To the usual list of recession beneficiaries – pawnbrokers and priests – add scrap metal merchants. Specifically those specialising in really big-ticket items, such as container ships.

According to Ron Widdows, chief executive of Neptune Orient Lines, south-east Asia’s biggest carrier, now is as tough as it has ever been for the industry, thanks to a confluence of vanishing demand, a freeze in trade credit and chronic over-supply of vessels. Declaring that 2009 will be “grim”, Mr Widdows announced cuts to almost 10 per cent of NOL’s workforce on Wednesday, having axed services on its main trade routes last month. That outlook, a few notches below the usual “challenging”, is an understatement. A year ago, transporting a container of flatscreen TVs from Hong Kong to Rotterdam would cost $1,450. Now it is about $200 and falling – defying the usual pre-Christmas bounce – as a glut of new ships is about to swamp the market. More tonnage is scheduled to enter service in 2009 than the combined deliveries in the then record years of 2004 and 2005, says Clarksons, the shipbroker.

There is already excess capacity. About one-sixth of NOL’s 128 container vessels are idle, but the group has committed to increase its fleet by about a third by 2011. Bigger groups such as Cosco and CMA CGM have even more ambitious orderbooks. Wriggling out of commitments is possible but unappealing: carriers risk a lost deposit and the reputational damage of a cancelled order.

Unlike the airline industry, which is happy to fly planes half-full, carriers obsess over utilisation rates dropping below 90 per cent. Ferocious undercutting on rates tends to follow, as it is still a fragmented industry fixated on market share rather than profitability. Expect one or two years of heavy losses, bankruptcies and forced mergers – and a lot of older vessels consigned to the scrap yard.

To e-mail the Lex team confidentially click here
To post public comments click here

Get alerts on Shipping when a new story is published

Copyright The Financial Times Limited 2022. All rights reserved.
Reuse this content (opens in new window) CommentsJump to comments section

Comments have not been enabled for this article.

Follow the topics in this article