Maritime industry - futuristic vision

I have been associated with shipping for a long time. We experienced a downturn in 1980. However due to global economic meltdown, shipping has been hit severely in the last quarter of 2008, causing bankruptcy to ship owners, slowing down of new port projects and low load factor and losses to all major lines. 

This recession in maritime is worst than ever encountered. Some generalists during the boom claimed to have made a turn around in 2000 of sick companies. However, when shipping was at its peak, no commercial expertise was required and some companies and banks got the vessel free within five years and ships were operated by management companies without any chief executive. 

Now it is the testing time of shipping skill to keep the head out of the water, as recession may cause more casualties in 2009/10, but it opens the doors of opportunities and one can translate the opportunity by taking over business from competitors. Diversified business conglomerates have history of stemming such economic downturn cycles, as it is part of business. 

The latest research by prominent maritime analysts forecast a nominal growth of 1.2% in container trade, while expecting demand to grow in 2011. The excess supply is likely to stay until 2011, coupled with low load factors, vessels lay off, demolition and major lines are trying hard to break even, whilst major ports of the world and terminal operators are assisting by reducing tariff to keep the bleeding ship-owners in business. Four hundred and twenty fine container vessels had been laid up and now ship-owners are short of space to lay up in ports, thus requesting Sri Lanka to allow lay up in Trincomalee Bay which may accommodate 50 vessels. The ship breaking industry at Gadani, has got new lease of life due to old tonnage being demolished. 

At present, only Gadani has 80 vessels, four contributed by PNSC and one tanker sold to Bangladesh demolishers by PNSC. Current gearing is low for operators but prolonged losses may erode equity and test debt servicing capability of major players. The investment researchers are painting a bleak picture of South Korean Lines due to depreciation of wong and Taiwanese due to high gearing, but Maersk line and Japanese may overcome the losses due to diversified business, mix. 

Forwarders will be equally affected due to price conscious exporters and importers, but large forwarders are equipped to overcome the storm due to diversified networks and wide range of services. 

While reading drewry and UBS report, economists expect a more prolonged global recession and container shipping has deteriorated worst in 2008, than expected. The operators will continue to suffer deeper losses till 2010. Forwarding in basically 1-2% margin business if regulated and ethics are not compromised, as in Pakistan, Karachi Chamber is crying for long to regulate the forwarders, but to no avail. 

The government officials are blank on the subject and all recommendations of Karachi Chamber of Commerce remains frozen in files due to lack of competence of regulators and unawareness, causing misery to poor exporters and importers. Ethically premium margins are achieved by forwarders, who have strong global network and value added services. 

The declining volumes on Asia-Europe and transpacific trades may last till 2011, as US trade has faded and west coast ports are facing 37% cut in volumes as dry bulk freight rates have plummeted and US dollar has strengthened. It is believed that ship-owners are operating at or below cash break even levels and laying up vessels to preserve cash and margins. Due to excessive supply growth, zero margins will be seen till 2010 and these trade accounts for 60-80% of revenue of most Asian container, shipping operators. 

The expected trading losses may be 5% to 50% up to 2010. If this condition persists for the next 2/3 years, major operators will face serious funding problems. 

The analysts have forecast that charter rates and vessel prices will continue to decline. The analysts have revised global container shipping model and have lowered demand forecasts to reflect a protracted global recession. The analysts have collected world-wide data on new deliveries and cancellations and concluded that supply/demand balance may be achieved by 2011. 

According to Lloyds list, there is no possibility of direct link between China and Taiwan and about 742,000 TEU is transshipped through Hong Kong. It is interesting to note from the data that 60% to 80% revenue is generated by most listed operators by large vessels and only 7 large container vessels have been laid up when compared to 425 medium sized container ships. A modest impact may be seen in large container ships as most of them are up to 5 years of age. 

The decline in freight rates in 2008 has surpassed industry expectations. The magnitude in 09 and speed of decline has led to a situation, where operators are unable to cover cash costs. Service rationalisation and cancellations, vessels lay ups and off hiring of chartered vessels is common in the industry. 

We, in Pakistan, are 100% dependent on foreign lines for our containerised export and import cargo of 1.7 mill TEUS. If major players continue to be in distress, many more lines will stop calling our ports thus our ports may consider assisting lines to operate by cutting down their tariffs thus giving comfort to the lines. Similarly, the terminal operators must be regulated on the pattern of TAMP in neighbouring countries and the ministry may constitute a "tariff authority of port and terminals" to regulate tariff. 

The body should be duly represented by Karachi Chamber of Commerce and Industry. Neither ports nor terminals may levy un-announced tariffs. It is also imperative to regulate our freight forwarders, as demanded by Karachi Chamber of Commerce and code of business ethics be introduced by regulators. 

The concept of free market economy has failed and markets in greed do not correct themselves thus the need of regulator is established world-wide and we cannot be an exception. The lobbies in Pakistan are quite strong, but should be resisted to boost our exports. Unless we regulate, it is free for all and the trade continues to suffer. It is now high time to implement the assurances for relief to trade to overcome the trade deficit with growth of exports. The ministry may also assist the shipping industry, by offering ship-owners to lay up ships at Gwadar protected bay, as total 1000 ships are laid up and others are in the line. Philippines has translated crisis into opportunity by allowing ship-owners to lay up ships in Subic Bay and Davo protected anchorage and charging only 91/USD per day from owners. Why can't we do the same to generate revenue by translating the crisis into opportunity.