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  2nd April 2012 - STAR MARITIME
 

MASA: Brace for rising operating costs

KUALA LUMPUR: The shipping industry in Malaysia, which witnessed severe downturn and financial losses last year, will continue to face uncertain times due to weak market conditions and rising vessel operating costs going forward.

Malaysia Shipowners’ Association (Masa) chairman Nordin Mat Yusoff said that 2011 was a short-lived joy as several shipping, companies reported unprecedented losses and hefty decline in profits last year.

“We saw history repeating itself in 2011 since barely had the industry recovered from one of the worst downturns in 2008 it was hit by yet another ‘tsunami’ or downturn,” said Nordin in a statement.

Several shipping companies, including Masa members, reported poor performance and financial difficulties due to the macro economic conditions or fundamentals.

“What concerns us is that there are no firm indications that the past is behind us because the industry continues to be affected by unstable freight and charter-hire rates as well as declines in ship prices,” he said.

The uncertain market condition has been brought about largely by the shifting fortunes in the performance of global trade that has impacted on the demand for shipping services.

Although Malaysia’s external trade grew by about 8% last year to RM1.3 trillion, this was largely on account of the strong performance of bulk commodities like palm oil, liquefied natural gas and petroleum.

The performance of the electrical and electronic sector, which accounted for a third of the country exports, actually fell by 5.4% in 2011, thus weakening demand for shipping services, especially containerised shipping.

The consequent effect of these macro economic developments was the slower growth in global trade, thus affecting the demand for shipping services.

The prevailing uncertain market condition was also placing pressure on financial management of shipping companies which were exposed to loans taken out to acquire ships.

Downward spiral in values of ships, pledged as collateral on the loans, had been prompting financial institutions that have funded vessel acquisitions to review financing terms as well as putting off financing potential purchases of ships that come up for sale.

“What is worrying is that although the demand may pick up, the shipping industry could continue to deteriorate primarily because of continuing oversupply of ships over two to three years,” he said.

   
 

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