Carriers' profits dropping with capacity to rise over 13% next year
(SEOUL) Global rates to move cargo by containers may decline for a second year in 2007 as capacity growth from vessels under construction will outstrip demand, South Korea's Ministry of Maritime Affairs and Fisheries said.
Shipping lines' capacity may expand more than 13 per cent next year to over 10 million 20-foot standard containers, while demand grows at a slower pace of around 9.7 per cent, the ministry said, citing a report from its research institute released yesterday.
Capacity grew at an average of 13.9 per cent this year, while demand will likely increase 10.2 per cent.
Sea carriers, including AP Moeller-Maersk A/S and Neptune Orient Lines, have reported profit declines as rates fell with a record number of vessels being delivered.
Rising costs of inland transport, fuel and port fees have also crimped profits of shipping lines, eroding gains from expanded global trade. 'With excessive capacity being added, shipping lines are aggressively competing to increase their market share and that is causing rates to fall as well as hurting their profitability,' Lim Jin Soo, a researcher at the Korea Marine Institute, said in the statement.
Maersk in September started operating the world's biggest container vessel, which is able to carry at least 11,000 containers, for trade between Europe and Asia. The company plans to add six more vessels of similar size on the same route by the end of 2008.
Other companies are rushing to add these ultra-size vessels on their fleet. CMA CGM SA of France ordered in September eight ships that can carry 11,400 containers to be delivered from 2009. Hanjin Shipping Co, South Korea's largest shipping line, ordered five vessels in August that can each carry 10,000 boxes.
About 250 vessels that can each carry more than 5,000 containers will be delivered in 2008, making up half of the current global fleet, the ministry said, citing Clarkson plc.
Shipyards in South Korea, home to the world's biggest shipbuilders, delivered 2.78 million compensated gross tonnes, or a measure of building time and human resources used per tonne, in the third quarter, valued at US$4.49 billion, according to the Ministry of Commerce, Industry and Energy.
That was 20 per cent more than a year ago.
Hyundai Heavy Industries Co and other shipyards in South Korea delivered more than 2 million compensated gross tonnes every three months since the first quarter, as they increased productivity, the ministry said.
The average rate of goods moved to the US from Asia fell 5 per cent to US$1,753 per 20-foot standard container in the second quarter from a year earlier, according to Containerisation International, which tracks the industry. Fees charged to transport goods to Europe from Asia dropped 22 per cent to an average US$1,408 per box.
Maersk, Hapag-Lloyd AG and other shipping lines have been reducing capacity by temporarily suspending some of their services in their efforts to stem further declines in rates.
'There is a chance rates may rise should these measures prove to be effective,' Mr Lim said. 'Continued economic growth in China is also positive for shipping lines.'
The World Bank said economic growth for China, the world's fourth-largest economy, may advance 9.6 per cent next year after expanding 10.4 per cent in 2006.
About 176 million containers will be handled at ports in north Asia next year, accounting for 36 per cent of the total global volume, the ministry said. - Bloomberg
