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  24th November 2008 - STAR MARITIME

Big players cutting capacity, consolidating services to cope with slowing demand

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 capacity.

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 levels.

“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 companies.

“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 said.

UASC launched two new Asia-Europe services this month while the remaining two will be in service by year end.

International Shipowners’ 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.


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