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Major shipping companies are
beginning to cut capacity and consolidate
services to cope with slowing demand and sinking
freight rates.
Current freight rates in the Asia-Europe trade
have been slashed by more than 50% compared to
last year, industry players say.
Two of the world’s leading shipping firms have
taken extra measures to weather the gathering
storm.
Singapore-based Neptune Orient Lines (NOL) has
disclosed that its shipping unit, APL, will
reduce its capacity in the Asia-Europe trade by
about 25% and by around 20% for its
Trans-Pacific trade.
It has also suspended its intra-Asia SSX
(Singapore Subcontinent Express) service.
That route will be covered by a combination of
its CMX (China Middle East Express) and CSS
(China Singapore Service) services.
The capacity reductions will lower NOL’s vessel
network costs by about US$200mil next year.
Additionally, NOL has come out with more
cost-cutting measures as it expects a severe and
prolonged downturn in the global container
shipping business.
The company is also cutting back on its global
workforce, where 1,000 workers, mainly in North
America – the company’s highest cost base – will
be laid off.
NOL is also relocating its Americas regional
headquarters from Oakland, California, to a more
cost effective location in the United States.
Maersk Line, the largest liner shipping firm,
has cut back on its Asia - Northern Europe
network, resulting in a temporary removal of its
AE8 service this month.
The drop in demand has removed 7,600 20-foot
equivalent units (TEUs) from its weekly network
capacity.
Maersk will also link its AE1 and AE10 services
to accommodate the cancelled AE8 route to ensure
no loss of service connections.
According to Maersk’s vice-president and head of
product management, Robert Kledal, the current
Asia-Europe market is characterised by
unsustainable rate levels.
“The changes will support our market position
and ensure that our network is sustainable in
the long term,” he said in a statement.
Maersk and another shipping player, CMA CGM, are
reported to be forming a new vessel sharing
agreement on the weakening Asia-Europe trade.
The Asia-Europe trade is affected by weakening
consumer demand in Europe which has also slowed
production in China.
Malaysian ports are beginning to feel the
contraction in the shipping business.
United Arab Shipping Co (UASC) Malaysia Sdn Bhd
country general manager, Desmond Yong, told
Starbiz that demand was unusually slower at this
time of the year compared to 2007. “This has
resulted in the consolidation of services and
the scrapping of older vessels by some shipping
companies.
“I think the trend will continue as nobody can
predict what the future prospects are,” he said,
adding that the global recession might drag on
for two years.
But UASC will still continue its four new
Asia-Europe services this year.
“We plan to stick to the earlier expansion
strategy and we are also committed to serve our
customers although there is an oversupply of
capacity in this trade,” Yong said.
UASC launched two new Asia-Europe services this
month while the remaining two will be in service
by year end.
International Shipowners’ Association of
Malaysia chairman Ooi Lean Hin said that at the
end of the day, market forces would balance out
supply and demand forces in the industry.
“We have seen certain companies cutting their
services and some shipping companies may opt to
scrap their older vessels.
“But, scrapping older vessels may not produce
promising returns as the current scrap iron
price is slumping,” he said.
According to another player from the Grand
Alliance shipping consortium, shipping firms
were also implementing cost-cutting measures in
operations as well as being more stringent on
credit lines.
“These are the measures taken besides the
efforts to gain more cargo,” he said, adding
that Grand Alliance members were still running
on full capacity.
“But, if the current market condition
deteriorates, shipping companies would opt to
cut capacity and consolidate services,” he said. |
