* Worst likely over in global shipping
* No quick fix for the industry
* Most HK and China shipping stocks doubled this year
By Alison Leung, Harry Suhartono
(Adds analysts quote and details)
HONG KONG, Oct 20 Early signs suggest that the
global shipping downturn has hit bottom as freight rates recover
to near-breakeven levels, but it could be years before the
industry returns to pre-recession levels.
Hong Kong-based container ship operator Orient Overseas
(International) Ltd (0316.HK) showed just how dire the industry's
position remains when it said on Tuesday its shipping revenue for
the third quarter sank 42 percent. [ID:nHKG191290]
Demand and prices in container shipping collapsed last year
with prices on some routes dropping to zero as shippers asked
exporters to pay only for fuel and terminal charges.
But share prices have rebounded sharply in 2009 on hopes that
improving global trade and China demand could help these
companies to float again.
China COSCO (1919.HK), the country's largest shipping
conglomerate, said it raised container freight rates three times
from July to September. The rates are now near breakeven levels.
"The first and second quarter were the most difficult and now
the whole economic situation is moving in a positive direction,"
Zhang Yongjian, COSCO's board secretary, told Reuters.
Maersk Line, the world's biggest container shipper and a unit
of A.P. Moller-Maersk (MAERSKb.CO), expected container shipping
freight rates to reach breakeven levels by the first quarter of
next year. [ID:nLJ96630]
The Baltic Exchange's main sea freight index .BADI, which
tracks rates to ship commodities such as iron ore, coal and
grain, hit a two-month high on Monday at 2,766 points compared
with its May 2008 peak of 11,793.
But shipping firms have warned that there's no quick fix for
The imbalance between supply and demand will persist for
several years, weighing on earnings. And many shippers are
burning through cash quickly, which will make it difficult to pay
off ships they ordered in better times.
Meanwhile, the industry is struggling through. CMA CGM, the
world's No. 3 container carrier by capacity, said it was in talks
to restructure its multi billion dollars debt. Earlier this
month, the German government agreed to give 1.2 billion euro loan
guarantees to container shipping line Hapag-Lloyd [HPLG.UL].
Investors are undeterred. Although analysts predict that
China COSCO will not return to profitability until 2011, its
stock value has doubled since the beginning of the year.
Similarly, OOIL shares have surged 138 percent this year.
"I think the market has been pricing in ahead of the recovery
story so that is why the price stays relatively high," said Ng
Sem Guan, an analyst at OSK Research in Kuala Lumpur.
"With the recovery story still patchy, this kind of price
movement is very fragile. Any small correction in the equity
market will cause all these prices to go back to the
fundamentals," he added.
The industry needs to consolidate to become more efficient,
say analysts. It's unclear when that will happen -- shippers lack
money for M&A and some operators could even go bust.
"Who wants to buy ships? There is no price and market for
container ships," said Stanley Shen, a spokesman of OOIL unit
Orient Overseas Container Line.
(Additional Reporting by Joanne Chiu; Editing by Don Durfee)