Container shippers mull capacity cut amid global woes

HONG KONG Fri Nov 25, 2011 5:31am EST

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HONG KONG Nov 25 (Reuters) - Global container ship operators, hammered by high costs, oversupply and flagging demand, are cutting shipping capacity to shore up freight rates depressed by a sluggish global economy.

Many container carriers have been losing money since the third quarter as freight rates fell sharply, mainly due to a supply glut, industry experts said at a regional logistics and maritime conference here on Friday.

The Shanghai Shipping Exchange's China Containerised Freight Composite Index fell about 12 percent this year to 923.7 on Friday. Freight rates on the China-Europe route have tumbled about 35 percent.

The shipping industry is a barometer for the global economy as it accounts for more than 80 percent of international trade volume.

Maersk Line, a unit of Danish shipping and oil group AP Moller-Maersk AS and the world's largest container ship operator by volume, is considering idling some of its ships, especially those on Asia-Europe routes.

"We are looking to see whether we should take some ships out of the Asia-Europe route," said Tim Smith, chief executive of Maersk Line's North Asia division.

Maersk Line posted a loss for the third quarter and said it expected to stay in the red for the whole of this year.

"I think it's very clear now that we've seen, collectively, we're ordering more capacity than we really need for the short term," Smith told reporters on the sidelines of the conference.

Tung Chee Chen, chairman of Orient Overseas (International) Ltd, said on Friday that his company had cut Asia-Europe route capacity by 20 percent.

The Hong Kong-based container ship operator is struggling with rising operating costs as a result of higher fuel prices, Tung said on the sidelines of the conference.

"The outlook will eventually depend on Europe's situation, and whether the debt crisis can be resolved," Tung said. "But in light of today's situation, next year will not be promising."

China's Vice Minister of Transport Xu Zuyuan said the global shipping industry was mired in a prolonged downturn and there was no consensus on when operators would see a light at the end of the tunnel.

The European debt crisis has made the outlook for the world economy and the shipping industry more uncertain. The World Trade Organisation cut its 2011 trade growth forecast to 5.8 percent from 6.5 percent predicted earlier.

Xu urged governments and operators to work together to ride out the headwinds.

"We oppose any forms of protectionism or unilateral action," he told the conference. "Cooperation is our most important task currently." (Editing by Chris Lewis)

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