SHIPPING | Container industry’s ship comes in

By Robert Wright | FINANCIAL TIMES

The deep, steep-sided sea inlet of Loch Striven, on the Firth of Clyde on Scotland’s west coast, was the scene this summer of a remarkable illustration of the speed of the container shipping industry’s turnround.

The loch had been home since July last year to a group of six, lashed-together idle container ships owned by Maersk Line, much the world’s largest container shipping line.

Five of the ships had such high top speeds, and consumed such huge amounts of fuel, that container shipping’s deepest-ever slump looked set to keep them out of use almost indefinitely.

Yet by June booming trade volumes had made the need for the ships so acute that tugs came to separate the idle vessels. They slipped one by one out of the loch in June and July and back into service.

Similar scenes have been seen in the scores of other rivers and inlets that, in the depth of the sector’s crisis, were home to more than 12 per cent of the world’s container ship capacity.

Only 1.7 per cent of the world’s fleet is now laid up, according to Paris-based AXS-Alphaliner, a shipping consultancy.

Two of the most important forces in container shipping on Wednesday confirmed the strength and robustness of the recovery. Denmark’s AP Møller-Maersk, Maersk Line’s parent, announced it now expected 2010 to be its best year since 2004, when the container shipping boom was at its height.

Dubai’s DP World, one of the biggest container terminal operators, announced that container volumes grew by 7 per cent in the first half, while net profits, adjusted for the effects of exceptional gains, rose by 10 per cent.

The question is how long this unexpected recovery will last and what kind of container shipping industry will emerge.

Kim Fejfer, chief executive of APM Terminals, Maersk’s port operating company, says container lines are once again planning sensibly for the future after periods last year when short-term desperation took over. “You’re seeing a swing back to normality,” he says.

The most obvious cause of the industry’s recovery is the simple improvement in volumes of containers moving amid an improving world economy.

Singapore’s Neptune Orient Lines, operator of the world’s sixth-largest container ship fleet, on Monday announced that container volumes so far this year were up by 35 per cent on that of last year.

Yet few lines believe the recovery will continue at the present rate. Many attributed the initial surge in February to companies’ restocking after running down inventories last year.

Mark Page, research director for London-based Drewry Shipping Consultants, doubts that figures later this year will show continued growth. “The volumes are not necessarily continuing to go up quarter on quarter,” he says.

Lines are nevertheless seeing the benefit of an extraordinary series of steps they took to slow the plummeting rates they could charge for moving containers.

While most have stopped the laying up of excess ships, nearly all are still running ships slowly, a step that both saves fuel and soaks up extra ship capacity. More ships are needed to provide each regular service.

The shortage of capacity means that, as lines carry more containers, space on ships is growing scarcer and lines can charge customers more.

Neptune Orient Lines said the average rate it charged to move a standard container was 39 per cent higher in July this year than in the same period in 2009.

“Now you’re seeing the benefits of all the capacity withdrawals and lay-ups,” Mr Page says.

However, even if volumes and rates stay strong, many lines still bear scars from the wounds of last year’s first-ever year-on-year fall in container volumes.

France’s CMA CGM, the world’s third-largest container line, is still looking for an investor to provide the capital it needs to fund huge orders of large, expensive ships it placed during the industry’s boom.

Other lines, including Israel’s Zim Line, have had huge bail-outs during the last year. Lines that have avoided such significant problems are likely to be far more competitive in future than the wounded companies, Mr Fejfer predicts.

That is likely to favour companies with significant resources from parents and those, like Taiwan’s Evergreen, that declined to order excessive ships during the boom.

“I think those that have the strongest balance sheets and are long-term dedicated to the industry . . . are those that will win in the future,” Mr Fejfer says.

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