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            october 24, 2019

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Shipping companies to counter shipping downturn


Individual container shipping companies must take urgent action to counter the effects of the current downturn, a senior APL executive told a high level conference in China today.
Delivering the keynote address to the 2nd Containerisation & Liner Shipping China conference in Tianjin, Dan Ryan, APL’s Greater China President, said that a unique set of circumstances had rapidly changed the container shipping environment.
“Global economic conditions have shifted dramatically this year,” said Mr Ryan. He pointed to escalating financial market turmoil, low consumer confidence as well as rising inflation and commodity prices.
He said that the economic slowdown had even hampered the demand for China’s products in major consuming markets such as the US and Europe, and as a result, slowed China’s industrial output growth.
Mr Ryan said the negative macroeconomic picture was compounded by “a materially different” cost environment – with fuel prices still at historical highs despite recent adjustments. He showed that in four years, fuel had risen from 40% to more than 70% of total ship operating costs in the Transpacific trade.
“While fuel prices have come down recently, they are still at remarkably high levels. Great headway has been made in fuel recovery – particularly in the Transpacific – but continued recovery efforts are essential. Fuel will continue to impact the way we serve our customers and the financial returns we achieve,” Mr Ryan said.
He said a bright spot for container shipping was the continued growth in the Intra-Asia trades. “Trade between China and other Asian countries continues to grow robustly. This illustrates the growing wealth in many Asia nations as well the impact of the dynamic Middle East markets.”
Mr Ryan said that while the near term supply-demand outlook in the Transpacific trade was relatively balanced, he pointed out that the economics in that trade had been poor for some time.
“After five years of continuous growth in the Transpacific, capacity is forecast to contract in 2008 and very likely in 2009,” Mr Ryan told the audience. 
He said the situation in the Asia-Europe trade was “precipitous”, with speed of the downturn catching the industry off guard.
“The current situation in Asia-Europe is far worse than during the last cyclical downturn,” said Mr Ryan.
He said that with demand growth and utilisation levels in Asia-Europe contracting and core rate levels softening, the trade would be unable to absorb the high numbers of very large container ships of more than 7,500 TEU (twenty-foot equivalent unit) destined for the trade lane.
He cited analysis from shipbroker Howe Robinson, which showed that in 2009 the Asia-Europe trade is facing a potential capacity overhang of some 450,000 TEU. This is the equivalent of six to seven services with ships of 8-9,000 TEU.
Mr Ryan said it was still possible to counter the downturn but only if individual carriers take urgent action to:
 Return excess tonnage to the charter market
 Rationalise and even suspend some services
 Moderate growth aspirations
 Have strong resolve to pass along high bunker costs to customers
“If we fail to take action, the industry could see a more significant downturn than we have seen in many years,” concluded Mr Ryan.

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