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Capesize vessels in oversupply: execs

Dec 07, 2011 | 01:21 PM |

Tags  container ships, iron ore, Fotis Giannakoulis, Morgan Stanley, Gary LaGrange, Port of New Orleans, Paul Georgiades, Kuehne + Nagel Panamax

MIAMI — Global overcapacity of capesize ships will plague the market—particularly in terms of low pricing and weak or phantom profits for ship owners—for some time, according to several international shipping experts.

Fifty-eight new vessels have hit, or are soon due to hit, the water, adding 60 million tons of annual capacity, Fotis Giannakoulis, vice president of commodity shipping equity research at Morgan Stanley, said at AMM’s sixth annual Moving Metals Conference in Miami. "Despite this massive expansion of the fleet, the recent surge of dry bulk rates indicates Asian demand for raw materials remains very robust."

The scrapping of older obsolete ships accelerated during the global economic downturn but still equals just 9 to 9.5 percent of shipbuilders’ order books, Giannakoulis said. "We expect 2012 to be another difficult year for the dry bulk market."

Capesize ships—which are larger than Panamax cargo ships—transport about 70 percent of the international trade in iron ore.

Gary LaGrange, president and chief executive officer of the Port of New Orleans, cited the purchase of 10 Triple-E container ships by AP Moeller-Maersk AS, which has the option to buy 20 more. At 1,312 feet long and 194 feet wide, the Triple-E vessels will be the largest in operation, with a capacity of 18,000 20-foot equivalent unit (TEU) containers 16 percent larger than any previous vessel, according to Maersk.

"It’s a quandary," said LaGrange, noting that there are only two ports in the United States that can handle Panamax-size vessels, which can carry 4,500 20-foot TEUs. That puts capesize vessels out of the question.

LaGrange was one of several conference speakers who cited an emerging trend of moving certain commodities by container rather than as dry bulk cargo.

"We’re doing it at our ports. We’re looking at more metal in containers rather than using bulk (shipping) that takes up space," he said. "We are seeing things that 15 years ago I never thought I would see."

Despite the containerizing trend, Paul Georgiades, senior director of sea freight for logistics provider Kuehne + Nagel Inc., said that ocean carriers can expect heavy losses again this year "and little promise for profits next year. There are too many ships coming online with no demand growth. It could be that (we) will see further consolidation in the liner shipping industry."

Giannakoulis agreed, noting that two major European companies had merged their trade lines and he expects Japanese lines to consolidate as well.

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