Han­jin not alone in trou­bled seas

The Myanmar Times - - Business -

THE prob­lems that sank South Korea’s Han­jin Ship­ping last week could be just the tip of the ice­berg, an­a­lysts say, with the long-run­ning global eco­nomic down­turn hav­ing left the in­dus­try drown­ing in ex­cess ca­pac­ity.

With growth re­fus­ing to budge and con­sumer de­mand still slack, the world’s freight car­ri­ers have more ships than they can fill – onequar­ter of cargo space lies empty.

That has led to fierce price cuts and cut-throat com­pe­ti­tion, badly im­pact­ing the bot­tom lines of some of the giants of the seas.

Those prob­lems played out when Han­jin, the world’s sev­enth-largest ship­ping firm, filed for bank­ruptcy in Seoul, seek­ing court pro­tec­tion after cred­i­tors re­jected its lat­est plan for deal­ing with its hulk­ing US$5.37 bil­lion of debt.

One-third of its fleet is ei­ther stuck in port or un­able to dock, with port au­thor­i­ties fret­ting the com­pany will not be able to pay its bills.

An­a­lysts say Han­jin’s cash­flow man­age­ment has been prob­lem­atic, but cau­tion that ship­ping com­pa­nies world­wide are vul­ner­a­ble to the same con­di­tions of over­sup­ply and low trade vol­umes.

Nearly 80 per­cent of goods and com­modi­ties traded glob­ally are trans­ported by sea.

The in­dus­try had boomed as China’s man­u­fac­tur­ing and ex­portheavy econ­omy mush­roomed over re­cent decades, mov­ing a record 9.6 bil­lion tonnes of cargo in 2008, ac­cord­ing to Richard Clay­ton, mar­itime and trade prin­ci­pal an­a­lyst at IHS global busi­ness con­sul­tancy.

Those vol­umes plum­meted when the global fi­nan­cial cri­sis struck.

Re­ces­sion is noth­ing new for an in­dus­try used to rid­ing out the oc­ca­sional eco­nomic storm, but the length and depth of the down­turn was dif­fer­ent this time, said Mr Clay­ton. “The thing about ship­ping is that you or­der to an­tic­i­pate an up­turn,” he said, adding it could take up to five years to take de­liv­ery of a ves­sel after or­der­ing it.

“We saw a rise in or­ders in 2010 and 2012 but there has been no [eco­nomic] up­turn,” he said.

“China’s econ­omy is down, and too many ships have been de­liv­ered. This has led to com­pe­ti­tion within the in­dus­try, which drives prices down.”

Bei­jing’s at­tempt to pivot away from ex­ports to­ward do­mes­tic de­mand is also im­pact­ing the in­dus­try.

Ship­pers des­per­ate to cover at least some of their costs have slashed prices – the cost of char­ter­ing a con­tainer ves­sel has plunged from 2008 highs of $200,000 a day to just un­der $5000 a day, ac­cord­ing to a July re­port by bro­kers JLT Spe­cial­ity.

And those kinds of prices are hurt­ing. In an April re­port, Drewry Mar­itime Eq­uity Re­search es­ti­mated the in­dus­try will lose at least $6 bil­lion this year.

Last week France’s CMA CGM, the in­dus­try’s third-largest player, be­hind APM-Maersk and Mediter­ranean, said it had lost $128 mil­lion in the sec­ond quar­ter alone.

Losses like that are driv­ing a round of merg­ers, said Rahul Kapoor, di­rec­tor of Drewry Fi­nan­cial Re­search Ser­vices in Sin­ga­pore.

“We are see­ing con­sol­i­da­tion hap­pen­ing in the in­dus­try,” he told AFP.

Suc­cess­ful part­ner­ships are re­sult­ing in com­pa­nies that are “much big­ger and stronger in terms of bal­ance sheets”.

Re­cent moves in­clude CMA CGM’s pur­chase of Sin­ga­pore’s Nep­tune Ori­ent Lines (NOL), and a June mar­riage be­tween Ha­pag-Lloyd and United Arab Ship­ping Co. –

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