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SHIPPING: Maersk prepared for “a long stretch of tough competition”

AP Møller-Maersk, owner of the world’s largest container line, has revealed it is ready to outlast its rivals, as the industry faces a possible four years of overcapacity.

Throughout this year, containership owners have seen billions of dollars wiped off the value of their fleets.

Massive overcapacity has squeezed not only freight rates, but also the worth of steel on the water.

The world’s largest boxship owner, AP Møller-Maersk (APMM), has seen the value of its containership fleet fall 24% in the past 12 months. Its 222 vessels currently in service are now worth US$9.1 billion, compared with $12 billion at the start of November last year.

Similarly, major owner and operator MSC’s fleet of 202 containerships in service are worth $6.9 billion, compared with $8.4 billion 12 months ago.

In a revealing interview yesterday, APMM CEO Nils Smedegaard Andersen said: “We are actually quite well positioned for a longer stretch of tough competition,”

He added: “It would be natural if the smaller players in this business, or their banks, start questioning whether it’s a good idea to keep competing.”

Maersk Line, with almost 16% of the global container market, is betting it can outlast such publicly traded competitors as Japan’s MOL and NYK, both of which have cut capacity to cope with falling freight rates.

Success may help reverse a Maersk share decline this year of 28%, compared with a fall of 17% in the OMX Copenhagen 20 Index.

At the beginning of this month APMM revealed that Maersk Line, which is often regarded as a barometer of global trade, posted a third-quarter net loss of Dkr1.58 billion (US$293 million) compared with a profit of Dkr5.9 billion a year earlier

Source: http://www.ifw-net.com/freightpubs/ifw/index/maersk-says-it-is-prepared-to-outlast-rivals/20017919343.htm

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SHIPPING | Maritime industry to struggle with credit squeeze

By Randy Fabi and Harry Suhartono | REUTERS, 2011.09.25

SINGAPORE (Reuters) – With fears of a recession rising, the maritime industry will find it increasingly difficult to obtain financing for expansion over the next year, with the exception of the offshore-energy sector, industry experts said.

The economic gloom in Europe and the United States has amplified the pain for shipping companies, already struggling with rock-bottom freight rates and a glut of new vessels that were ordered when times were good.

The International Monetary Fund last week warned that the West could slip back into recession next year unless they quickly tackled economic problems that could infect the rest of the world.

“Given the underlying economics of oversupply and current day (freight) rates, the banks are far more cautious,” said Gervais Green, head of Asia shipping with law firm Norton Rose.

“If they are going to put money into a project, it is on very particular terms.”

Executives from the world’s top banks in shipping finance, including DnB NOR, HSH Nordbankand Deutsche Bank, will gather with the maritime community in Singapore on September 27 and 28 to discuss survival, recovery and opportunities in this gloomy economic environment.

CREDIT WOES

The depressed freight market has forced shipping companies to use more of their reserves to buy vessels and expand their operations as banks tighten their credit lines.

Before the economic downturn three years ago, ship owners typically needed to place a down payment of only around 20 percent of the value of a vessel, with banks providing the remainder of the funding.

Today, some medium-sized firms must provide as much as 50 percent down payment to get a loan, leaving many unable to stay competitive against industry leaders such as A.P. Moller-Maerskand Mediterranean Shipping Company (MSC).

Bankrupt shippers Korea Line, The Containership Company, and Omega Navigation Enterprises are the most high-profile casualties so far this year.

“Large projects with strong companies behind it will get financing,” said Erik Borgen, Asia director for DnB NOR bank.

“The banks themselves are a bit too exposed today, so there are only a small amount of banks prepared to be involved in the ship-financing side.”

Despite the difficult environment for most of the maritime sector, there are some businesses that remain attractive to banks.

With oil prices expected to remain high, the offshore-energy sector is considered one of the rare bright spots in the shipping industry with banks fiercely competing to finance lucrative projects.

“In the offshore sector, there are some very large deals still being done. We are working on several right now and there is appetite to do more,” said Green of Norton Rose.

(Editing by Vinu Pilakkott)

Source: http://www.huffingtonpost.com/2011/09/25/maritime-firms-to-struggl_n_980462.html

Remember: this time, there will be no public money to help stave off a crisis, for now governments are struggling (pay close attention to Italy). The lenders will have to be from somewhere else. In 1945, it was the United States. Would it be China now?

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Drewry: recovery must be welcomed with caution

Drewry Shipping Consultants warns that container trade data indicates the market is in a recovery phase but this sentiment must be treated with caution.

“Until we see consistent month-on-month improvements on the main trades into this year’s peak season period, we cannot seriously suggest the current global recession is over and that the container sector can heave a sigh of relief,” the company said in a note to clients Monday.

Neil Dekker, editor of the Drewry Container Forecaster says one of the major challenges for the industry going forward is the relationship between shippers and shipping companies who have played the ‘blame game’ with regards to short shipments and phantom bookings.

“Drewry for some time emphasised that carriers and shippers need to get closer to each other and that this itself can only help to engender more rate stability,” wrote Dekker.

In a gloomy forecast for 2010 Dekker said: “This year will be a very tough one for the carriers to balance capacity against forecast demand, and should too much tonnage be brought back in or too quickly, it is possible that the freight rate improvements, giving carriers much needed cash injections, could be derailed to some extent.”

While much of the Drewry report was bleak, the editor also attested to positive developments in the sector.

Dekker added:”We have also noted robust trade volumes moving on the Asia to Australia and Asia to East Coast South America routes since the beginning of this year. The charter market has shown signs of improvement, some larger vessels are comming out of lay up and a number of new services are being launched in regional and smaller trade lanes-all suggesting positive signs.”

Source: TRADEWINDS

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SHIPPING | The Shippers strike back

The following article comes from Containerisation International. To me, it shows that the box shipping industry may have left the worst of the crisis behind as far as finances are concerned, but there is at least one crucial issue to be solved: the eroded relationship between carriers and shippers.

It would be a good time to remember that, while market turbulences and money come and go, people stay around for quite some time. And, in the end, it is with people we all have to deal, sooner or later.

To end with a brighter note, Adam Rashid’s ‘favourite’ IPS was a precious little piece of humor — and a welcome sign of hope.

Enough of digressing! Here it goes:

The ‘greed and fear crisis’.

This is how Marcus Lever, the head of global ocean freight at Hellmann Worldwide Logistics, described the recent (some might say ‘ongoing’) crisis in the container liner shipping industry.

Addressing Containerisation International’s 12th Annual Global Liner Shipping Conference in London, he referred to the 2008/mid-2009 period as the most destructive he had ever seen.

‘It was like being on a helter skelter with all of us being unhappy riders,’ he said. ‘The crisis was born out of both ocean carriers’ greed and fear. There were shipping companies that dumped freight rates and attempted to fill their ships at any cost as they saw the economic downturn as a way of increasing their market share.

‘Out of fear, there were those which followed suit to protect their share of the trade. We had a market in free fall and a market that has tested everything, including relationships.’

It was a point also expressed by Adam Rashid, head of Sony’s supply chain solutions in Europe. In his presentation, he highlighted how exceptionally low rates had been made available for his annual contracts in early 2009, only for some carriers to rip them up after six months, saying ‘we are dying, we can’t carry on like this, you must pay us more’.

Both Rashid and Lever expressed unhappiness about the way freight rates were being hoisted back up. In particular, the Hellmann executive, was annoyed at the increasing use of surcharges.

He said: ‘The English language contains around 540,000 words, but is always willing to absorb more and liner shipping companies are doing their very best to add to it through their latest terminologies.

‘We are being by more acronyms. While ocean carriers can take credit for BAF and CAFs [respectively bunker adjustment and currency adjustment factors] now we have SCS (Suez Canal surcharge), APS (Aden piracy surcharge), ERS (Emergency revenue surcharge), CRPS (Cost recovery programme) and there are many many more. But my favourite is the IPS (If possible surcharge).

Lever stressed that in such an unstable market, ‘there had been no winners’. For the long-term good of this industry, we need each other and we must find better ways of working together.’

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Container crisis: ‘Project Hope’ to convert box ships

Laid-up boxships in Kiel, Germany

From CONTAINERISATION INTERNATIONAL

Ted Wang, the former head of OOCL’s China and European operations, and who now runs Friendship Transport Inc – an nvocc and used container trader – believes ‘Project Hope’ can address some of the difficulties the container industry faces.

Although modest in scale, the backers of a project that aims to convert containerships into semi-submersible and heavy lift/project cargo vessels hope that it will help address some of the overcapacity in the industry.

‘There is still a huge surplus with more box ships to come. In contrast, the semi-submersible and heavy lift sector is undersupplied (by at least 15%) and is getting old. The barriers to entry are also very high,’ said Wang. ‘With the oil price at USD80/barrel and likely to rise to USD100/barrel by the end of 2010, the need to move rigs, drilling equipment, workboats, etc,  picks up.

There is also increasing demand from decommissioning work in South East Asia, the North Sea and the Gulf of Mexico.’

The executive stressed that a lot of research had been carried out, while discussions had taken place with several Classification Societies who said the project was feasible.

Wang has targeted 2,500/3,000TEU-size containerships of between 10 and 15 years of age and with the superstructure located aft.

‘Ships of this design can be purchased for USD7 million and with conversion costs of about USD18 million a semi-submersible unit can be brought into service in about a year for USD25 million,’ he said, ‘a new ships costs in the region of USD60-USD80 million, depending on whether it is of an open deck or open stern design.’

He explained that Friendship and his other partners in the US, Europe and China – the so-called G3 – had identified eight ships for initial conversion. Four of the vessels have already been purchased, with Wang hoping that all of them would enter service as open-deck semi-submersible units by the end of 2010/early 2011.’

He a also said that 16 new semi-submersible ships would be built under the auspices of the China Ship Fund set up towards the end of December. These will comprise 10 x 50,000dwt open deck units and  4 x 50,000dwt and 2 x 70,000dwt of open stern design. ‘Two are already under construction at the Jinling yard in Nanjing and once all of them are delivered, we will move to Project Prosperity, declared an enthusiastic Wang.

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Container crisis: German shipowners face perfect storm

To me, this article by Robert Wright, Transport Correspondent, FT.com has a definite connection to the ones which dealt with MSC ‘s accusation that shippers triggered the container freight rate crisis and Maersk’s first-ever annual loss after 105 years.

For that reason, and for the focus on the damage this crisis is causing to ordinary people, I think the text is worth reading.

Thomas Mann would recognise a great deal in the office of a contemporary north German shipowner. The air of genteel calm, the model boats and the continuing family control of many would be recognisable to the writer of Buddenbrooks, the saga of a 19th-century Lübeck shipowning family.

Many shipowners have offices by the Elbe in Hamburg, still enjoying – unusually in an era of remote, industrial container ports – views of passing vessels.

Yet most north German shipowners now run global businesses, not the regional operations Mann described. They control 35 per cent of the world’s container vessels, managing many of the ships that facilitated China’s export boom of the past decade. They deal with Taiwanese or Chilean shipping lines or Korean shipyards as readily as Thomas Buddenbrook dealt with trading partners across the Baltic in Riga.

As a result, northern Germany faces the biggest storm ever to hit container shipping. The prosperity of ordinary citizens, several large banks and even federal states is in peril, alongside that of well-heeled shipowners.

The question is how far the region’s state governments – and Germany’s federal government – can or should protect the sector from a crisis that, in the Buddenbrooks’ time, it would have had to withstand on its own.

“We see the effects of the global economic and financial crisis,” Axel Gedaschko, senator for economics in Hamburg’s state government, told the Marine Money ship finance conference in the city last week. “Maybe you can sense them more in northern Germany than anywhere else.”

Most German owners, rather than finding customers and organising schedules themselves, charter vessels long-term to Maersk Line, Mediterranean Shipping Company and other container ship operators. However, the operators started to terminate expiring contracts when container volumes and prices collapsed in October 2008. Fees paid when charters are renewed are far lower than before, and hundreds of ships remain out of use.

Ordinary Germans are suffering through investments in KG funds – tax-efficient companies owned by the shipowning companies and investors from the professional classes. Funds are increasingly asking shareholders for fresh money to fund ships’ storage. Many have had to sell ships or have collapsed after investors refused.

For banks, a glut of pending ship orders represents a still fiercer gathering storm. Regional institutions, especially HSH Nordbank, the world’s biggest shipping bank, controlled by the states of Schleswig-Holstein and Hamburg, provided lending for an ordering binge during container shipping’s 2001-08 boom. Some ships were ordered speculatively, without arranged charters and have no immediate prospect of employment. Almost all the obligations to pay the tens of billions of euros due to shipyards look like ending up with the banks.

Hamburg and Schleswig-Holstein have provided €3bn ($4.1bn, £2.7bn) in fresh capital to HSH Nordbank and €10bn in loan guarantees, but further support is likely to be necessary.

Most involved are trying to “kick the can down the road”, as one participant at the Hamburg forum described efforts to delay ship deliveries, revise loan agreements and take other action to postpone a crunch.

The closest brush with catastrophe came last May, when Hamburg shipowners and HSH Nordbank rescued CSAV, a Chilean container line that had chartered 90 ships from north German owners and almost collapsed.

Jochen Döhle, a partner in Peter Döhle Schiffsfahrt, one of the largest shipowners, rejects complaints the deal propped up an unhealthy company. “Isn’t it a positive sign that shipping has learnt from the mistake of the Lehman collapse?” he asks.

Yet few in northern Germany believe the region can absorb the tens of billions of euros in value being destroyed. Peter Döhle and Claus-Peter Offen, two of the biggest shipowners, last year applied to the federal government for loan guarantees. They withdrew after being told they would be rejected.

Mr Gedaschko believes the many southern Germans in the federal government have failed to grasp shipping’s economic importance. He would like to see state aid to shipowners and guarantees to back up KG funds’ bank borrowing. Six north German states will travel to Berlin this month to discuss possible aid.

“We think we need two to three years’ backing up of this industry and after this time the industry can help themselves,” he says.

Whatever support is forthcoming, the region’s powerful shipowning tradition and expertise will keep the sector alive in some form. A slow decline like that of the Buddenbrook family’s business is unlikely. Future executives will have to learn painful lessons, however. They will need to behave more like the sober patriarchs of the Buddenbrooks clan than flightier, younger members.

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MSC boss: ‘shippers are concerned solely by the price’

FINANCIAL TIMES | By Robert Wright in Hamburg

Customers of shipping lines created container shipping’s deepest crisis and have contributed to persistent and damaging price instability in the sector, the head of the industry’s second biggest operator said.

Gianluigi Aponte , chief executive of Mediterranean Shipping Company, told the Financial Times that every main line would survive the crisis, which has seen earnings per container slump well below operating costs. However, shippers – shipping lines’ customers – had abused current industry over-capacity to stir up price competition, Mr Aponte said.

“Shippers are not that deep,” Mr Aponte said. “They worry always who will ship for $50 less. The shippers are concerned solely by the price.”

http://commons.wikimedia.org/wiki/File:MSC_Beatrice.jpg

The shippers had also lobbied the European Commission to commit the “grave error” of banning the conference system under which shipping lines used to discuss future capacity and demand, to smoothe out price swings. The system was abolished from October 17, 2008, just as the industry crisis set in.

Since then, the cost of moving a 20ft container from Asia to Europe had oscillated from $350 in January 2009 to about $1,500 now. Container shipping plays a vital role in facilitating movements of manufactured goods, particularly from Asia.

“Shippers’ insistence on eliminating the conference . . . will create a lot of instability in the future for the European and worldwide economy,” Mr Aponte said. “We have multiplied by five the rate in the space of one year. If the situation continues, maybe the rate can even double again.”

There would be substantial volatility in future, he said.

“This will be against the interests of the consumer.”

Mr Aponte was giving a rare interview as MSC Cruises, the company’s cruise division, christened the MSC Magnifica, the latest addition to its cruise fleet, in Hamburg.

MSC operates 400 container ships with a capacity of 1.55m 20-foot equivalent units (TEUs), compared with the 546 ships and 2.06m TEUs of Maersk Line, the market leader .

MSC is one of the sector’s most controversial companies. Mr Aponte’s comments about shippers came in reaction to industry allegations that MSC had aggressively cut its prices at the start of the crisis to maintain its market share.

“It would have been crass and irresponsible for a company in our business to lower the rates,” he said.

No large shipping line would now collapse because of the recent difficulties, Mr Aponte added. France’s CMA CGM, the market number three, is still trying to hammer out a deal with its creditors to structure its debt.

“I think that the big operators will come out very strong,” Mr Aponte said, referring to the end of the crisis. “We will all recover our losses in 2010.”

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