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Wednesday May 18, 2011

Dry bulk, container shipping rates firm up

Increasing demand seen from China, South Korea and Japan

PETALING JAYA: Global dry bulk and container shipping freight rates are expected to firm up further this year buoyed by the increase in demand and bunker fuel prices.

United Arab Shipping Co Malaysia Sdn Bhd country general manager Desmond Yong said container freight rates would likely to firm up this year with increasing demand from China and the hike in bunker fuel prices.

“North Asian countries namely China, South Korea and Japan contributed to a large portion of the global shipping volume and the Western continent is the major importer of goods from Asia.

“The firming up of freight rates is also supported by the escalation in bunker fuel,” he told StarBiz.

Dry bulk freight rates have slowly gone up from a two-year low in February as major commodity producers ramp up exports of iron ore, coal and grains, alleviating some of the pressure from an oversupplied market.

Bunker fuel constitutes up to 65% of the total operational cost. Shipping freight rates, which plunged during the global economic crisis in 2008, have been improving since while grappling issues of demand and overcapacity.

On the introduction of the mega-sized vessels of 10,000 twenty-foot equivalent units (TEUs) and above, Yong said although it was seen as a deterrent to freight stability by some quarters, shipping lines that operated these mega-size ships were also taking measures to ensure business sustainability.

“The need to fill the slots on the ships are being done with reasonable freight level to ensure healthy and sustainable profit margin,” he said.

Yong added that shipping lines needed to ensure a sustainable business condition in view of speculations in the oil market.

“Speculations and rising commodity prices are not being balanced by economy stability in the buying continents of the West,” he said.

Two of the biggest container shipping lines that recently reported improved financial results also echoed the positive outlook this year.

French liner CMA CGM, which reported record results for 2010, is expected to return to normal profit levels this year.

Meanwhile, AP Moller-Maersk Group, the owner of the world's biggest container shipping line, expected the global demand for sea-borne containers to grow by 6% to 8% this year.

“The global supply of new tonnage is expected to match or grow more than the freight volume especially on the Asia to Europe trade.

“The group expects freight rates to remain under pressure in the short term, but see a stronger market in the second half of the year while increased bunker and time charter costs are expected to continue to impact margins negatively,” it said.

A Reuters poll recently showed that the main global freight index will rebound in the second half of this year to average at 1,500 points, driven by a recovery in Australian coal exports and strong shipping demand.

According to industry specialists, dry bulk freight rates have slowly gone up from a two-year low in February as major commodity producers ramp up exports of iron ore, coal and grains, alleviating some of the pressure from an oversupplied market.

The median of the poll of shipbrokers, shipowners and analysts showed the Baltic Dry Index (BDI) would average 1,500 points from July through December, up 15% from Friday's close of 1,306.

“The exceptionally weak day rates in the dry bulk market in the first quarter of 2011 were due to weather disruptions around the globe. We expect that to reverse over the coming months,' said Doug Garber, analyst at FBR Capital Markets.

Shipments of iron ore and coal declined by 50 million tonnes in the first quarter - or 11% below average - due to bad weather in Australia and Brazil, export permit delays in Indonesia, and supply bottlenecks in South Africa, said Garber.

Iron ore and coal are the two biggest commodities in the dry bulk industry, each representing about 30% of the market.

The market was most affected by the devastating floods in Australia's eastern Queensland state, which lost up to 30 million tonnes of coal production.

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