NOL facing bankrupt because of Paper General Ng Yat Chung

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The world's shipping lines risk bankruptcy and will have to shed assets in order to stay afloat, an industry expert warns in a new report.

Even with the global economy recovering from the financial crisis, the shipping industry remains lumbered with crushing debt after investing heavily during the boom years, and has failed to capitalize on steeply lower oil prices.

"It is a very difficult industry to continue to make money in," Albert Stein, a managing director at business advisory firm AlixPartners which has compiled a report on the state of the industry, told CNBC.

Around 6,000 liner ships, some as much as 1,300 feet long, currently sail around the world, carrying multiple warehouses-worth of goods, often using so-called twenty-foot equivalent units—or "containers" that allow ease of movement between ships, trucks and trains.

Bankruptcy risk



A container ship at the Port of Los Angeles in San Pedro, Calif.
The industry has struggled for years, grappling with the cost of investing in fleets at a time when the Baltic Dry Index, which measures the price of moving raw materials by sea, knocking around all-time lows.

Read MoreTrack the Baltic Dry Index live with CNBC
Last month, Danish shipping company Copenship filed for bankruptcy after losses in the dry bulk market.

This came after a number of bankruptcies in 2014, including that of OW Bunker, a major supplier of ship fuel, and ship-owning companies Genco Shipping and Trading Limited and Nautilus Holdings.

Meanwhile, revenues for 15 major publicly traded carriers fell 3 percent in 2014 on the previous year and 5 percent on 2012, according to the report, which was published this month.

This meant revenues were 16 percent off a 2008 peak of $200 billion, he said.


Reinvesting challenge



"Containers are getting cheaper, for better or for worse—worse for the container lines and better for the end users," Stein told CNBC on Tuesday.

"We see a problem where the industry itself does not make enough money to reinvest in the tonnage it needs going forward. Every time you see a container line buying a new vessel, building new capacity on a route, you see somebody else suffering, the smaller segment dropping off."

Capital expenditure for "larger, long-term projects" in the industry declined to $18 billion in 2014, from $21 billion in 2013 and $25 billion in 2012, according to Stein's report.

One of the few to invest is Danish shipping giant Maersk Line, which has a $15 billion investment program planned over the next few years, which will include buying new container ships.

Nonetheless, Tim Smith, North Asia CEO for Maersk Line, concurred that conditions for carriers were "very weak."

"I think the reality is that ever since 2008-09 slowdown we have seen very weak conditions generally for liner shipping companies and quite volatile at that," he told CNBC in Hong Kong on Monday.
"Demand is slowly recovering: We see something around 3-5 percent demand growth per year going forward. But it is very variable, route by route; it can change from year-to-year and even month-to-month."

Maersk Line's parent company, Moeller-Maersk, dropped its annual dividend on Monday.

Asset shedding

Stein said that carriers should consider shedding "even more" non-core assets, such as shipping terminals and third-party logistics businesses. Some companies have already done this, with Hyundai Group selling its stake in Hyundai Logistics last year.

More recently, Neptune Orient Lines sold APL Logistics to a Japanese company in February this year.

"Container lines have been shedding port assets around the world and they have been getting back to their core business. This has to continue. The companies have to be more efficient and make better use of their data management, make better use of their cost cutting efforts," said Stein.

"At the end of the day it is a commodity, shipping containers around the world and if people can do it cheaper, they are going to be the survivors."

Source: http://www.cnbc.com/2015/04/01/rough...-industry.html


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