Smaller shipping firms 'to tide through crisis better'
Monday, 13 February 2012 | 00:00
Shares of shipping firms rallied in Asia last week, on hopes of a possible increase in freight rates as well as better -than-expected global manufacturing data.
Many analysts, however, remain bearish on shipping companies such as Neptune Orient Lines and K-Line, which have been in the red for the past nine months. They said smaller firms with fewer debt obligations will be better positioned to tide through the crisis.
As the shipping industry braces itself for another turbulent year, Siva Shipping general manager Divay Goel says the firm is looking at acquisition opportunities. Being smaller and perhaps more nimble, Siva Shipping hopes to be able to navigate the crisis better. "All shipping companies are affected by the market but since we are not so leveraged, we are still safe. And we have a very strong parent shareholder. We also see consolidation and acquisition opportunities going forward in the next 12 to 24 months," said Mr Goel.
Smaller firms can also do well by focusing on niche sectors to drive revenue growth. These include operating chemical tankers - a market where there is less excess capacity.
Experts say the container-shipping sector - with big players like Maersk, NOL and Hanjin - is unlikely to see a recovery anytime soon. "Hanjin shipping - they quoted that their container shipping (business) is not making money - they are losing US$730 million (S$910 million) for the fiscal year last year. We are thinking that the overall losses for the container shipping sector - in terms of monetary value - could be as high as 10 to 20 per cent more than what was experienced in 2009," said Island Shipbrokers analyst Katharine Cheong-Koh.
Analysts say the shipping industry is also hit by lower demand as economic growth slows and higher oil prices.
"Chartering rates are coming down, but on the cost side, bunker costs are still stable or creeping higher. That makes the situation worse for ship operators or shipbuilders. That's why the outlook for the next two to three years will not be very good for shipping companies," said SIAS Research investment analyst Ng Kian Teck.
In recent weeks, Indonesia's largest oil and gas shipping firm PT Berlian Laju Tanker Tbk said it will stop servicing its debt, as a result of the global downturn and weak freight rates.
Another sign of how the shipping industry is struggling: Dubai's DP World is said to have put up four shipyards - one in Singapore and three in Batam - for sale. Smaller firms with some cash to spare will be watching these deals closely.
Source: The Nation
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