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27-07-2013, 10:17 AM
3 bull years and 7 bear years - will monitor as part of economic indicators - no hard earn $ for punting...
Brightening prospects for shipping sector
Recovery on the horizon with fuel costs down and shipping rates up
Published on Jul 27, 2013
Container vessels at Singapore's port. Analysts say the rallying of dry bulk freight rates and container shipping rates could help shipping companies bounce back in the second half of the year. -- PHOTO: JOSEPH NAIR FOR THE STRAITS TIMES
By Goh Eng Yeow Senior Correspondent
PROSPECTS may be brightening for shippers after yet another ghastly quarter.
The Baltic Dry Index, which tracks the shipping costs for commodities, had risen by 25 per cent to 1,092 in the past six weeks, and this may give beleaguered shipping firms a much needed boost to their second-half bottom line.
This is still a far cry from the peak of 11,793 registered in May 2008 just before the global financial crisis began to seriously hurt the huge commodities boom that powered the shipping industry.
Still, it is much higher than the low of 874 it had sunk to last December, as the troubled industry copes with over-capacity.
The higher freight rates offer a hope that most shipping companies might turn in better performance in the second half.
This will be a boon for long-suffering investors still holding on to shipping shares, despite the companies bleeding red ink on their balance sheets recently.
Credit Suisse, for instance, forecast a loss of US$64 million (S$81million) for Neptune Orient Lines' second quarter. Since hitting a high of $1.335 on Jan 10, NOL had fallen about 20 per cent.
Yesterday, it ended one cent down at $1.05 on a volume of 1.04million shares.
But the recovery in shipping rates may come too late to save South Korean shipping group STX Pan Ocean, which filed for court receivership in June after accumulating US$437 million in losses over the past two financial years.
The counter ended 27 cents higher at $1.81 with 54,500 shares traded.
Barclays Equity Research noted in a recent report that last month, container shipping rates on Asia-Europe routes jacked up by 174 per cent to US$1,409 per TEU in the space of one week. This followed a lacklustre second quarter when shipping rates fell by about 55 per cent to an average of US$781 per TEU.
TEU refers to twenty-foot equivalent unit, a measure used for capacity in container transportation.
The report said: "We expect continued pricing co-operation (among shippers) to sustain higher freight rates, despite a weak macro environment."
And while it does not anticipate the rally in container shipping and dry bulk freight rates to have an impact on second quarter earnings because companies typically have fixed term contracts, it said the improvement in rates "will be reflected as early as the third quarter".
But Credit Suisse is less sanguine about the shipping industry's outlook, as the problem of over-supply has not been resolved yet.
It said in a report: "Both the dry bulk and liner segments have been battling the rising tide of new vessel deliveries stemming from over-exuberant ordering in the late noughties."
While the build-up of new bulk carriers has started to slow , the liner industry is still facing a sharp increase of deliveries in new vessels for the rest of this year and next, it added.
Credit Suisse noted that demand for shipping is equally mixed. "Demand for iron ore and coal shipments appears to be accelerating but at a lower pace than trend levels," it said. "But weak Western economies have seen crimped demand for goods manufactured in Asia."
However, one bright spot has been the 13 per cent drop in fuel costs in the second quarter. As this typically accounts for about 30 per cent of a shipper's operating expenses, it helps to offset the challenges the sector faces from declining freight rates and limited volume growth, it added.
engyeow@sph.com.sg
Brightening prospects for shipping sector
Recovery on the horizon with fuel costs down and shipping rates up
Published on Jul 27, 2013
Container vessels at Singapore's port. Analysts say the rallying of dry bulk freight rates and container shipping rates could help shipping companies bounce back in the second half of the year. -- PHOTO: JOSEPH NAIR FOR THE STRAITS TIMES
By Goh Eng Yeow Senior Correspondent
PROSPECTS may be brightening for shippers after yet another ghastly quarter.
The Baltic Dry Index, which tracks the shipping costs for commodities, had risen by 25 per cent to 1,092 in the past six weeks, and this may give beleaguered shipping firms a much needed boost to their second-half bottom line.
This is still a far cry from the peak of 11,793 registered in May 2008 just before the global financial crisis began to seriously hurt the huge commodities boom that powered the shipping industry.
Still, it is much higher than the low of 874 it had sunk to last December, as the troubled industry copes with over-capacity.
The higher freight rates offer a hope that most shipping companies might turn in better performance in the second half.
This will be a boon for long-suffering investors still holding on to shipping shares, despite the companies bleeding red ink on their balance sheets recently.
Credit Suisse, for instance, forecast a loss of US$64 million (S$81million) for Neptune Orient Lines' second quarter. Since hitting a high of $1.335 on Jan 10, NOL had fallen about 20 per cent.
Yesterday, it ended one cent down at $1.05 on a volume of 1.04million shares.
But the recovery in shipping rates may come too late to save South Korean shipping group STX Pan Ocean, which filed for court receivership in June after accumulating US$437 million in losses over the past two financial years.
The counter ended 27 cents higher at $1.81 with 54,500 shares traded.
Barclays Equity Research noted in a recent report that last month, container shipping rates on Asia-Europe routes jacked up by 174 per cent to US$1,409 per TEU in the space of one week. This followed a lacklustre second quarter when shipping rates fell by about 55 per cent to an average of US$781 per TEU.
TEU refers to twenty-foot equivalent unit, a measure used for capacity in container transportation.
The report said: "We expect continued pricing co-operation (among shippers) to sustain higher freight rates, despite a weak macro environment."
And while it does not anticipate the rally in container shipping and dry bulk freight rates to have an impact on second quarter earnings because companies typically have fixed term contracts, it said the improvement in rates "will be reflected as early as the third quarter".
But Credit Suisse is less sanguine about the shipping industry's outlook, as the problem of over-supply has not been resolved yet.
It said in a report: "Both the dry bulk and liner segments have been battling the rising tide of new vessel deliveries stemming from over-exuberant ordering in the late noughties."
While the build-up of new bulk carriers has started to slow , the liner industry is still facing a sharp increase of deliveries in new vessels for the rest of this year and next, it added.
Credit Suisse noted that demand for shipping is equally mixed. "Demand for iron ore and coal shipments appears to be accelerating but at a lower pace than trend levels," it said. "But weak Western economies have seen crimped demand for goods manufactured in Asia."
However, one bright spot has been the 13 per cent drop in fuel costs in the second quarter. As this typically accounts for about 30 per cent of a shipper's operating expenses, it helps to offset the challenges the sector faces from declining freight rates and limited volume growth, it added.
engyeow@sph.com.sg
