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MIMB
Investment Bank expects the second half of this year to be tough
for
the local shipping industry, mainly due to worldwide excess vessel
capacity, which would continue into 2010.
"Although the phasing out of single hull vessel ruling will only
come into force in 2010, we think that the imbalance in supply and
demand will take time to correct itself," its analyst Rosnani
Rasul wrote in a report dated June 29.
The phasing out of single hull vessels under the International
Maritime Organisation (IMO) regulations will see some 35 per cent
of global vessels cease operations in major trading routes.
Rosnani said that with the exception to dry bulk shipping, the
situation in other shipping segments, including tankers and
chemical, have not improved in the first half of this year (1Q09).
"In fact, most shipping players in the world, including local
firms, have recorded significantly lower 1Q09 earnings, no thanks
to weak demand which was exacerbated by excess capacity," she
added.
During the booming year in 2007, most shipping companies rushed to
add new buildings, which resulted in significant number of new
ships entering the global market.
As a result, the number of order book as a percentage of dead
weight tonnes reached a staggering 60 per cent for some, like
chemical. This has weakened shipping rates to a record low and
made some companies operate at below their operating cost, said
Rosnani.
As for the airline industry, she said some airlines are still
trapped in expensive jet fuel cost hedging, no thanks to the spike
in crude oil price last year.
Some still have to purchase their crude oil at US$100 (RM357) per
barrel compared with the average of US$43 (RM153.51) per barrel in
1Q09.
"With the ongoing threat of the influenza A (H1N1) flu, coupled
with expensive fuel hedge value, the airlines industry may face a
tough time ahead.
"This will be exacerbated by the prolonged weak demand following
the slow recovery in global credit crisis," said Rosnani.
She foresees some improvement on the card only in the second half
of 2010 when stabilisation in crude oil price will play an
important role.
"Most countries in the world are likely to record positive gross
domestic product growth by then, and hence, will be a precursor to
the recovery in air travel," she added.
In view of the gloomy economic outlook, MIMB Investment Bank has
reiterated its "underweight" call on the transportation sector,
and predicts that the recovery period for the shipping and
aviation sectors may take up to two years. |
