More vessels expected to go into lay-up

News was prepared under the information support of Online Daily Newspaper on Hellenic and international Shipping "Hellenic Shipping News".

30 Sep 2009

The demand and supply imbalance in the global container shipping fleet is so severe that at least another 5 per cent of ships need to be laid up in the next six months before equilibrium is achieved, said an industry specialist at the Marine Money Asia conference yesterday. 'It is likely that more liner vessels and charter vessels are going to find their way into lay-up in the second half of this year,' said Monika Krogulska, Asian representative of shipping industry consultancy Marsoft. Current lay-ups have taken off about 10 per cent of capacity, scrapping of vessels another 1.5 per cent, slow steaming has the effect of reducing capacity by around 2 per cent and slippage in deliveries another 4 per cent. But with freight rates having dropped a third year-on-year and fleet utilisation standing at barely over 70 per cent, even more capacity needs to be taken out of the system.
'It is imperative for the liner industry to abandon a price war and really push for freight increases,' she said.
The situation is dire. AXS-Alphaliner figures show that the major lines lost an estimated US$6 billion in the first six month of this year alone and Ms Krogulska said that revenue must rise by 20 per cent on average for them to break even.
However, she noted that while trade growth should rebound next year, the containership market will remain at historical lows and suppressed for some time because of the overhang of currently laid up tonnage which will start coming out. 'Fleet growth will start to abate in 2011, allowing for market recovery,' she predicted.
The only solution for now is to keep capacity under control and hope that rate hikes - as seen in the Asia-Europe route - manage to hold. The situation where liners are running freight at rates below operating expenditure 'cannot continue', she emphasised.
In terms of other segments of the shipping market such as the dry bulk sector, other speakers at the conference also noted that the hope of ordered capacity suffering a natural attrition through cancellations is slim. Governments, especially in China which has a declared policy of becoming the world's top shipbuilder by 2015, will continue to subsidise the yards to keep them alive. So the hoped-for shake-out of weaker yards is unlikely to happen.
'What we should remember is that Beijing always sticks to its policy goals,' said HSH Nordbank senior economist Matthias Umlauf.
'The history of shipbuilding is one of subsidy and distortion,' added FSL Trust Management CEO Philip Clausius.
It started in Europe and then moved to South Korea, and is now the situation in China - and there is no reason to believe that the pattern will change, Mr Clausius said.
The owners that ultimately end up taking delivery of the vessels may be different from the original ones who ordered them but the bottom line is that these vessels will still end up on the market and often at prices much lower than they were originally commissioned for. This, in turn, will have a knock-on effect of lowering asset values, and this trend is likely to keep the market depressed for the next two to three years, the speakers concluded.

Source: Business Times Singapore