Asia Pacific Maritime 2012
With the burden of overcapacity and rising oil prices, some forecast that in 2012 the marine and shipping sectors will be caught in the eye of the storm. Yet industry players at the recent APM 2012 remained stoic that, backed by a buoyant Asia, the industry will steer through the cyclical turbulence. Sarah Pursey reports from Singapore.
Just five years ago, many shipping industry professionals felt that they were experiencing the best market conditions in their careers. The boom times of 2003 to 2008 brought much optimism to the marine and shipping segments – fuelled by cheap credit, an almost frenetic ordering of new vessels ensued, with often staggering sums made in private transactions. For instance, while a ship’s value generally decreases with age, the appreciation of one particular iron-ore carrier would become the stuff of legend – built for US$31 million in 2001, it was sold for US$150 million in 2007 and was immediately leased out on long-term contract, making a vast profit for the new owner, even after that made by the seller. Yet, with the crashing wave of the global economic crisis, such halcyon days would be swiftly drowned out – and with the 2007 ship orders continuing to be delivered today, a depression in ship asset value is just one challenge that now blights the global marine and shipping sectors.
Asia Pacific Maritime, the flagship conference held in Singapore from 14th-16th March, emphasised how the global shipping industry continues to wrestle with familiar problems of overcapacity and low charter rates, tighter credit financing and keeping pace with ever-more stringent environmental regulations on bunker quality, carbon emissions and ballast water management. With the global shipping slump forecast by credit ratings firms to continue into 2013, the recovery process, it seems, will be an extremely tentative one.
A slump in shipping
“Shipping is the servant of world trade and, just as it benefited from the boom years of the mid-2000s, its fortunes are now also inextricably linked to the recent fall in the demand for its services,” Mr Simon Bennett, of the International Chamber of Shipping, reminded us. His keynote session at APM – Coping with Turbulent Waters – highlighted the uncomfortable realities that the industry must tackle if it is to adapt. “To a large extent, many shipowners have been shielded from the full severity of the current economic crisis by the seemingly inexorable growth of China, with its apparently insatiable demand for raw materials and relentless expansion of its manufacturing capability. But even this beacon of light cannot be guaranteed,” he warned.
Echoing this sentiment, Eng. Nazery Khalid, Senior Fellow of Maritime Institute of Malaysia (MIMA) painted an uncompromising picture. “Amid worsening economic indicators and the spectre of the euro zone crisis and other potential bad news such as prolonged recession in the US, slower growth in China and the prospect of conflict in the Gulf, it is hard to be optimistic about the state of the global economy. Things look like they will get worse before they get better, and the maritime sector, which facilitates much of global trade, is set to feel the brunt of the worsening global economy.”
Indeed, in newbuilding, the downward activity continues to be the unwelcome trend, with dry bulk and tanker segments experiencing a dearth of business akin to the conditions of 2009, when industry players demonstrated a strong conservatism amid economic turmoil, with lower newbuilding prices the result. COSCO Corporation (Singapore) Ltd (part of the mighty COSCO Group) is just one of the companies feeling the pain – it reported a 44 per cent plunge in net profit for its 2011 financial year.
Adding to the woes of shipping liners are high oil prices, with marine fuel sales having slowed as Brent crude remains north of US$120 per barrel, and Singapore’s marine fuel sales having recently dropped to a two-year low. Container ships cannot go any slower, and shipping lines are running out of options as sailing speeds reach their lower limit, thus exhausting a solution that had helped restore profitability in 2010.
Some consultants predict that growth in Europe-Far East container traffic could slow to around 1.5 per cent this year (compared to an 8.3 per cent container vessel fleet growth for the same period). “Current markets would appear to be demonstrating just how seriously damaging the oversupply of ships has been to shipowners’ revenues, with many now struggling to meet operating costs,” pointed out Simon Bennett of ICS. Indeed, in February, Maersk Line said that it would cut nine per cent of its vessel capacity for Asia-Europe trade in a bid to combat low freight rates clipped by oversupply. Meanwhile, Singapore’s Neptune Orient Lines Ltd recently reported a larger-than-expected Q4 2011 loss due to high fuel costs and lower freight rates. While more recent freight rates show signs of improving, some experts believe it could take more than two years for shipping liners to recover profitability.
The lion-share of influence
The picture painted above is certainly bleak, although this should not eclipse the bright spots and opportunities that remain for today’s marine and shipping enterprises, such as the offshore segment – and especially in the Lion City itself, where the world’s two largest offshore oil rig builders, Keppel Corporation and Sembcorp Marine are based, and where a new LNG terminal is currently being developed. Slated to commence operations in Q1 2013, the terminal at Jurong Island will handle imports sufficient to cover all of the country’s power needs, even if piped gas supply contracts with Malaysia and Indonesia are not renewed, claims Mr Chee Hong Tat, CEO of Singapore’s Energy Market Authority. It will provide the capacity required to underpin the current suite of large-scale process plant developments underway in Singapore, and will likely act as the primary building block for future expansion of the nation’s process and energy infrastructure.
Green shipping is another potential growth area in the city, with the Green Ship Pro-gramme for clean shipping already generating good levels of interest and participation. Launched in July 2011 by Singapore’s MPA, the programme is targeted at Singapore-flagged ships that adopt energy efficient ship designs to reduce fuel consumption and CO2 emissions. In a further effort to reduce emissions, the programme also dictates that any flagged ships that surpass the requirements of the IMO’s Energy Efficiency Design Index will receive a 50 per cent reduction on Initial Registration Fees and a 20 per cent rebate on Annual Tonnage Tax.
With connections to more than 600 ports in over 120 countries, Singapore is home to over 5,000 maritime establishments. The Lion City’s maritime industry continues its robust performance, with the Port of Singapore achieving new milestones in terms of container throughput, bunker sales and vessel arrival tonnage in 2011 – qualities that “have earned Singapore the recognition of being a premier global hub port and an international maritime centre”, said Mr Lucien Wong, Chairman of the Maritime and Port Authority of Singapore, at APM’s opening ceremony.
“With our strategic location at the crossroads of Asian-Europe seaborne trade, pro-enterprise business environment and strong partnership between the government, the maritime industry and maritime associations has created an ideal business landscape.”
Companies move to the city state
Identifying these benefits, and how industry activity is gravitating towards Asia, many companies have mobilised to establish offices in the city state. For instance, VOSTA LMG Dredging Technology established a new office in the city in September 2011 to strengthen VOSTA LMG’s presence in the region. In November, Royal Haskoning, the independent, international engineering and environmental consultancy, opened its Singapore office, followed a month later by Martek Marine Ltd – world leader in safety and environmental monitoring systems for the shipping industry.
This year, FutureShip (the maritime consultancy subsidiary of classification society Germanischer Lloyd) established its office in Singapore, to provide clients in the region with a local point of contact and greater access to its services. Most recently, to coincide with APM2012, Holland Marine Equipment (HME) opened its Singapore branch, launched by the Dutch ambassador H.E. Johannes W.G. Jansing. The General Manager of HME’s new Singapore branch, Ms Marjan Lacet, explains the motivation behind the move: “HME’s mission is to strengthen the Dutch Maritime Industry worldwide. After establishing Holland Marine Houses in China, Vietnam, Brazil and Russia, we shifted our focus to the South East Asia region. For sure, Singapore is the centre of this region, with many strong players and a fantastic working climate.
“We will represent a number of Dutch companies in establishing business contacts in the region,” Ms Lacet continued. “In the near future, innovation support and professional training will follow. Similar to the Holland Marine Houses, we act as a focal point for local shipyards and ship owners in SEA, to the maritime industry in Holland.”
Likewise, the wider regional maritime industry beyond Singapore has experienced some positive results over the past few years, as En. Nazery Khalid, Senior Fellow of Maritime Institute of Malaysia (MIMA) points out. “Malaysia’s major seaports showed impressive resilience despite the tough business environment amid the depressing global economy last year. Port of Tanjung Pelepas posted a 15 per cent growth in 2011 from the previous year, handling 7.5 million TEU. PTP and Port Klang were ranked in the list of the world’s top 20 container ports by throughput handled in 2010 – a commendable achievement for a country with a population of just 27 million, amidst tough times and in a very competitive field,” he remarked. Unfortunately, the national shipping line, MISC, did not do so well in the container business, hence its decision to pull out from the trade, although the company has consolidated its lead as the world’s largest owner-operator of LNG tankers. However, as Eng. Nazery Khalid added, “Several Malaysian yards, especially those servicing the oil and gas industry, did very well despite the challenging times.”
Speaking of Indonesia’s maritime activity, Steadfast Marine’s President Director, Mr Eddy Kurniawan Logam, enthused about the huge opportunity that he sees for the Indonesian market: “There are over 17,000 islands forming the archipelago of Indonesia, which clearly makes maritime transportation essential.” Moreover, the government has implemented the ‘cabottage principle’, which operates in a similar way to the US ‘Jones Act’ – its intent being to promote a healthy domestic flag fleet and increase local content. “Since 2005, this regulation has meant that locally flagged vessels must be used for domestic travel in Indonesia. The result has been a 78 per cent increase in local content over this period.” Mr Logam, who is also Chairman of Indonesian Offshore Industry and Shipping Association (Iperindo), views the regulation as essential in reviving Indonesia’s fledgling shipbuilding industry in the face of more developed foreign competition.
Ms Carmelita Hartoto, Chairman of Indonesian National Shipowners’ Association (INSA), was also upbeat about the country’s prospects. “Indonesia has a wide maritime industry. [Opportunities exist] in areas like containerised, bulk/general cargo, tanker and offshore-related. For the domestic trade, almost all of these are in positive development – especially offshore-related, with the growth of the oil and gas industry in Indonesia.”
And while funding continues to be an issue for many shipping companies, after credit-constrained European banks pulled out of the ship financing business, Mrs Hartoto informed that maritime industries in Indonesia have attracted bank and financial institutions to finance ship purchases. “With one of the lowest [instances of] NPLs (Non Performing Loans), ship financing has become a target for major local and also international banks,” she explained. “The only challenge is that the interest rate is still high compared to the international market level. To overcome this, INSA usually arranges a foreign bank/ international finance institution to meet and discuss with INSA members, to facilitate communication and discussion between both parties.”
Asia: on course
“Asia is, once again, after many centuries, set to be the centre of the maritime industry,” Ms Lacet of HME told Euroasia Industry. “The Indian Ocean has increased importance and this will continue in the next decade. Holland has done business with Asia for over 400 years and we are dedicated to continue to partner with Asia in the future. If HME Singapore is able to play a very small part in that respect, we are most satisfied.”
Eng. Nazery Khalid of MIMA concludes by drawing on the future positives that he sees for the maritime sector. “Intra-Asian trade is expected to grow as a result of increasing trade among Asian countries, the liberalisation of trade and services, and the free trade agreements concluded among nations in the region with their trading partners. Ports in this region should benefit from this,” he told us. “The booming offshore oil and gas industry in the Asia Pacific will keep industry players busy – especially owners of offshore support vessels (OSVs), providers of offshore services and yards building OSVs and offshore infrastructures and equipment. Marine leisure activities and marine tourism are expected to grow in this region and this should translate into good business for shipbuilders of marine crafts and passenger vessels, and services providers such as marinas.”
“The market has always been volatile,” resumed Ms Lacet. “What we now see in the market is nothing new and therefore not worrying. To survive and to grow, you need to constantly adapt to new challenges and seek the opportunities. The capacity for innovation is key, followed, of course, by excellent products and services. We have faith in the industry and see many opportunities.”
The shipping industry will always remain at the mercy of the global economy, and more volatility is likely to lie ahead: “If, as seems likely, the euro zone goes into a full recession – or, even worse, implodes – the implications will almost certainly be global, and may well reduce demand for shipping services from China, and the other BRIC nations too,” warned Simon Bennett. And given this vulnerability, shipping lines and shipowners have little choice but to innovate and reduce operational costs where possible, in order to steer towards a clear course beyond the present crisis.