MMC hurt by low cargo volume

MMC Corp Bhd sees lower revenue contribution from its port business in Johor this year due to the drop in cargo volume, said chief executive officer Hasni Harun.

Both its ports in the state, Port of Tanjung Pelepas (PTP) and Johor Port, had been hit by the global recession, he said.

“Ports in the region have been experiencing a decline in volume of between 15% and 20% since the fourth quarter last year.

“There has been a spike in volume last month due to the replenishment of depleted inventories but it is premature to say whether this is sustainable.

“Subject to an improvement in consumer confidence globally, the situation may not lead to a long and deep downturn. It might improve in 2010 and we hope to maintain what we’ve achieved last year,” he told StarBiz.

PTP registered a container throughput of 5.6 million twenty-foot equivalent units (TEUs) last year, up 1.8% against 2007.

Johor Port handled 17.2 million freight weight tonnes of bulk and conventional cargo in 2008, representing a growth of 8% year-on-year, and recorded 934,767 TEUs of containers last year, an increase of 1%.

The two ports contributed 14% to MMC group revenue in 2008 compared with 20% in 2007.

Hasni said the decline in percentage of contribution from its ports despite higher revenue was due to the increase in Malakoff Bhd’s revenue contribution, resulting from the 12-month consolidation of Malakoff’s results last year versus only eight months in 2007.

“Based on the current slowdown, we expect the revenue contribution from our ports to also be lower year-on-year,” he said.

On capital expenditure (capex), Hasni said PTP planned to spend RM400mil to RM500mil this year, which is lower than the RM900mil spent last year, in line with the slowdown in business.

“This year’s capex includes for additional equipment at existing berths (berths 9 and 10), which will further increase the port’s operational efficiency, as well as for the ongoing construction of berths 11 and 12.

“We are making prudent decisions on capex and will equip berths 11 and 12 progressively as global shipping trade improves,” he said.

He added that Johor Port also expected to spend a lower amount of capex this year, primarily for maintenance works.

Going forward, Hasni said PTP’s value proposition was in its strategic location, unrivalled potential capacity growth, connectivity and competitive rates.

“These attributes will continue to make PTP an ideal choice for shipping lines, particularly those that are restructuring their routes and collaborating with other lines to minimise costs under the current economic scenario.

“Meanwhile, Johor Port focuses on high-value cargo and commodities in the bulk and break-bulk terminals,” he said.

Besides port operations, MMC has finalised the acquisition of Senai Airport Terminal Services Sdn Bhd (SATS) in Johor for RM1.7bil.

According to Hasni, having interests in ports and an airport allowed the company to achieve better integration between the two modes of transportation.

“PTP is recognised as an ‘airport within a seaport’ and this further enhances the inter-modal movement of cargo from ships to airplanes and vice-versa.

“The acquisition of SATS will expand MMC’s logistics business, in line with its vision to be a global utilities and logistics group,” he said.

SATS is currently undergoing an expansion, including the extension of its runway from 3,354m to 3,800m, which will accommodate fully-loaded long-haul cargo flights.

“An Aero-Mall is also being built, which will add 6,500 sq m, bringing the total outlet space to 8,500 sq m to cater for the growing population residing within easy access of the airport. The mall is scheduled for completion in the first quarter of 2010.

“The airport also has a cargo capacity of 80,000 tonnes per annum and offers bonded warehouse and warehousing facilities,” he added.

Hasni said SATS’ potential would be realised with the development of Senai Airport City into a regional cargo and logistics hub.

Works on Senai Airport City, with a gross development value of RM10bil, would commence towards the year-end and scheduled for completion by 2020, he said.

Source: http://thestar.com.my/maritime/story.asp?file=/2009/4/27/maritime/3769672&sec=maritime, 17 April 2009

Oil and gas getting more banks’ attention

An official with a foreign bank says there is still money available from banks for ship finance despite the current global economic slowdown.

SHIP financing is now skewed towards the oil and gas industry and Asian banks are showing more interest in the maritime sector, according to feedback from the Sea Asia 2009 maritime conference.

One revelation from a session in ship finance during the conference recently was the changing landscape of traditional ship financiers in terms of the amount currently being loaned to ship owners.

It was noted that of the top 30 banks in global ship finance last year, 16 had dropped out in the first quarter of this year and had been replaced by banks which had previously kept a low profile in the sector, said Paul Chang, head of shipping (Asia) and chief representative of Hong Kong representative office at HSH Nordbank AG.

Chang said Asian banks were increasingly attracted to the shipping sector and to ship finance.

“National shipping lines still had fewer problems securing finance from their own national banks, for example the close relationship between Taiwan banks and Taiwanese owners,” he said in a statement.

Dagfinn Lunde, a managing director at DVB Bank SE, said there was still money available from banks for ship finance.

“If you have the words ‘energy’ or ‘offshore’ in your project, even some US banks are still willing to lend,” he said.

Philip Clausius, president and CEO of FSL Trust Management, a Singapore-based listed shipping trust fund said: “Develop your relationships with Asian banks – every Asia-based borrower needs to achieve a balance between Western and Asian banks.

“As many Asian banks do not yet have as much experience in this sector, be patient and take small, slow steps,” he advised.

FSL now split 50:50 its borrowings for ship finance between Western banks and banks based in Asia, and this had worked well for them, he added.

Meanwhile, session chairman Harald Serck-Hanssen, the global head of shipping, offshore and logistics at DnB NOR bank, called on bankers to devise a new formula which would give borrowers (shipowners) the thing they need most – certainty.

Source: http://thestar.com.my/maritime/story.asp?file=/2009/4/27/maritime/3767480&sec=maritime, 27 April 2009

Selangor Freight Forwarders and Logistics Association (SFFLA)

THE Selangor Freight Forwarders and Logistics Association (SFFLA) is spearheading efforts to improve the level of professionalism in the industry via education and development of standardised regulations.

President Tan Ah Beng said the association would submit an application to the Government for a RM1mil grant to develop certificate and diploma programmes in logistics and freight forwarding.

“We are awaiting the endorsement from the Transport Ministry to be submitted together with our application. The grant is under the Government’s stimulus package for training.

“It will also be used to subsidise the fees of the programmes that will be offered to its members and the public, especially school leavers, at competitive rates,” he told StarBiz.

SFFLA also needed the grant to provide professional training for its members that would be responsible to teach the programmes, he added.

Selected members will be trained by representatives from the United Nations Economic and Social Commission for Asia and Pacific (Unescap) and the association also plans to use professional lecturers to teach some subjects.

SFFLA is working closely with Unescap in developing the modules and the association has bought a building equipped with educational facilities.

Besides that, it is also working on standard requirements and rules for the freight forwarding industry as there is no mechanism currently to govern the industry.

“According to the plan, all freight forwarders doing business in Port Klang must register with the Port Klang Authority,” Tan said.

“We will also come up with the standard requirement for a freight forwarding company in terms of paid-up capital and insurance liability.

“By doing this, it is hoped that the level of confidence of international clients will be strengthened when dealing with Malaysian freight forwarders.”

On the current business volume, Tan said the industry suffered about 20% fall last month year-on-year.

“But freight forwarders that had enjoyed good business growth of 7% to 8% in the last 10 years should be able to withstand the current downturn.

“In addition, the freight forwarding business belongs to the service industry which is not capital-intensive,” he said.

However, according to Tan, the logistics industry with assets in terms of warehouses and trucks might be hit harder by the economic slowdown.

He said the current situation could have been better if the country had strived harder to become the hub for transhipment and consolidation of cargo in the region.

“We cannot rely on our direct import and export volume alone as it accounts for only about three million twenty-foot equivalent units annually via Port Klang.

“Red tape and unnecessary charges are a hindrance to make Malaysia a conducive cargo hub,” he said.

Source: http://thestar.com.my/maritime/story.asp?file=/2009/4/20/maritime/3721025&sec=maritime, 20 April 2009

MASkargo offers discounts, cuts capacity to stay profitable

MALAYSIA Airlines Cargo Sdn Bhd (MASkargo) is offering discounts, reducing capacity and implementing various new initiatives to remain profitable in its current financial year ending Dec 31 (FY09).

The cargo arm of Malaysia Airlines has been suffering a cargo volume decrease due to the global economic downturn.

Shahari Sulaiman ... we plan to introduce new flights. Year-on-year, the company recorded a reduction in cargo volume of about 28% in January and February.

Its Penang operations also recorded close to 50% fall in volume for the first two months of this year.

Managing director Shahari Sulaiman said the terminal charges rebates for cargo transhipped via Malaysia Airlines Advanced Cargo Centre had been increased to 100% for air-to-air, land/rail-to-air, and sea-to-air transhipments from April 10 to September.

“With this initiative, we hope that freight forwarders would be able to increase their transhipment volume. A 5% month-on-month volume increase is already good,” he told reporters during a high-tea session with the media last Friday.

Transhipment cargo constitutes about 60% of the total volume handled by MASkargo at the KL International Airport (KLIA).

The company handled 353,000 tonnes of transhipment cargo out of a total cargo volume of 623,314 tonnes at KLIA last year.

In matching its capacity with the current slowdown in air freight volume, Shahari said MASkargo had reduced its flights out of Pudong International Airport, China, to four flights from nine a week.

“Pudong used to be our biggest station in terms of volume. However, due to the economic situation, we have to make some adjustments. We will start to pump in more capacity once the economy is back on track as China is expected to be the first country to recover from the crisis. We expect to benefit from this due to our large exposure there,” he said.

Overall, Shahari said MASkargo had reduced its freighter and belly capacity by 30% and 7% respectively this year.

“This is better than maintaining our previous capacity with ad hoc cancellations that will hurt our product branding and customers.

“Although there is a huge cut in our overall capacity, KLIA only recorded a 10% reduction in air freight capacity due to our obligation to support the industry in our country,” he said.

He added that any excess capacity would be channelled to do charter business.

“We recently deployed our A300 freighter previously catered to the Asean region to do charter business in the Middle East.

“We also have a 747 freighter in the Middle East to do charter business,” he said.

Shahari said MASkargo’s strategy to maintain a healthy bottom line also included new destinations with potential high cargo volume.

“We plan to introduce new flights to Lagos in Nigeria, Malmo in Sweden and Colombo in Sri Lanka,” he said.

Although hit hard by the challenging economic climate, MASkargo had not been complacent in beefing up its operations quality.

“Our mishandling rate had improved to 0.03% this year. We have installed 50% more CCTVs to upgrade our security level and are participating in the International Air Transport Association’s pilot programme in air freight security,” he said.

On the current economic downturn, Shahari believed that the situation had bottomed out for the air freight industry as he had seen some slow recovery since last month.

“I think we will need at least two years to return to our pre-economic crisis level,” he said.

MASkargo recorded a 1.9% fall in revenue to RM2.67bil in FY08.

Shahari said MASkargo still recorded profit for the period, but he did not disclose the figures.

“This year, we expect lower revenue growth for the first half and expect business to pick up in the second half,” he said. — BY SHARIDAN M. ALI

Source: http://thestar.com.my/maritime/story.asp?file=/2009/4/13/maritime/3678363&sec=maritime, 13 April 2009

CMA CGM: Measures to save US$600mil

CMA CGM, one of the world’s top three companies in container shipping, expects its cost-effective measures to save about US$600mil this year.

The French company will continue to rationalise its services in slowing markets, consolidating lines and strengthening partnerships to maintain service quality while reducing costs.

According to a company statement, as three-quarters of its fleet was chartered, CMA CGM has significant leeway to adjust to market demand.




“More than 180 ships will come out of charter this year and will be returned to their owners, renewed or replaced at attractive contract rates, leading to substantial cost savings for the group,” it said.

CMA CGM’s fleet comprises 395 vessels, of which 98 are owned.

“Also, the group is increasingly operating its ships at economical speed to lower bunker fuel consumption,” it said.

It said CMA CGM was campaigning for lower transit rates in the Suez and Panama Canals and would continue to re-route part of the fleet via the Cape of Good Hope.

It has also begun renegotiating contracts with terminals and shipyards to reduce costs.

The group has also raised its freight rates, which had previously dropped to unjustifiably low levels.

“All these new measures, which will be deployed in 2009, will reduce operating costs by approximately US$600mil,” said the statement.

CMA CGM chairman and founder Jacques R. Saade said the company was quite confident it would weather the current crisis due to its forward-looking strategy, the flexibility of its systems and processes and international shipping expertise.

“Asia-Europe and Asia-US will unavoidably return to growth. But this year will be a period of consolidation in the shipping sector and the major players will emerge stronger in the end,” he said.

Financially, the group had done relatively well last year although shipping companies had started operating in choppy waters since the last quarter.

The CMA CGM group reported revenue of US$15.1bil last year, up 28.2% against 2007.

Its net income stood at US$124mil and will be entirely reallocated to strengthening the group’s equity, as in previous years.

Freight volumes rose by 15.6% to 8.9 million 20ft equivalent units (TEUs).

Its container fleet represented 1.76 million TEUs, up 14% in capacity against 2007.

Its reefer fleet grew sharply last year, making CMA CGM the world’s second largest carrier of goods in refrigerated containers.

Source: http://thestar.com.my/maritime/story.asp?file=/2009/4/13/maritime/3670540&sec=maritime, 13 April 2009

Delta Air Lines

THE number of empty seats on planes flown by US airlines is rising this year despite aggressive fare sales and capacity cuts, darkening the outlook for industry earnings in the first quarter and beyond.

Airline data on March load factors, which measure how full an airplane is, showed a third-consecutive month of declines and the largest drop for some carriers this year.

“We’re seeing some real good fare-sale activity, but load factors are still dropping,” said Jim Corridore, airline analyst with Standard & Poor’s Equity Research. The airline industry has been battered since last year by economic recession that has eroded travel budgets. Carriers have fought back with sweeping capacity cuts and fare sales designed to generate spring and summer travel.

But March traffic data show that despite carriers’ best efforts to stoke demand, the decline in load factors is accelerating.

Delta Air Lines Inc, the world’s largest carrier, saw its March load factor drop 4.4 percentage points to 80.5%, following a 2.7-point dip in February. The carrier’s capacity was down 7.9% in the month.

AMR Corp’s American Airlines saw its load factor slump 4.8 points to 79.2% as capacity fell 5.6%. In February, the carrier’s load factor declined 2.9 points.

Declining load factors will hurt first quarter results, which airlines will begin posting this week, said Morningstar equity analyst Basili Alukos. “They’re having fewer people in the planes, so it means you’re going to have way lower earnings.”

Analysts expect losses from top carriers in the first quarter, according to Reuters Knowledge. The consensus forecast for Delta calls for a US$1-per-share loss. AMR is seen losing US$1.48 per share, while the loss at UAL Corp, parent of United, is estimated at US$4.49 per share. — Reuters

Source: http://thestar.com.my/maritime/story.asp?file=/2009/4/13/maritime/3683984&sec=maritime, 13 April 2009

Facts
1) Delta's Atlanta hub is the busiest airline hub in the world
2) On October 29, 2008, Delta closed its merger with Northwest Airlines to form the world's largest commercial carrier

MISC eyes small shipping firms

MISC Bhd, the largest shipping company in Malaysia, may take advantage of the current downcycle in the industry to acquire smaller units or subsidiaries of “troubled” shipping companies at lower prices.

An AmResearch analyst told StarBiz that MISC would be doing relatively well if a small acquisition took place despite the gloomy environment that had affected trade, the lifeline of the sector.

“MISC has stable revenue from its liquefied natural gas (LNG) tankers business with 70% to 80% of the vessels on long-term contracts where the earliest will expire only in 2013,” he said, adding that the global downturn had an insignificant impact on these secured contracts.

MISC is the world’s largest single owner-operator of LNG tankers with a fleet of 27, which is expected to expand to 29 this year.

MISC’s offshore business and huge order book from its heavy engineering division via subsidiary Malaysia Marine and Heavy Engineering Sdn Bhd (MMHE) will keep the group busy for the next 12 to 30 months.

According to a recent report by the research house, these three divisions now collectively account for 100% of the company’s pre-tax profit.

Also, the analyst said, MISC had secured a credit line of about US$1bil last year to part-finance its fleet growth and other purposes.

MISC’s underperforming businesses are in the container shipping and chemical tanker divisions.

The report said MISC would likely take over a unit of a financially-troubled shipping company similar to the American Eagle Tankers (AET) acquisition in 2003.

MISC bought AET at a 10% discount when Neptune Orient Lines Ltd auctioned it due to its high debt level and loss-making operation.

AET, now a wholly-owned subsidiary of MISC, was purchased at an equity consideration of US$445mil, or US$1.1bil inclusive of net debt.

“Although MISC’s gearing immediately rose to 66% post-purchase of AET, natural de-leveraging from healthy free cash flow brought the gearing down to 17% in 2006,” said the report.

MISC’s net gearing for the financial year ended March 31 (FY09) is forecast to stand at 0.3 times while international peers in its league, such as General Maritime Corp, Aries Maritime Transport Ltd and Taiheiyo Kaiun Co Ltd, were already in the red with stretched balanced sheets at two to 13 times net gearing.

The report said although prospects of the acquisition seemed challenging in the immediate term, MISC’s profitability was a factor supporting the move.

The research house’s earnings forecast for MISC in FY09 is at RM1.4bil compared with RM2.4bil in FY08. Its nine-month earnings for the period ended Dec 31 was at RM1.2bil.

It is also possible that MISC is eyeing another oil and gas fabrication yard since the proposed reverse takeover of Ramunia Holdings Bhd via the injection of subsidiary MMHE for RM3bil did not materialise in November.

But, according to the analyst, the chances were slim as there were only a few fabrication yards in Malaysia.

“Additionally, MMHE had already expanded its land size by 50% to cope with the increasing demand via leasing the land next to its location.

“But, we are not ruling out this possibility that the yard acquisition may replace the takeover of the shipping unit,” he said.

Despite the rosy outlook, MISC is not immune to the effects of the shipping downturn, as it has two underperforming businesses, namely the container shipping and chemical tanker divisions.

The report said the net profit of RM250mil in its third quarter was 24% lower year-on-year as it was dragged down by these two divisions due to oversupply of vessels in the marketplace that had hurt freight rates, especially for container ship.

“Container ship deliveries are expected to rise to 1.7 million 20-foot equivalent units (TEUs) this year and 1.8 million TEUs in 2010, adding an estimated 14% and 13% capacity respectively to the existing fleet.

“As a response to the oversupply situation, measures have been taken by container ship operators to reduce available capacity in the market by laying off vessels and scrapping old vessels to restore freight rates at healthy levels,” it said.

According to Clarkson Research, idle container space in the fleet in February amounted to 800,000 TEUs – equivalent to more than 300 vessels – accounting for 6.5% of available fleet in the beginning of the month.

But the analyst said the losses suffered by these two divisions could be offset by the earnings of its LNG tankers, heavy engineering and offshore operations until the economy stabilised.

Source: http://thestar.com.my/maritime/story.asp?file=/2009/4/6/maritime/3619877&sec=maritime, 06 April 2009

Westports bags two brand awards

WESTPORTS Malaysia has bagged two awards at the annual BrandLaureate Awards last week.

The port’s executive chairman Tan Sri G. Gnanalingam received the Brand Personality award for his distinctive branding effort and success.

For more than 30 years, Gnanalingam has been actively involved in brand development for the country that involved small and heavyweight companies, sports, marketing and advertising as well as the corporate world.

From left: The BrandLaureate CEO Dr K.K. Johan, Tun Abdullah Ahmad Badawi, Gnanalingam and Asia Pacific Brands Foundation chairman Tan Sri Dr Elyas Omar.

It was often behind the scene that the marketing wizard undertook brand development and image building initiatives such as the Benson & Hedges Malaysian Open Golf, the 1989 SEA Games hosted by Malaysia and the Westports Millennium Ad.

On the international front, he lent support to campaigns to promote the nation as a transportation hub especially in port industry. Gnanalingam accepted the award from former prime minister Tun Abdullah Ahmad Badawi. The event was organised by the Asia Pacific Brands Foundation.

Westports, as one of the fastest growing terminals in Malaysia, was also awarded the Best Brand in Logistics – Ports.

Gnanalingam said in a statement the awards by BrandLaureate were certainly an honour to Westports’ dedicated and skilful workforce.

“We have continued to innovate and provide the best services to our customers,’’ he said. “Westports was founded around innovation and the pursuit of excellence, and those core values have continued to be at the heart of everything we do.”

Source: http://thestar.com.my/maritime/story.asp?file=/2009/4/6/maritime/3628082&sec=maritime, 06 April 2009

World trade fall hits Hong Kong shipping

Ships travel to and from the manufacturing and trading hubs of southern China through the Lamma channel, and it is still busy.

But the ships once sitting heavily in the water, loftily loaded with containers, are now visibly higher in the water.

There is less cargo moving around the world, so less need for ships. Hence, dramatically lower rates for hiring large ships, and so a growing crisis in world shipping.

As the China boom deflates, demand for steel, iron ore and other bulk items from around the world diminishes, leaving bulk carrying ships all dressed up with nowhere to go.

"If you sit in one of the glamorous bars on the south side of Hong Kong, especially in the evening, you will see the lights of lots of ships," says Tim Huxley, chief executive of Wah Kwong Shipping, one of Hong Kong's largest ship-owners.

"Those ships are sitting there, waiting," he says.

"Those are bulk carriers and container ships that haven't got anywhere to go at the moment, there's no cargo for them to carry.

"They're sitting waiting for instructions, waiting for an upturn in trade that will see them moving again, carrying the raw materials that are needed to make the finished goods that are then exported out of southern China to the markets of the West."

Lay-up

Hong Kong has about 70 ships in "hot lay-up" at the moment, meaning they are waiting with full crews. Singapore has several hundred ships in "cold lay-up", where the ships are without crew.

A more long-term parking operation such as this is discouraged in the typhoon-laden Hong Kong waters.

This kind of waiting carries large hidden costs - looking after the crews and preparing to clean the ship's hulls in Hong Kong, and the rising risk of collision in the crowded seas.


The ports of southern China are busy with building, scrapping and repair
Far starker is the fact that ship owners, and often long chains of charterers and sub-charterers, are paying massive day-rates on ships that are earning nothing for them.

"The whole shipping market starts to unravel," says Chris Howse, a leading shipping lawyer and partner of Richards Butler, who is busier than ever at times like these.

"It went from an extreme," he says. "There were examples quoted in the press of this type of ship which was earning $150,000 (£102,000) a day, then the price crashing right down to $5,000 a day. That will not cover the operating costs of the ship."

There have even been cases where an owner was seeking to hire out his ship on a voyage from India to China for the cost of the fuel and the crew.

Charter chains

A ship owner will typically rent out, or charter, a ship for a fixed rate over a number of years and the charterer will often sub-charter that ship on to a sub-charterer for a higher rate and a shorter period.


Hong Kong provides not just ports, but full shipping services
Such chains can go up to six or seven sub-charterers and, in current times, can break when any one of those in the chain starts experiencing problems.

That is when the shipping lawyers come in.

Given Hong Kong's legal system, it is where most of the China shipping trade is serviced and where such problems as these are handled.

Chris Howse describes how a troubled charterer is currently tackling the lack of trade and trade finance.

"It is a matter of saying to the owners, 'we have an excellent business relationship, we basically need to renegotiate the terms of our charter'," he says.

"'I don't want to give you your ship back. If I give you your ship you won't be able to do much with it, because there are lots of ships sitting idle with no work at all. You may have an enormous claim against me, but I may or may not be able to pay that claim because these claims can be extremely large'."

If new arrangements cannot be reached, companies start to hit the wall, such as Britannia Bulk, Atlas shipping, or several Korean shipping companies.

The troubles that are afflicting Armada Singapore, which has applied for a Scheme of Arrangement with its creditors, have had a significant impact on a large number of shipping and trading companies. It lists more than 64 creditors.

History helps?

The surprising fact in Hong Kong is that, so far, no major ship-owning company is in dire straits.

Tim Huxley and other experts agree that Hong Kong owners, many of whom can trace a long history back to Hong Kong's founding as a major world port, are traditionally conservative and careful.

In Hong Kong we have an industry that's positioning itself for what could be a longer haul in terms in our sector-specific recession, than what we have in the global slowdown overall

Tim Huxley, chief executive
Wah Kwong Shipping
"I can think of many Hong Kong owners who are not adversely affected by this at all because their gearing, the financing on their ships, is so low, or they're debt-free, so they don't have a problem," says Mr Howse.

"Similarly, a number of Hong Kong's chartering and trading groups are weathering the storm well, because they called the market right - Hong Kong's Noble Group being a good example.

They have been "smarter or luckier depending on how they've played the market".

Order book

But what is exercising the minds of the many shipping experts based in Asia's maritime centre is that even when world trade recovers, shipping will still face trouble.

"In Hong Kong we have an industry that's positioning itself for what could be a longer haul in terms in our sector-specific recession, than what we have in the global slowdown overall," says Mr Huxley.


Container ships in Hong Kong waters are much higher in the water

That is because of the huge number of ships on order, following a massively over-enthusiastic ship-ordering spree in recent years.

This over-investment can be seen, for example, in the sector of cape-size bulk carriers, ships that carry more than 100,000 tonnes, mainly engaged in iron ore trades, carrying iron ore from Brazil or Australia to China.

"In that sector of the shipping market, 105% of the fleet is currently on order, so that means there are more ships being built, than currently exist," Mr Huxley pointed out.

These and many other ships were ordered in the last three years at top prices, so their asset value has now declined. And there is much less money available to finance them.

Shipyards are still building, and the scrap yards of India and Bangladesh are booming as some ships are now being sold for scrap at a faster rate.

But even if world trade picks up, shippers face a huge over-supply of ships, and plunging rates for renting them out.

The love affair between Wall Street and shipping is over, and the industry is hunkering down to face a long and painful recession.

Source: http://news.bbc.co.uk/2/hi/asia-pacific/7973752.stm, 6 April 2009