United Arab Shipping Co, owned by six Gulf countries, finally turned an operating profit on some routes in a sign that the brutal conditions in global shipping have begun to improve.
Shipper sees signs of rebound
United Arab Shipping Co (UASC), which is owned by six Gulf countries, finally turned an operating profit last month on some routes in a sign that the brutal conditions in global shipping have begun to improve. Last year was one of the worst on record for seaborne trade as demand fell and shipping firms continued to take new vessels ordered during the boom years of last decade.
Industrywide losses have been forecast at between US$12 billion (Dh44.04bn) and $15bn last year, said Jorn Hinge, the president and chief executive of UASC, based in Dubai. "2009 was a terrible year," he said. "Volumes went down by up to 20 per cent, and at the same time capacity went up with new ships." Middle East seaborne trade also fell by an average of 7 per cent, according to Drewry Shipping Consultants. Charter rates, which can also be used to measure trade volumes, have fallen sharply for container vessels, from $40,000 per day one year ago for a 4,000-container capacity ship to about $7,000 today.
Conditions began to improve in the third quarter, Mr Hinge said, as shippers including UASC adjusted supply to meet demand and took some vessels out of service, "idling" them at various ports. Container volumes then began to rise in the fourth quarter, allowing UASC to post a small profit on its Asia-to-Europe routes last month. This year, the company could revise its forecast from losses to profitability if conditions continue to improve, the chief executive said.
"The way the market looks right now, we are probably doing slightly better than previously forecast. What is obvious is that 2010 will be a lot better than 2009 was," he said. UASC is the largest Arab shipping firm and among the 20 largest container shipping companies worldwide, with a fleet of 50 owned and chartered vessels. It is a truly global shipper, serving all regions, with a new route between Spain and West Africa starting next month.
Last year, UASC's container volumes were on par with 2008, although it received new vessels, which lowered its utilisation rates and drove costs up. The company has nine super container ships on order that are expected to arrive beginning in late 2011 from a Dh5.5bn purchase from Samsung Heavy Industries, said to be the largest Gulf ship order in history. The company has successfully negotiated with Samsung to reschedule its payments.
To finance these arrivals, UASC plans to close more than $500m in financing this year from banks and South Korean export credit agencies, Mr Hinge said. UASC tapped its government owners last year for more capital to ride out the recession, securing an injection of $700m in the third quarter. The shipping firm, which is owned by Bahrain, Iraq, Kuwait, Qatar, Saudi Arabia and the UAE, received the funds disproportionately from its owners, which altered the ownership structure. Mr Hinge was not able to disclose which countries contributed, or in what quantities.
Despite the brightening prospects for Asia to Europe trade, the market was still poor for cargo being carried from Asia to the Middle East, and from Europe to the Middle East, he said. "The other trades are still suffering." This was primarily due to a glut of capacity in the region as global shipping firms relocated vessels to serve Middle East routes, which fared better than Europe and North America.
A cyclical industry, shipping will only fully recover when consumer demand finally rebounds and high unemployment rates in Europe and North America decline, Mr Hinge said. "People have to feel good about the way things are to spend money," he said. "It can take a while." @Email:firstname.lastname@example.org