The Hindu Business Line : Shipping sector headed for choppy year?

AFTER two years on the high seas, the global shipping industry may hit shallow waters in 2006. There are signs of such a trend with record low container freight rates and reduced charter rates for bulk vessels.

"It is going to be a shipper's year," says an official of a large Chennai-based clearing and forwarding agency.

Shipping industry sources attributed this to two reasons: Excess vessel capacity and the China factor. In the last two years there was excess cargo but few ships in the market. But this year it is going to be the reverse with large ships joining the global fleet.

Similarly, China, which was one of the largest consumers of bulk raw materials in the last two years, is yet to clear the huge backlog at its ports.

This, in turn, means China would have enough inventory in its ports, and its intake this year would be minimal compared to the last two years, according to an industry source.

"It is going to be a disaster year for shipping," said Mr K. C. Raman, Regional Director, Forbes Patvolk, a division of Forbes Gokak Limited. China is slowing, and countries such as Singapore, Thailand, Korea and Taiwan, that are dependent on China, are showing signs of weakness, he said.

The market was buoyant six months ago, but there are enough indications of a decline, he said.

For instance, six-eight months ago the charter rate for an old ship of 25,000-30,000 DWT (dead weight tonne, or the measure of a ship's capacity for carrying cargo) bulk carrier was $15,000 a day but it is about $8,000 today.

Charter hire for container ships is steady at about $30,000 a day for a 2,500 TEU-(twenty foot equivalent unit)-capacity vessel, he said.

However, freight rates for containers have dropped to $75-100 a TEU to Singapore from Chennai compared with $150-200 a year ago. "Some are even offering below $50," said an industry source.

Smaller container ships and feeder vessels would continue to dominate India in the next few years. But, globally, large ships would have a strong presence, and this will put pressure on freight rates for containers going long distances, the source said.

According to information available on the Internet, over 120 large container ships of 8,000-plus TEU capacity, designed and built to accommodate cargo growth over 15 years, are to be delivered through 2006.

The demand is likely to keep pace with the introduction of this new capacity during that period. Over 18 million containers constantly crisscross the seven seas.

CMA CGM, a major shipping line, is upgrading its FAL (French Asia Line) service connecting Asia to Europe. From November it started a series of eight 8,500-TEU ships under the names of famous classic operas: Otello, Tosca, Nabucco, Parsifal, Traviata, Don Carlos, Don Giovanni, Carmen. CMA CGM Otello was the first vessel introduced in Pusan on November 26.

These new 8x8500 vessels will replace the present FAL fleet of eight 6,500-TEU vessels, which will be redeployed on NCX service instead of the 5,700s. These 5,700-TEUs vessels will replace the 4,000-TEU ships operating on the Mex service, the company said.

Mitsubishi Heavy Industries recently launched Hatsu Smart, the third in a series of ten 7,024-TEU S-type container vessels that it is building for Evergreen Group, a shipping line.

The group will take delivery of 18 post-Panamax containerships up to 2008 — ten S-types and eight 8,000-TEU C-types — allowing the group companies to upgrade existing services and phase out older vessels.

As on January 1, 2005, the world trading fleet was made up of 46,222 ships, with a combined tonnage of 597,709,000 gross tonnes.

The vast bulk of the fleet was made up of: General cargo ships (18,150), tankers (11,356), bulk carriers (6,139), passenger ships (5,679) and containerships (3,165).

Other types accounted for 1,733 vessels, says a report by The Baltic and International Maritime Council, one of world's largest private shipping organisations with 2,720 members.

Oil tanker rates from West Asia may fall for a second year in 2006 as the world's fleet of vessels expands at its fastest rate in three decades.

Companies led by Frontline, the world's biggest tanker owner by capacity, may receive $49,250 for each voyage from the Arabian Gulf to Japan, excluding costs of fuel and port fees, according to the median estimate of six analysts surveyed.

Rates averaged $59,205 a day this year, according to a shipbroker in Oslo.

"There's going to be a constant drip-feed of ships into the market in 2006," Martin Stopford, head of research at London-based Clarkson, the world's biggest shipbroker, was quoted in Bloomberg.

Tankers won't be decommissioned fast enough, "so overall, this doesn't bode well for owners."

The global fleet of oil tankers will increase by 6.5 per cent next year, according to Maritime Strategies International Ltd, a London-based consulting company, the fastest rate of growth since 1976.

Earnings at Frontline, based in Hamilton, Bermuda, have declined 9.9 per cent in the first nine months of this year, the wire agency said.