases where the deposits were not returned due to rusty containers but the rust could have been there much earlier," said Wee whose association represents 550 active forwarders.

He said as 2.5 million containers came into Port Klang (North Port and Westport) a year, by simply taking 10% of the minimum RM750 deposit, the amount is almost RM187.5 million. And as deposits are not returned immediately, millions of ringgit more in interests are tied up.

"Sometimes it takes up to five months to get our money back! Can you imagine the amount of interest that is lost?" said Wee, adding that the container should be the shippers’ responsibility.

However, he admits that stiff competition led to several terminal operators bending backwards to accommodate shippers' demands.

The European Union (EU) had introduced a charter to prevent shipping cartels which could wreak havoc to world trade by raising the cost of transportation, and by extension, the price of goods and services.

"What they can’t do in the West they are trying it here," Wee claimed.

He blamed PKA for encouraging the practice, which he equates to blackmail.

"The PKA has lost its purpose and is not playing its role as regulator and facilitator of the ports by ensuring fair practices," he said. He also blamed terminal operators for not putting their foot down by refusing to collect the deposits.

Operators are also spoiling these shipping lines by allowing lengthy free storage periods. "Previously used to be seven days, at least now they have brought it down to three days, but why?" said Wee.

He added that while tariff rates were RM140 per (container) lift, undercutting had led some terminal operators to offer shipping lines RM50 per lift.

"The competition between the terminal operators is hurting the ports and the PKA must step in," said Wee.

He cited an example where one shipping line which owed millions to one operator had since moved to another operator due to incentives – without settling the debt to the former.

Westports Malaysia Sdn Bhd chairman Tan Sri G. Gnanalingam agreed that PKA must impose some form of control. "The PKA must be a regulatory body that is run by people who know the port business," he said.

However, he said Wee’s claims must be taken with a pinch of salt.

"There are over 3,500 freight forwarders in the country, while even Japan has only 300.

"Seems that anyone can be a freight forwarder, so this portion of the industry must also be regulated," he said, declining to comment further. 

Source-- theSun