Fri, Jul 21, 2006 - Page 11 News List

Report warns of shipping oversupply


Despite expectations that worldwide demand for container shipping services will remain robust, the rapid increase in capacity by shipping operators is likely to result in oversupply, according to a report released by Taiwan Ratings Corp (中華信評) yesterday.

Strong global economic growth and consumption have significantly increased container shipment volumes to record average levels over the last few years.

Much of this increase originated in Asia, especially in China, Taiwan Ratings, the local arm of Standard & Poor's Ratings Services, said in the report.

East Asia accounted for 35.1 percent of global port handling by twenty-foot-equivalent units (TEUs) last year.

This was up from 28.9 percent in 1999, according to the report, which cited independent maritime adviser Drewry Shipping Consultants Ltd.

But the strong demand has encouraged operators to expand capacity.

Global container capacity is expected to grow by 16.1 percent this year, 13.8 percent next year, and 14.7 percent in 2008, before slowing to 2.3 percent in 2009, the report said, citing Drewry.

"Significant container shipping deliveries over the coming three years and relatively low expected scrapping levels [of old ships] are very likely to usher in a supply-demand imbalance and put pressure on freight rates and asset values," Taiwan Ratings said in the report.

With strong profitability, healthy finances and still-adequate credit ratios, Taiwan's three main carriers -- Evergreen Marine Corp (長榮海運), Yang Ming Marine Transport Corp (陽明海運) and Wan Hai Lines Ltd (萬海航運) -- should be able to withstand the anticipated industry downturn engendered by capacity imbalance, the report said.

Taiwan Ratings' top pick among the three to cope with the new supply of large vessels is Wan Hai due to its extensive intra-Asia routes, flexible fleet composition, and satisfactory financial situation.

Eyeing the enormous market potential in China and possible direct cross-strait links, local shipping operators have been looking to form alliances with or to invest in their Chinese counterparts.

Last month Wan Hai announced plans to invest in a logistics company in Shanghai through its investment in Hong Kong.

In March, Yang Ming said that it was considering buying a 16.67 percent stake in Yangtze River Logistics Co (揚子江物流) for 40 million yuan (US$5 million).

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