Tanjung Manis Port to become gateway for central Sarawak

The Tanjung Manis Integrated Port is to become the primary import and export gateway for Sarawak central region when it begins full operations by next year.

The port, a subsidiary of Sarawak Timber Industry Development Corp (STIDC) and appointed by Rajang Port Authority as its port operator in Tanjung Manis new township, had shown encouraging performance since commencing operations in July last year.

As at October 2009, it had received 11 vessels and handled 2,383 TEUs (20-foot equivalent units), said STIDC general manager and Tanjung Manis Integrated Port chairman Datuk Len Talif Salleh in the latest issue of Perkasa, the bi-monthly newsletter published by the corporation.

Currently the port, which is accessible to 20,000 GRT (gross register tonnage) vessels, has the capacity to handle up to 200,000 tonnes of general cargo and 25,000 TEUs a year.

He said the existing 203m wharf would be extended by 200m to enable the port to handle an annual capacity of 200,000 TEUs and 6 million tonnes of general cargo by next year.

When fully operational, the port is expected to be equipped with state-of-the-art cargo-handling facilities such as quay cranes, mobile harbour cranes, rubber-type gantry cranes and reach stackers, said Len.

He said the port was envisaged to play a pivotal role in the shipping industry with the completion of the Sibu-Tanjung Manis road by this year and support the various industries in the hinterland, particularly the Tanjung Manis Halal Hub and other projects planned under the Sarawak Corridor of Renewable Energy (Score).

"With better facilities and a team of dedicated and experienced workforce, Tanjung Manis port promises efficient services apart from reducing vessel turnaround time due to its closeness to the sea," he said.

Len said the port's strategic location and natural deep water complemented its role as the central region's transshipment hub.

Meanwhile, the 77,000ha Tanjung Manis Halal Hub is expected to attract at least RM9 billion worth of investments for upstream and downstream halal food processing activities , which will create about 10,000 jobs, besides other economic spin-offs.

Source: Business Times

No impact yet of cabotage policy change on cargo shipment business

The Ministry of International Trade and Industry has yet to see the impact of the partial liberalisation of the Cabotage Policy on the cargo shipment business in Sabah and Sarawak.

Its Deputy Minister, Datuk Jacob Dungau Sagan, said the government needed more time to evaluate the impact as the partial liberalisation was only introduced last May.

"The ministry is monitoring interests among foreign shipping companies to go directly to the designated ports in the two states.

"The growth in volume of exports will also be monitored to assess the impact of the policy change," he told a media briefing after officiating at a seminar on "Trade Liberalisation and Government Assistance" here on Monday.

Sagan said the Cabotage Policy change was among the measures taken by the government to reduce freight costs of goods coming to and from the two states.

He said the partial liberalisation allowed foreign vessels to carry containerised transhipment cargo directly to Sabah and Sarawak without a need for a domestic shipping licence.

"It involves the cargo movements between the ports of Sepanggar in Sabah, Bintulu and Kuching (Sarawak) with the ports of Klang and Tanjung Pelepas and vice versa," he said.

Meanwhile, Sagan said he wanted more importers and exporters in the two states to join the Malaysian National Shippers Council, which had been vocal in calling for the review of the policy.

He said currently there were 25 organisations in the council with only one from Sabah and none from Sarawak.

"We want more shipping companies, or through their business associations, to join the council so that their voices can be heard to provide inputs to the government in formulating policies," he said.

Source: StarBiz

Port Klang container, cargo throughput down

Container traffic through Port Klang, the country's busiest container port, fell by 8.3 per cent last year, as the global economic downturn continues to hurt the country's exports.

The port handled 7.3 million TEUs (20-foot equivalent units), the standard measurement for shipping containers, compared with 7.9 million TEUs in 2008.

In terms of tonnage handled, traffic through the port was 133.8 million tonnes, down 8.8 per cent over the previous year.

More than half, or 61 per cent of the container volume, was from Westports, which generated 4.451 million TEUs. Northport accounted for the remaining 39 per cent or 2.858 million TEUs.

Transhipment cargo took the largest share of Port Klang's total throughput, contributing 58 per cent, with local boxes constituting the remaining 42 per cent .

However, transhipment volume also saw a 9 per cent drop to 4.3 million TEUs for the 12 months.

Port Klang Authority (PKA) general manager Kee Lian Yong said the decline in container and cargo throughput is in line with the global trend.

"(Nevertheless,) the port's container volume was better than our earlier forecast of a 10 per cent drop. Overall Port Klang also fared better than other major ports in the world, which saw a 10-15 per cent drop in traffic," he told Business Times.

Kee said Port Klang is expected to post throughput growth in 2010, returning to 2008 volume of 8 million TEUs.

"We remain cautiously optimistic as the shipping community is predicting that 2010 will still be a tough year," he added.

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.

"In 2010, the market should brace for another tough year," Shipping Association of Malaysia chairman Ooi Lean Hin had said in an earlier interview .

Source: Business Times

Port Klang: Mixed views on shorter container storage period

Industry players have mixed views on the reduction of free storage period for full-container load at Port Klang to three days from five that came into effect on Jan 1.

It now means that containers, regardless of whether they are for export or import, are only given three days without charge at Northport and Westports.

Cranes loading containers onto a ship at North Port, Port Klang.

The idea, mooted by the Transport Ministry in 2002, had seen numerous postponements and deferments.

The last deferment was made in June last year by the Port Klang Authority (PKA) due to the global economic downturn.

However, for the implementation this year, PKA had taken into consideration some of the concerns raised by the port users.

For example, it has directed the two terminals to calculate the free storage period based on hours (72) instead of days, and to waive the storage charges if delays are caused by Customs, other government agencies, or the terminals themselves.

The terminals were also told to maintain the five-day free storage period until Dec 31 for shipments from Asean ports.

MultiCargo Express Sdn Bhd chief operating officer Robin Hoh said the reduction in the free storage period was good as it would enable Port Klang to function more efficiently.

“This has been practised in most European countries for quite some time now whereas certain countries only give consignees a day to clear their cargo,” he told StarBiz. “Also, the turnover will be faster, thus profiting not only the carriers, but the ports and depots as well.”

“But, if we want this implementation to be successful, all related bodies for the clearance and delivery of cargo must be more focused and committed,” Hoh added.

On the expected challenges of the new ruling, he said that on festive holidays, all departments and authorities from the points of entry to exit must be highly efficient to run things smoothly.

“In this case, pre-submission of documents for cargo clearance should be practised,” he said.

Transways Logistics (M) Sdn Bhd president and chief executive officer Edward Chan supported the shorter free storage period but thought the timing of the implementation was wrong.

“We are still recovering from the global economic downturn. Furthermore, some types of cargo need more than three working days to be cleared.

“For example, for import cargo, before we can pay the duty, we have to calculate and confirm with our clients. And sometimes cargo needs approval from some government agencies that may take more than three days,” he said, adding that about 30% of the cargoes handled by Transways were cleared in two to three days.

Another logistics player also said the implementation at this point of time was inappropriate as it would hurt the businesses and their clients.

Meanwhile, Wilhelmsen Ships Service managing director Winston Loo said shortening the free storage time was a positive move.

“It should make the entire logistics chain more efficient. And, in doing so, would further improve Port Klang’s competitiveness in the region,” he said.

Loo also believed that sufficient time had been given to all stakeholders to re-engineer their processes to meet the new ruling.

“Thus, while we do expect some hiccups, I believe all the stakeholders will be able to overcome the shortcomings,” he said.

Source: StarBiz

Tanker, dry bulk marts may remain in rough waters

Companies in the tanker and dry bulk shipping markets are not expecting a strong recovery until 2012, as freight rates are likely to remain depressed in the next two years.

"The short-term scenarios are not strong and the (dry bulk) market is expected to worsen until at least 2011," Global Maritime Ventures Bhd chief executive officer Norulhadi Md Shariff told Business Times via e-mail.

Chemical tanker rates and earnings are expected to remain bearish in 2010, with a recovery in freight rates possible in 2011, should there be positive world gross domestic product growth.

"We don't foresee a big leap in freight rates for tankers next year due to the anticipated small growth in the world economy. If there is growth in the world economy, we foresee a lower tonne miles being moved as more refineries are being built nearer to the place of consumption," Norulhadi said.

On the dry bulk market, he said the Baltic Dry Index (BDI), which measures changes in the cost to transport raw materials, has shown a 12 per cent decline since mid-November 2009 mainly due to over stocking of iron ore and coal by China and India.

The index is, however, expected to rise after Chinese New Year, when the Chinese start restocking coal and iron ore.

"We expect the BDI will not be hovering very much off what we saw the last 15 months. Likewise for the tanker market, we don't expect any miracles," Norulhadi said.

Maritime Institute of Malaysia (Mima) research fellow Nazery Khalid, however, is more optimistic on both segments.

"Based on major economic indicators and patterns of new building orders, scrapping activities, freight rates, vessel prices, fleet deployment and port throughput, one can be bullish about the prospect of the dry bulk segment in 2010," Nazery said.

He said China almost single-handedly propelled the bulk segment's recovery from its slump of last year, and upticks in the economies of Europe and emerging economies in Asia have also contributed to the segment's rebound.

"As China accounts for a third for global demand for bulk shipping, its economic performance will be keenly watched by bulk shipping players.

"I am confident that China should be able to register a growth of around 9 per cent as forecast, provided there is no untoward events and developments that may put a spanner in the growth of its economy and the global economic recovery," Nazery said.

On the tanker segment, he said major economic indicators point to the dawn of a global economic recovery, which should support demand for oil and other tanker cargoes. This will be good news for tanker owners.

Source: Business Times

Port Klang Authority to reduce free storage period for FCL containers

Port Klang Authority (PKA) said it would implement the decision to reduce the free storage period for full container load containers from five days to three days effective today.

The decision was taken after several deferments since August 2007 following objections from industry players, PKA said in a statement.

However, Selangor Freight Forwarders and Logistics Association acting president Alvin Chua Seng Wah told a press conference in Kuala Lumpur yesterday that Port Klang would never be ready for the reduction of free storage period to three days without an effective monitoring system in place.

He said the association wondered how PKA would monitor during the three-month pilot run of the new system and determine the accountability of each party.

“The pilot run would be meaningless if it is not done in a holistic and objective manner.

“This seems like putting the cart before the horse and we are concerned that the monitoring system which PKA purportedly has may not be able to monitor effectively on the pilot run,” he said.

Chua said the freight forwarders and importers were the only parties in the entire delivery chain to deal with all the parties in the chain, from importers right up to the container hauliers.

“There must be guidelines in black and white that can access every part of the delivery process and ensure everyone is accountable to the key performance indicator (KPI),” he said.

“Any party who fails to fulfil the committed KPI and cause the cargo to be delivered beyond the 3-day free period must bear the consequential charges, not just us,” he said.

Chua added that 80% of the containers in Port Klang could be cleared within three days, but the remaining 20%, or 10,000 containers, could not be done within the short period.

It involved between RM1mil and RM2mil of extra cost every month, which would be passed down to the consumers eventually, he said.

Chua also said the players should also be given 30 days’ notice prior to the start of the pilot run, not two days before.

Bernama reported that PKA said it had taken into consideration some of the concerns raised by the port users and directed both terminals, Northport and Westports, to take several actions in order to facilitate the port users.

Among them are to calculate free storage period based on hours instead of days and to waive the storage charges if delays are caused by customs, other government agencies, or the terminal itself.

PKA has also directed terminals to maintain five-day free storage period for shipments from the ports in Asean countries.

This facility would be extended until Dec 31, 2010, by which time importers should make all necessary arrangements with their counterparts at the load ports to comply with the revised free storage period, it said.

In another development, Chua said the forwarding agents and importers would not accept demand by shipping lines or their agents for letter of indemnity (LOI).

He said the LOI initially only covered detention and demurrage charges, but had been extended to cover washing or cleaning, container repair, monitoring and electricity, loss and other related charges recently.

“It practically covers everything. Forwarding agents are not a direct contracting party with shipping lines; hence we should not be required to provide LOI.

“Also, there should be a standard format clearly spelling out the indemnity for storage, detention and demurrage charges,” he added.

Source: StarBiz

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

Westports staff show their mettle as mega containership makes maiden call

One of the world's largest containership, the 13,300-TEU CMA CGM Christophe Colomb, made its maiden call at Westports on November 22.

The vessel represents the biggest to arrive at Port Klang to date.

Although it was an ad hoc call, Westports Malaysia Sdn Bhd said its operations staff were fully prepared to meet the challenge, recording a gross crane productivity of 37 moves per hour.

"The arrival of Christophe Colomb proves the CMA CGM group's confidence in the ability of Westports to handle mega-sized vessels. Our skillful workforce and state-of-the-art port facilities can handle the growing sizes of container vessels which are likely to make more calls at our port next year onwards," Westports executive director Ruben Emir Gnanalingam said in a statement yesterday.

"Christophe Colomb also proves CMA CGM's ability to move forward in the current economic context.

"This new giant is a strategic asset for the group (CMA CGM), while volume and freight rates on the Asia to Europe market are recovering. This modern vessel enables CMA CGM to meet its growing customer demand on this key market while ensuring economics of scale," Ruben added.

The 365.5-metre long, 51.2-metre wide eco-friendly vessel is fully equipped with the latest technology, designed to optimise hydrodynamics and maximise propulsion. Use of an electronically controlled engine meanwhile helps reduce oil consumption by 25 per cent, resulting in a 2 to 4 per cent cut in greenhouse gas emissions.

In addition, Christophe Colomb is equipped with a fast oil recovery system, which enables bunkers to be rapidly recovered at any time, hence significantly limiting the environmental consequences should there be an incident at sea.

The Christophe Colomb is part of the FAL 7, a European service operated jointly by CMA CGM and Maersk.

Source: Business Times

Maersk Leaks Cash But Still Floats

In spite of shipping-world chaos, AP Moller-Maersk stands out as a solid player.

AP Moller-Maersk ( AMKAF - news -people ) reported a wider than expected, nine-month loss of 3.9 billion kronor ($783 million) on Thursday and disappointed the marketby not upping its guidance. The company's chief executive, Nils Smedegaard, complained of the drop in cargo rates, which are set at semiannual negotiations with clients and through the spot market, as Maersk's biggest problem at the moment.

The average rate for large container ships in the industry has dropped from $38,500 a day in 2005, to just $5,750 in July of this year. (See "The Shipping News Is Ugly.")

Jyske Bank analyst Christian Nagstrup believes that while shipping rates have seen the worst, they probably won't return to their precrisis levels before 2014. Maersk's own daily rates have fallen by 30% year-on-year in the last nine months.

Falling rates come amid sliding volumes, and the resulting oversupply in the shipping industry that went from boom to bust because of the global credit crisis. Today some 10% of the industry's global fleet have been laid up inactive, anchored off the coast of large ports like Singapore.

Only around 3% of Maersk ships have been taken out of service, helped by the company's scrapping of many of its vessels. Maersk also benefits from a relatively strong balance sheet and its makeup as a conglomerate with a large oil and gas business that brings in comparatively stable earnings.

Last September Maersk was even able to announce it was tapping investors for close to $1.8 billion through a share placement, to take advantage of possible acquisitions and to boost its financial flexibility. (See "Maersk Sees 'Long Recovery.'")

Aviate Global broker Dan Waterman believes Maersk is undervalued, and he sees the stock as a play on improving global trade flows that have already started to show some improvement. He points to strong October volumes at rival Neptune Orient Lines ( NPTOY - news -people ) and cargo through Shanghai Port as examples.

Maersk does expect some improvement in rates in the fourth quarter, but management has little incentive to sound positive just yet--raising the company's outlook won't necessarily help with rate negotiations. Fortunately, shipping companies are now in a better position to push for higher rates since spot rates are no longer below contract rates.

The market is currently edgy about the fortunes of the shipping industry, particularly after the bankruptcy of the medium-size American carrier Eastwind Maritime earlier this year. Eastwind had been unable to pay $300 million in debt to its lenders, and its collapse has sent tremors through the European banking sector, which currently holds more than $350 billion in shipping industry loans, according to the New York Times.

Maersk's move to raise funds through a bond issue in September rather than through bank financing, which is still eye-wateringly expensive for shipping firms, is probably another sign of its resilience.

Source: Forbes

Baltic index rise reflects China’s industrial activity

The Baltic Exchange’s main sea freight index, which hit a fresh 2009 high last week, should no longer be seen as an accurate gauge of the world economy, but rather a measure of reviving Chinese industrial activity.

With about 90% of the world’s traded goods by volume transported by sea, a resurgence in seaborne freight movement would be a major sign of a world economic recovery.

Indeed, lately, the Baltic Dry Index (BDI), which gauges the cost of shipping resources, including iron ore, cement, grain, coal and fertiliser, has been climbing and hit a new 2009 high last week.

But analysts and shipping industry officials said the jump in the index was driven by Chinese demand for iron ore, coal and grains, as well as rising port congestion in Australia and China, and did not necessarily bode for a broader world recovery.

”It is not really Japan, European or other Asian demand that is driving this (rally). It continues to be China,” Martin Sommerseth Jaer, analyst with Arctic Securities, said.

The main index, which was launched in 1985, has remained volatile this year due to swings in demand by China for iron ore – the primary material in the manufacture of steel.

“Last year, the BDI did work quite effectively as a global economic indicator,” Peter Malpas, group research manager with shipbroker Braemar Seascope, said. “This year it definitely has not.”

The Baltic Exchange said it had never set out to provide economic insight and analysis through the main index, “but an independent and accurate view” of the cost of moving dry bulk commodities such as iron ore and coal by sea.

”With so many factors coming into play and driving freight rates, what these figures mean for the wider economy is for economists to decide,” a Baltic Exchange spokesman said.

Strong appetite for iron ore and coal in India and China and other industrial activity helped push the Baltic index to a record high in May 2008 of 11,793 points. But global turmoil, compounded by a reduction in demand for raw materials, manufactured goods and consumer products drove it back down to as low as 663 in December.

The volatility this year on the main index has also been driven by the availability of large capsize ships, typically hauling 150,000 tonne cargoes such as iron ore and coal, rather than signals of appetite for raw materials from the wider economy.

In June and November, when the main index rallied, port congestion in China, as well as at coal ports in Australia, tightened the availability of ships, helping to sustain gains.

“The BDI is a reflection of both supply and demand. At the moment, it is being led up by the capes. Clearly congestion has returned,” Nigel Prentis, head of research, consulting and advisory with HSBC Shipping Services Ltd said.

Source: StarBiz