GCC freight volumes drop by 10%

Volume of freight being shipped into and outside the GCC in container ships has dropped by more than 10 per cent as compared to the same period last year, the President and CEO of United Arab Shipping Company (UASC), a regional shipping company, told Emirates Business.

The figures replicate the worldwide industry trend, Jorn Hinge said, emphasising that the sector is now waiting for a revival in consumer demand. "The volumes of container ships are down by about 10 per cent globally and the Gulf is no exception. The drop is higher in routes like Asia to North America and Asia to Europe. In these routes, the figure may go as high as 25 per cent," said Hinge.

"Shipping cannot be very good in one region and bad in another."

Freight volumes of container ships had been growing at 10 per cent earlier and have sharply reversed, Hinge said. He termed the current downturn that the shipping industry is facing "the worst" he has seen in his 30-year-old career in the shipping industry. About 10 per cent of the global shipping capacity is currently idle, he added.

Hinge said the downturn in the shipping sector has been accentuated by the fact that several new ships that were ordered two to three years earlier have hit the seas. "We have all invested heavily to keep up with the demand," he rued.

An astonishing number of ships "about half of the current container ship fleet" are currently on the order books Hinge said. "That's how the order book stands as of today. These ships were ordered when the industry was witnessing a boom and almost every shipping company saw a need to enhance capacity."

UASC currently operates a fleet of 52 fully cellular container vessels. In 2008, the company took delivery of eight 6,921 TEU (20-foot equivalent units) ships with one more received earlier this year. Another ten 4,200 TEU ships will be delivered during the course of 2009 while the company will redeliver nine ships of different sizes in the same period.

"Our order for nine 13,100 TEU ships placed last year constitutes the biggest containership building order placed by a GCC company, valued at $1.5 billion (Dh5.5bn); deliveries are expected in two years time. By that time, our fleet will have grown to comprise more than 60 modern container ships and, a substantially bigger capacity," a company release said.

That logically means even if higher volumes are shipped now, the new ships will absorb those volumes. In what supports Hinge's views, the Howe Robinson Container Index that tracks worldwide international shipping prices of various container cargoes has dropped steeply since in the October the last year. The index seems to be recovering now, apparently on the back of traders storing consumer goods for Christmas sales, and was perched at 346.2 yesterday.

A new ship is delivered two-and-a-half to three years after it is ordered. Consumer demand peaked two to three years earlier leading to almost all companies ordering new container ships other market sources said.

"Companies such as Maersk, the Danish shipping giant, almost renewed its fleet. They are in slightly better position today considering they have bigger ships and offer more competitive prices," the general manager of a Dubai-based shipping company said.

However, the process of ordering new container ships came to a halt as the industry felt the first tremors of a looming recession nine months earlier. "No new container ships have been ordered for the past nine months," said Hinge.

The cost of constructing new ships has not come down substantially in the past few months, even though the cost of construction materials such as steel has, Hinge said. "The cost comes to about $15,000 per TEU. There are several factors that play a role in determining a ship's cost and not just steel."

 

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