Tuesday, October 21, 2008

Another Shipper Reduces Capacity

From Financial Times:

Neptune Orient Lines to cut capacity

Singapore’s Neptune Orient Lines is to slash capacity on the most important trade routes in what is expected to be the first of many responses by container shipping lines to rapidly slowing demand.

NOL, the number seven container line, is making the cuts in conjunction with the other members of the New World Alliance, Japan’s Mitsui OSK and Korea’s Hyundai Merchant Marine.

NOL, whose ships are operated by its APL subsidiary, said it was cutting the available space on Asia-Europe services by close to 25 per cent and transpacific capacity by 20 per cent.
It is also cutting capacity in the previously healthy trade within Asia, which accounts for more container movements than any other container trade.

Container shipping lines have been hit by the world economic slowdown because their main cargo is consumer goods bound for the slowing economies of Europe and North America.
There are growing signs that demand for their services has been hit by problems arranging letters of credit, instruments which assure sellers that they will be paid for their goods once they have been delivered to a buyer.

Banks are increasingly unwilling to issue such letters of credit, while many are sceptical about accepting them out of fear their issuers might collapse before goods arrive.
The collapse of demand in the Asia-Europe trade has been striking.

Volumes last year were around 20 per cent higher than the year before, but figures released last week by the Far Eastern Freight Conference showed that volumes moved between Asia and Europe by the conference’s members were 2.43 per cent lower in the third quarter this year than last.

Container lines’ problems are compounded by the large numbers of expensive new ships on order from shipyards, many of them due to enter the Asia-Europe trades.
Container lines have been vulnerable to high fuel prices because their ships need more fuel to maintain their high speeds.

Many lines have responded to slowing demand by slowing ships down.
Extra vessels are then added to services, to ensure that a weekly service from each port can be maintained.

NOL announced one such change to its South China Express service to Europe.
It added several new port calls to the service to make up for the withdrawal of another service and added a ninth ship to the service.

Eng Aik Meng, APL’s president, said the traditional softening of demand in the main container trades – which follows the northern hemisphere summer and Christmas demand – had been compounded by the financial crisis.

“In response to these factors, APL is taking quick and decisive action to adjust to this reduced demand and reconfigure our service networks,” he said.

On October 10, NOL allowed its bid to buy Germany’s Hapag-Lloyd, the world number five container carrier, to lapse, apparently over concerns over slowing demand.

There has been speculation that other big container operators will announce similar measures.

We built the tools of consumption, more and bigger ships, more and bigger distribution centers, higher capacity trains and trucks. If you take away the consumption, the tools are without merit. Each warehouse then becomes a headstone for a ruined business cycle, that of perpetual consumption and perpetual debt.

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