Speculation blamed for woes

PUBLISHED : Friday, 11 November, 2011, 12:00am
UPDATED : Friday, 11 November, 2011, 12:00am


Global shipping markets have become a 'speculators' heaven' feeding a frenzy of new ship orders and explosive shipbuilding capacity which has put the international maritime industry in crisis, the outgoing chairman of the Hong Kong Shipowners Association has warned.

Kenneth Koo Chee-kong, who will step down later this month, said tougher regulatory controls on crew training and greenhouse gas emissions together with harsher penalities to combat oil spills have failed to raise the barriers to entry for speculators.

'Incredible as it may seem, these over-the-top changes in our shipping industry have instead seemingly spawned a shipping market that has become a speculators' heaven,' Koo said, 'where literally every hedge fund, venture capital equity, tax shelter, shipping IPO and the like came in and ordered new ships.'

He said orders were coming at a 'frenzied pace equal to any real property bubble in any major city around the world'.

This wild focus for new ships launched an 'unprecedented' new-building that will see about 2,200 new capesize and panamax dry-bulk carriers, tankers and container ships delivered by 2015.

Koo, who is also chairman and chief executive of Hong Kong-headquartered tanker and dry-bulk cargo owner Tai Chong Cheang Steamship, said growth in the shipping fleet has been fuelled by a commoditised freight market.

'While our shipping market has historically encountered over tonnage because of large new-building order books or insufficient cargo demand, never have we faced a crisis such as we are facing today,' he said.

His views were echoed by Torben Skaanild, secretary general of the Baltic and International Maritime Council, who called on owners 'to go back to the virtues of operating ships with less asset playing'.

Skaanild said while there have always been speculative asset players making money buying and selling vessels, owners including those in Hong Kong and Greece, have created chests of cash through long-term profitable operation of their ships. Skaanild also called for a halt in new ship orders.

The entry of new ships into the global fleet have led charter rates to crash as the increase in tonnage outpaces growth in cargo volumes.

For the dry bulk sector alone, the total tonnage of vessels on order a year ago was more than 50 per cent of the existing fleet, while combined imports for iron ore and coal grew by 7 per cent last year. A year later, the total volume of dry cargo ships on order is still 38 per cent of the current global dry bulk fleet.

The crash in freight rates led China Cosco Holdings, the listed offshoot of China's largest shipping company, to report losses of 4.8 billion yuan (HK$5.9 billion) in the first nine months of this year.

Smaller dry bulk operator Courage Marine yesterday reported a US$9.1 million net loss between January and September against a US$10 million net profit in the same period last year because of lower freight rates and vessel utilisation.

In a poll of almost 1,000 shipping executives at a mainland maritime conference last week 42 per cent thought there would be no recovery in the shipping sector until 2014.

'If our industry continues to deteriorate into nothing more than a speculative hothouse, shipowners and ship managers like ourselves will continue to be penalised for the actions or inactions of the quasi-owners, whom in turn, get away scott-free and continue their destructive ways,' Koo told a group of senior shipping executives.

Koo said such quasi-owners have been able to avoid legal responsibility for their fleets by outsourcing ship operation and using poorer quality charterers and insurers.

As a result, Koo thought it was time for all segments of the maritime sector to unite and create the minimum standards that would raise barriers for entry into the market.