MAJOR shipping companies are beginning
to cut capacity and consolidate services to cope with slowing demand
and sinking freight rates.
Current freight rates in the Asia-Europe trade have been slashed by
more than 50% compared to last year, industry players say.
Two of the world’s leading shipping
firms have taken extra measures to weather the gathering storm.
Singapore-based Neptune Orient
Lines (NOL) has disclosed that its shipping unit, APL, will reduce
its capacity in the Asia-Europe trade by about 25% and by around 20%
for its Trans-Pacific trade.
It has also suspended its
intra-Asia SSX (Singapore Subcontinent Express) service.
That route will be covered by a
combination of its CMX (China Middle East Express) and CSS (China
Singapore Service) services.
The capacity reductions will lower
NOL’s vessel network costs by about US$200mil next year.
Additionally, NOL has come out with
more cost-cutting measures as it expects a severe and prolonged
downturn in the global container shipping business.
The company is also cutting back on
its global workforce, where 1,000 workers, mainly in North America –
the company’s highest cost base – will be laid off.
NOL is also relocating its Americas
regional headquarters from Oakland, California, to a more cost
effective location in the United States.
Maersk Line, the largest liner
shipping firm, has cut back on its Asia - Northern Europe network,
resulting in a temporary removal of its AE8 service this month.
The drop in demand has removed
7,600 20-foot equivalent units (TEUs) from its weekly network
Maersk will also link its AE1 and
AE10 services to accommodate the cancelled AE8 route to ensure no
loss of service connections.
According to Maersk’s
vice-president and head of product management, Robert Kledal, the
current Asia-Europe market is characterised by unsustainable rate
“The changes will support our
market position and ensure that our network is sustainable in the
long term,” he said in a statement.
Maersk and another shipping player,
CMA CGM, are reported to be forming a new vessel sharing agreement
on the weakening Asia-Europe trade.
The Asia-Europe trade is affected
by weakening consumer demand in Europe which has also slowed
production in China.
Malaysian ports are beginning to
feel the contraction in the shipping business.
United Arab Shipping Co (UASC)
Malaysia Sdn Bhd country general manager, Desmond Yong, told
Starbiz that demand was unusually slower at this time of the
year compared to 2007. “This has resulted in the consolidation of
services and the scrapping of older vessels by some shipping
“I think the trend will continue as
nobody can predict what the future prospects are,” he said, adding
that the global recession might drag on for two years.
But UASC will still continue its
four new Asia-Europe services this year.
“We plan to stick to the earlier
expansion strategy and we are also committed to serve our customers
although there is an oversupply of capacity in this trade,” Yong
UASC launched two new Asia-Europe
services this month while the remaining two will be in service by
Association of Malaysia chairman Ooi Lean Hin said that at the end
of the day, market forces would balance out supply and demand forces
in the industry.
“We have seen certain companies
cutting their services and some shipping companies may opt to scrap
their older vessels.
“But, scrapping older vessels may
not produce promising returns as the current scrap iron price is
slumping,” he said.
According to another player from
the Grand Alliance shipping consortium, shipping firms were also
implementing cost-cutting measures in operations as well as being
more stringent on credit lines.
“These are the measures taken
besides the efforts to gain more cargo,” he said, adding that Grand
Alliance members were still running on full capacity.
“But, if the current market
condition deteriorates, shipping companies would opt to cut capacity
and consolidate services,” he said.