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  3rd November 2008 - STAR MARITIME

Slower demand from US and Europe affecting freight rates

WITH every major barometre that measures the maritime industry weakening in the last few months due to the sluggish global growth, it will just be a matter of time before the tsunami hits our shores.

Container freight rates for the Asia-Europe route have fallen due to slower demand from the US and Europe.

Transpacific Stabilization Agreement (TSA), a research and discussion group of 15 major container shipping lines, reported a 6.9% year-to-date drop to 3.07 million 40-foot containers in Asia-US cargo volumes over January to June, compared to the same period a year earlier. In July, the year-to-date gap widened to 7.5%.

TSA forecast that this year cargo demand could decline by as much as 8%.

This has affected many multinational shipping companies’ bottom lines.

According to a recent Bloomberg report, China Shipping Container Lines Co, China’s second-biggest shipping line posted a third-quarter loss as the credit crunch curbed demand for Chinese-made furniture, toys and other goods in the US and Europe.

It said the loss amounted to US$39.7mil.

But, declining cargo volumes did not greatly impact TSA’s 15 carriers, which experienced a 1.8% decline in liftings during the first half of 2008 due to efficient management in reducing operational cost.

Even in July and August, when TSA carriers reported an overall 7% drop in cargo volumes, vessel utilization remained around 90% across all trade segments.

The TSA group includes APL Ltd, China Shipping Container Lines, CMA-CGM, COSCO Container Lines Ltd, Evergreen Line, Hanjin Shipping Co Ltd, Hapag Lloyd AG, Hyundai Merchant Marine Co Ltd, Kawasaki Kisen, Kaisha Ltd, Mediterranean Shipping Co, Mitsui O.S.K. Lines, Ltd, Nippon Yusen Kaisha (N.Y.K. Line), Orient Overseas Container Line Inc, Yangming Marine Transport Corp and Zim Integrated Shipping Services.

“Clearly we’re in a slow down right now, but the current freezing up of the global credit system is unsustainable,” TSA chairman Ronald D Widdows said in a recent statement.

He added that TSA expected to see an orderly de-leveraging of the financial markets over the next year that would begin to restore confidence with year-on-year cargo demand growth resuming in late 2009.

On bulk shipping, the Baltic Dry Index, a measure of shipping cost for commodities, continued to drop to 982 points on October 28, the lowest it has ever been in six years. This is a 91.7% drop from 11,793 points on May 20.

The crash is partly due to Chinese steel mills having reduced production because of sluggish economic growth with lower demand from development and automotive industries.

The warmer winter in Europe also contributed to the lower demand of coal.

The tanker market, particularly the cost of shipping Middle East crude to Asia, the world’s busiest route for supertankers, according to Bloomberg, is also softening.

It said the rate for shipping Saudi Arabian cargoes has fallen for the past 21 sessions, sliding 4.1% to 76.63 Worldscale points on October 27, according to data from the London-based Baltic Exchange.

Local players with international exposure, such as Malaysian Bulk Carriers Bhd (Maybulk), Hubline Bhd and Halim Mazmin Bhd are also not immune to the global trade slump.

Maybulk and Hubline, which operate bulk carriers, are expected to be affected by low freight rates, softer demand and looming overcapacity. However, Maybulk’s diversification into offshore oil and gas support services could place the company in better prospects during this especially “difficult” period.

MISC Bhd, on the other hand, would feel less of an impact because of its transportation services to the oil and gas industry, which is still at a healthy level.

Major local ports namely Port Klang, Johor Port, Penang Port and Bintulu Port would also be affected when transhipment volume starts declining.

This will then have a domino effect on our logistics providers as well as domestic shipping operators.

Currently, many terminal operators are still optimistic in achieving their targeted volumes this year as Malaysia’s total exports grew by 11% to RM60bil in August versus the same period last year despite the drop of exports to the US.


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