MISC Berhad quits container liner business

   The Malaysian shipping company MISC Berhad said it’s quiting the container shipping buisness.
   MISC said “the radical change in the operating dynamics of the liner industry which is driven by high operating cost and rapid changes in global trade patterns is challenging the validity of today’s operating models. With the pursuit of size being the center of this change, leading operators are now testing the size limits of vessels in order to maximise economies of scale and realize greater cost efficiency. This push for investments in larger vessels comes at a time when operators are struggling to stay profitable with a depressed freight rate environment, which is not expected to improve any time soon due to the continued heavy delivery of new container vessels.”
   According to the information service Alphaliner, MISC Berhad is the 29th largest container shipping company in the world, with a fleet of 13 owned and seven chartered ships with aggregate capacity of 45,314 TEUs.
   Petronas, Malaysia’s national petroleum company, owns 62.44 percent of MISC. MISC is primarily a tanker company, with a fleet of 29 LNG carriers, 52 petroleum tankers, and 19 chemical tankers. It also has a fleet of a dozen offshore floating facilities, tank farms, a logistics business and other shipping related activities such as marine repair, marine conversion and engineering and construction works.
   “With 8 distinct businesses, investment prioritization and opportunity cost consideration are necessary as we allocate resources to support the growth of each business sector. Our focus in recent years has been on providing maritime and transportation solutions for the energy sector, and thus it is only natural that the bulk of our resources are dedicated towards growing our energy based business segments. In view of the expected larger demand of investment in the liner industry, the cost for us to remain relevant in the liner business is untenable,” said Datuk Nasarudin Md Idris, president and chief executive officer of MISC, in a statement.
   The company said it expects to incur one-off costs of $400 million for the financial year ending  Dec. 31 as a result of its decision to quit the liner business. It said its liner business has suffered a total financial loss of $789 million over the past three years, impacting the overall financial performance of MISC. It expects to be out of the business by June 2012.
   MISC said in January 2010 it had undertaken a  restructuring of its liner business when it exited the Far East-Europe trade services to refocus on an intra-Asian model. Though it had not participated in the U.S. trades, MISC had been a member of the Grand Alliance with Hapag-Lloyd, NYK, and OOCL in the trades between the Far East and North Europe and the Mediterranean.
   “The decision was taken on the back of the faster and greater economic growth prospects of the Asian region and to enable the company to build scale in the liner business and to review its sub-optimal asset portfolio to support the new business model,” MISC said. “However, the rapid pace at which the industry is evolving, especially new investments when the industry is plagued by overcapacity and container rates trending below operating costs have threatened the company’s liner restructuring plans, leading to the decision to exit the liner business altogether.” – Chris Dupin