OSK: Overcapacity still an issue There are too many ships heading for the long-haul trades

  • Business
  • Monday, 02 Apr 2012

PETALING JAYA: Overcapacity in the container shipping industry will not be absorbed quickly unless the global economy rebounds strongly in the next two years.

OSK Research said a strong economic recovery would be reflected in container shipping demand to jump above 10% from the expected 4% to 7% in 2012 and 2013.

“In terms of vessel supply, there are too many ships headed for the long-haul trades.

“However, there is one small positive structural development. MSC, a leading global carrier, deployed a 12,000 TEU vessels to the transpacific market, providing the potential for fewer ships to flood into Asia-Europe during this critical 2012 and 2013 period,” said OSK in a recent sector update report.

However, OSK said the influx of 10,000 TEU ships into the transpacific before 2014 to 2016 was not expected to occur, as most terminals would not be able to handle these ships although 50% the vessels in the orderbook were more than 10,000 TEU ships.

As for the 2012 orderbook, OSK said it would still be at least 2% above demand and little that could be done as most of the ships were close to be fully-paid.

“But by 2013 and 2014, we should expect the orderbook to be stretched out and by 2015 and 2016, we should have been through the difficult period of dealing with marginal tonnage and experience better a demand-supply balance,” said OSK.

On demand, OSK expected Asia-Europe trade lane to be a little weaker than the Asia-US.

“The demand this year should see mid-single digit growth for long haul, coming up from zero growth experienced towards the end of last year,” said OSK.

For rates, OSK said given that rates in 2011 fell 9% across the board while nominal fuel costs rose some 30%, rates should rebound.

“Rates in Asia will rebound faster than global rates, as is the usual case. But higher rates are ‘merely’ recouping the ground lost as a result of rising bunker fuel prices.”

Kenanga Research said for MISC Bhd, the decision to exit the container business would help minimise future losses.

The container division has been making losses since 2008.

Given its inability to absorb the high operating costs and also the rapid changes in global trade patterns, which had caused significant volatility, the company had decided to exit the business in November 2011.

“It is now in the midst of selling off its vessels, exiting trade lines and making the necessary impairments or provisions, which has come up to around RM1.45bil

“The company expects to complete the exercise by June, but all efforts are to accelerate the process,” said Kenanga Research.

Nevertheless, Kenanga said MISC was likely to see improvement in its Liquefied Natural Gas, offshore, heavy engineering and tank terminal divisions with the additional fleet and capacity expected from 2012.

“However, we still foresee tough times for the company in the near term on account of the soft operating conditions of its petroleum and chemical segments.

“According to management, the outlook for the two divisions would continue to be challenging due to volatile charter rates, unyielding bunker costs and demand-supply vessel imbalances,” said Kenanga Research.

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