The Hindu Business Line : Shipping lines buffeted by ill winds

Reports have it that foreign container lines serving Indian ports have not been doing too well for the past three months or so. The global meltdown is taking its toll on the country’s import and exports.

The overall drop in container throughput in various ports during the period, it is estimated, will be about 30 per cent. No wonder that the shipping lines are taking steps to stem future losses, with such measures as optimising sailing schedules, consolidating services, going for vessel sharing arrangements, enhancing port productivity and reducing ship speed.

According to one estimate, the pendency in Jawaharlal Nehru port during this time of the year, every year, used to be about 5,000 to 6,000 containers, down to around 2,000 TEUs now. Similarly, at Tughlakabad ICD, it used to be 2,000 TEUs, dropped to around 500 TEUs at present.

The container train operators concentrating on export-import trade have cut down on their services. Some of them are running partially empty trains.

The problem has been compounded by the fact that the importers in many ports are not taking delivery of the imports, with the result the imported containers are not getting cleared, causing pileups. Worse, the shipping lines are finding it hard to recover the demurrage from the importers.

However, container train operators serving the domestic trade have not been as badly hit. Also, the foreign lines have not gone in for downsizing of their Indian outfits as aggressively as in the US, Europe or the Far East.

True, the world situation is grim. The US Journal of Commerce Online, quoting figures released by Paris-based consultancy firm AXS Alphaliner, reports that some 165 containerships totalling 430,000 TEUs were idle just before December 25, up from 300,000 TEUs two weeks earlier. The idle tonnage included six ships between 7,500 and 10,000 TEUs and 19 ranging from 5,000 to 7,500 TEUs.

Gloomy forecast

The forecast is that more than 200 box ships will be laid up soon on the back of falling cargo demand, plunging freight rates and vessel hires and a flood of tonnage on major trade lanes. An estimated 3.5 per cent of the world fleet thus will be laid up, something not witnessed since the lowest point of the 2002 slump. The timing could not be worse.

The increase in the number of idle vessels comes at a time when the world’s container fleet broke the 13-million TEU mark in mid-December, with 6,078 vessels — an increase of one million TEUs since March, says the AXS Alphaliner.

The scrapping of Asia-Europe services is held responsible for the higher than expected idle vessels. In fact, keeping track of capacity cuts and service adjustments in container trades is becoming almost impossible as the lines are moving fast to align supply with depressed demand levels.

Such action must be applauded because one thing seems certain: the situation is not going to get better for a long time, despite the sharp decline in fuel prices that had become crippling a few months ago. The prediction is that the upswing might start from the third quarter of 2009 and it will be another two years before the situation comes back to early 2008 level.

Huge capacity

Even if the global economy starts to pull of recession from around 2010, the recovery in shipping, according to experts, will be delayed largely due to the huge capacity to be added.

The fleet capacity more than doubled over the past seven years and will expand by another 50 per cent in next four years. Such massive capacity would have been difficult to deploy profitably even at the best of times and these are possibly the worst of times.

Fortunately, the newbuild contracts, after five years of sustained buoyancy, are on the decline. In fact, the shine had started to come off even before the onset of the current collapse of the financial markets.

According to the shipbroker Clarksons, the monthly number of container ship orders has been on a downward trend since the final quarter of 2007. The only exception was last June, when 70 new container ships were ordered.

In the first eight months of 2008, only 179 new container ships were ordered, down 49 per cent from the same period last year. In contrast, a record 566 box-ship contracts were signed in 2005, 479 in 2006 and 530 in 2007 when the new-building orders included 120 very large container ships with capacity of 12,000 TEUs or above. New ship orders in the last quarter of 2008 dried up virtually to nil.

The spectre of cancellations of new-building orders looms large on the horizon, with talk of cancellations of up to 25 per cent of the bulk carriers currently on order.

Several ship-owners with container ships on order are believed to be toying with the idea of converting the orders into tankers. An estimated 50 per cent of the tonnage due for delivery in 2010 still requires financing of some sort. While there is still time available for arranging such financing, the terms are going to be much stiffer than before.

Yet, the experts are not entirely without hope. The cyclical nature of shipping, they point out, will ensure a rebound in the fortunes of container shipping in due course.

Also, supporting the cause of containerisation in the longer term is the fact that globalisation is irreversible as consumer goods will never again be manufactured competitively in Europe and America.

Related Stories:
2008, a year of mixed fortunes for shipping companies

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