MOL: LINER SHIPPING DRIVEN BY “SIMPLE ECONOMICS”

MOL: LINER SHIPPING DRIVEN BY “SIMPLE ECONOMICS”

MOL: LINER SHIPPING DRIVEN BY “SIMPLE ECONOMICS”

   The container shipping market is driven by simple economics, a senior executive of MOL said.
   Chris Bourne, managing director of Mitsui O.S.K. Lines (Europe) Ltd., told the CI Shipping Forecast Conference in London denied that the container shipping industry chronically orders too many ships and is unable to forecast demand.
   “Supply and demand decides freight rate levels,” Bourne said. With the exception of 2001, supply and demand on the main trades has been nearly aligned, he said. In 1999, ship capacity rose 11 percent, while cargo volumes were up 10 percent; in 2000, capacity went up 7 percent, while demand increased 11 percent, he said.
   “2001 was a disaster,” Bourne admitted, citing a demand growth of 1.5 percent against a capacity of 11 percent. But, “I would argue that in most years the industry got it right.”
   On the profitability of container carriers and freight rates, Bourne said 2000 was “very profitable” because demand growth outpaced capacity. “2001 was very unprofitable because demand went flat and freight rates collapsed — basic economics.”
   “Vessels have to be well over 90-percent full before you get strong rate increases,” Bourne added.
   Bourne said ocean carriers see the need to lay up ships to improve their bottom lines in period of overcapacity.
   If capacity is reduced, “the rates will not fall further” and a carrier can make “very real” savings on vessel-operating costs, he said. However, Bourne said there is always the temptation for carriers to “rush” the vessels back. In 2001, ships have been off-chartered or laid up by carriers.
   Bourne said ocean carriers have stopped ordering new ships. “Newbuildings in 2004 will be at a record low,” he said. “With the current return on capital, no one is going to order new ships.”