U.S. Reports That Piracy Off Africa Has Plunged

29 Aug 12 - 15:40

Data released by the Navy

Acts of piracy in the treacherous waters around the Horn of Africa have fallen sharply in 2012, according to statistics released by the United States Navy. The Navy credits aggressive patrolling by international forces and increased vigilance by the commercial shipping industry for the decrease.

Data released by the Navy last week showed 46 pirate attacks in the area this year, compared with 222 in all of last year and 239 in 2010. Nine of the piracy attempts this year have been successful, according to the data, compared with 34 successful attacks in all of 2011 and 68 in 2010.

Even so, senior Navy officers have been careful not to declare victory. 
"The pirates are very adaptable, and they are very flexible," said Vice Adm. Mark I. Fox, the Navy's deputy chief for operations, plans and strategy. "We are watching carefully."

The prospect of renewed political turmoil in the region, especially in Somalia and Yemen, may again drive up attempts at the lucrative business of piracy, since lawless areas in these countries provide havens for pirates to launch their raids and to hold captured vessels and hostages. Further economic collapse may prompt more farmers and fisherman to choose piracy.

But the statistics so far this year are encouraging. As of last week, the last successful pirate attack in waters off East Africa had occurred on May 10, and the most recent attempted attack had occurred on June 27. The gap since that last raid represents the longest break in pirate activity in the area in five years. 
Navy officers note the seasonal ebb and flow of piracy attacks in the region, influenced by the twice-yearly monsoons, and they warn that in October and November the waters and winds tend to be calmer and that pirate raids increase. But the statistics for 2012 are far below what could be explained by weather alone.

The decrease in attacks appears to be a result of increased security measures taken by commercial vessels and of sustained antipiracy patrols by the navies of more than a dozen nations, including the United States. 
Admiral Fox said the shipping industry "can take a great deal of credit" for the trend. More commercial vessels are carrying "embarked security teams" of armed guards, he said, and no vessel with such a team on board has been hijacked.

Commercial ship captains are also following recommendations that they sail in international transit corridors that the navies patrol. More ships are taking measures to make it difficult for pirates to climb aboard from the waterline.

And American and European forces have conducted a handful of high-profile counterpiracy raids in which hostages have been freed and pirates have been killed or captured. Officials say those raids may be acting as a deterrent.

The effect can be seen in the busy Gulf of Aden, a hunting ground favored by pirates before the United States and other nations began patrolling a 460-mile-long shipping corridor through it. "It is now one of the safest" areas, Admiral Fox said.

The multinational counterpiracy effort, called Combined Task Force 151, was organized in 2009 and operates in and around the Red Sea, the Gulf of Aden, the Arabian Sea and other areas of the Indian Ocean, with 25 to 30 warships on patrol on any given day. Overseeing the task force is Combined Maritime Forces, which is based in Bahrain along with the Navy's Fifth Fleet. Command of the task force unit itself rotates among participating nations, and it has been held by the United States, Denmark, Pakistan, Thailand, Turkey and, most recently, South Korea.

The task force coordinates its efforts with other counterpiracy missions in the region operated by NATO and European Union members, and a number of other nations send out patrols independently.

"Piracy is like an ancient disease that should be extinct in this modern world," said Commodore Simon Ancona of the British Navy, who is currently deputy commander of Combined Maritime Forces. "The cure is difficult and requires the disruption of pirate actions, building law and order and livelihoods ashore, and making the merchant prey less vulnerable. Although there are signs of remission, I would judge the medicine will be required for some time to come."

Somali pirates in particular have hijacked hundreds of vessels in the past few years, ranging from the sailboat of a retired British couple to a 1,000-foot supertanker.

East African pirates routinely hold seized vessels and hostages for ransom that can run to hundreds of millions of dollars. Commercial shipping officials say that Somali pirates alone cause an additional $5 billion a year in expenses for insurance and security, with piracy in other regions adding billions more to the cost.

Source: New York Times

China Cosco, CSCL Tumble After Wider Losses: Hong Kong Mover

By Bloomberg News - Aug 30, 2012 6:47 AM GMT+0400

China Cosco Holdings Co. (1919) and China Shipping Container Lines Co. (2866), the nation’s two largest listed ship operators by sales, both dropped the most in about a month in Hong Kong trading after reporting wider first-half losses.

China Cosco declined as much as 3.2 percent to HK$3.05 after yesterday saying its loss widened to 4.87 billion yuan ($767 million). Its dry-bulk and container-shipping units both posted larger losses than a year earlier. CSCL fell as much as 5.1 percent as of 10:12 a.m. after its first-half loss doubled.

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China Cosco, which also has a logistics business and a stake in container-terminal operator Cosco Pacific Ltd., fell 1.6 percent to HK$3.15 in Hong Kong yesterday before the earnings release. Photographer: Jerome Favre/Bloomberg

The two companies both said overcapacity in container- shipping was likely to continue after a glut of vessels sapped rates in the first half limiting their ability to pass on higher fuel costs. China Cosco, based in Tianjin, also forecast continued “excessive” supply in the commodities-shipping sector after overcapacity caused rates to average 31 percent lower than a year earlier, based on the Baltic Dry Index.

“Dry-bulk shipping remains in severe oversupply.” Citigroup Inc. analysts Vivian Tao and Alan Wang said in a note today. In the container sector, “capacity management needs to be a lot more aggressive in order to restore the demand and supply relation.”

They cut their target price for China Cosco to HK$2.59 from HK$3.15, revised their full-year earnings forecast to a loss, and reiterated a sell rating.

China Cosco’s dry-bulk shipping unit widened its loss to 3.42 billion yuan in the first half from 2.7 billion a year earlier. The container-shipping fleet, China’s biggest, had a loss of 1.3 billion yuan, compared with 947 million yuan a year earlier.

Dry-Bulk Shipping

The company’s dry-bulk shipping volume fell 18 percent from a year earlier to 112 million tons. Revenue dropped 32 percent to 8.26 billion yuan. The company pared the size of its commodity-carrying fleet to 357 owned and leased ships at the end of June from 376 three months earlier.

“Excessive shipping capacity will remain the primary challenge” for the dry-bulk sector in the second half of the year, China Cosco said in a statement. The company had booked 63 percent of 2012 revenue-days as of June 30 at an average rate 29 percent lower than for 2011.

The Baltic Dry Index (BDIY), a benchmark for commodity-shipping rates, averaged 31 percent lower in the first six months of the year than a year earlier.

Container Volumes

China Cosco’s container volumes on Asia-Europe routes rose 22 percent from a year earlier and by 15 percent on trans- Pacific lanes. Average rates on both sectors were little changed from a year earlier, according to Bloomberg calculations. The company had 166 container shipsat the end of June, with another 22 on order.

Increasing competition may damp rates in the second half of the year and an oversupply of capacity will “worsen,” China Cosco said. The company, which also has a logistics business and a stake in container-terminal operator Cosco Pacific Ltd. (1199), forecast a net loss for the nine months through September

China Shipping Container had a first-half loss of 1.28 billion yuan, compared with a 630 million yuan loss a year earlier, because of higher fuel costs and lower average rates on Asia-Europe routes.

The price of 380 Centistoke Bunker Fuel, used by ships, averaged $695.58 per ton in Singapore trading in the first half, compared with $628.30 a year earlier, according to data compiled by Bloomberg.

To contact Bloomberg News staff for this story: Alexandra Ho in Shanghai ataho113@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net

Indian supremacy in ship-breaking put to test

27 Aug 12 - 16:17

Ship recyclers to fierce competition between India, Bangladesh and Pakistan

The resurgence that one saw in Indian ship-breaking activities could be short-lived as the industry in the region is entering another phase of development, impacted largely by legislative initiatives of local governments as well as by market forces.

Even though the Indian industry could recapture the title it lost to Bangladesh as the largest ship-breaking nation in the world by recycling 415 ships during 2011-12 , it was not a profitable year on record. The industry, with an estimated annual turnover of about Rs 10000 crore, reportedly lost almost Rs 800-1000 crore during the year due to rupee depreciation against US dollar. As the industry is dominated by cash deals, weakening rupee saw industry profits turning into losses, since October 2011.

"Having endured a difficult year so far with a struggling currency and huge volatility on the local scrap steel prices, a revival of sorts appears to have crept with many end buyers scrabbling to acquire tonnage after a relative lull in activity," noted GMS Weekly, one of the most sought after newsletters on the industry, a couple of weeks ago.

"Having been relatively quiet in the preceding few months due to a struggling currency (which saw some end buyers lose about 20% of the value of their previous purchases), India is now enjoying its moment in the spotlight as deals continue to be tucked away at vastly improved numbers (in comparison to the recent lows)," described the London-based publication.

Though Pakistan had emerged as the number two ship-breaking country last year followed by Bangladesh and China, the ranking is set to change this year with the resumption of ship-breaking activities in full form in Bangladesh from the beginning of the year.

Reported the GMS: "Bangladesh has indeed been the busiest market of the year so far, opening fully again at the start of the year." Though the weekly talks of a 'cooling on the cards' , ship-breaking activities in Bangladesh are expected to pick up pace to earlier highs as it tries to compensate for the losses incurred during its prolonged shut down last year.

In this context, the July 30 judgment of Supreme Court upholding Basel Convention is expected to add more fizz to the emerging competition in the subcontinent for ships for recycling.

The Supreme Court ruled that all ships coming for dismantling have to follow Basel Convention and if there is any violation, action should be taken according to the municipal laws. Accordingly, there should be prior decontamination by the country of export and prior permission by the country of import before a ship enters the Indian territorial waters.

According to experts, the changes to existing import formalities are expected to be minimal but inspections and certifications would take up more time for shipowners who want to dispose their ships for breaking . According to traders, this is going to add a cost element for the owners, which they will pass on to the buyers, thereby increasing the cost of recycling . Ultimately, whoever pays more will get the ship for breaking.

Ship-breakers are of the opinion that the ensuing scenario could lead to fierce competition between India, Bangladesh and Pakistan , the three competing neighbours in ship-breaking industry.

"We will have to wait and see. Only after 3-4 months one can say whether India will be able to keep the top title this year as well," said an Alang-based ship-breaker .

Source: The Economic Times

Samsung Heavy Bonds to Boost Cash-Strapped Shipyards ' Record

27 Aug 12 - 16:01

Samsung Heavy Industries Co. (010140) plans to offer 500 billion won ($440 million) of bonds next month as South Korean shipyards sell a record amount of debt to cope with a funding squeeze.

The company is preparing for the sale, it said in an Aug. 22 e-mail, without elaboration. Hyundai Heavy Industries Co. (009540), the world's biggest shipyard, may also raise 1 trillion won through bonds, loans and other means, according to a Newspim report, citing unidentified industry officials. The shipbuilder declined to comment.

Samsung Heavy Industries Co.'s shipyard in Geoje Island, South Korea. Source: Samsung Heavy Industries Co. via Bloomberg

An employee welds a component of a ship at the Hyundai Heavy Industries Co. shipyard in Ulsan, South Korea. Photographer: SeongJoon Cho/Bloomberg

South Korea's three biggest shipyards have raised 2.4 trillion won in the bond market this year as a move away from building container and commodity vessels toward more time- consuming drill ships and offshore units leaves them waiting longer to get paid. Less money is also coming in because the economic slowdown is damping orders and letting customers win lower down payments.

"There's a temporary glitch in the cash flow," said Um Kyung A, an analyst at Shinyoung Securities Co. in Seoul. "Orders have fallen drastically and there are no major deliveries scheduled this year."

Samsung Heavy, based in Seoul, dropped 0.3 percent to close at 38,100 won, the lowest since Aug. 3, on the city's stock exchange. It has gained 37 percent this year. Hyundai Heavy climbed 1.3 percent today and Daewoo Shipbuilding & Marine Engineering Co. (042660) fell 0.4 percent.

Low Yields

The shipyards are also taking advantage of near-record low bond yields to refinance maturing debt sold in 2009, according to Lim Jungmin at Woori Investment & Securities Co. in Seoul. That was the previous record year, with the three big shipbuilders raising 1.5 trillion won to cope with customers canceling or delaying orders amid the global recession.

"The shipyards are opting to issue bonds at cheaper costs than bank loans," Lim said. "They need to refinance the maturing bonds and they are pre-emptively raising capital to secure liquidity as the industry is in a downturn."

South Korean yields for three-year AA- corporate bonds, the benchmark according to the Korea Financial Investment Association, reached a record-low 3.35 percent on Aug. 3 after the central bank lowered the benchmark rate in July for the first time in three years. That compares with 5.67 percent for loans as of June, according to data from the Bank of Korea.

Hyundai Heavy

Hyundai Heavy has been the biggest seller of corporate bonds in South Korea this year, raising 1.75 trillion won, including 550 billion won through its refining unit. The Ulsan- based company, whose shipbuilding arm hadn't sold any bonds since 2009, also raised 705 billion won selling part of its stake in Hyundai Motor Co. last month.

The company's shipbuilding and offshore orders fell 53 percent in the first seven months of the year. Full-year deliveries will also be the lowest since 2010, with the company and its affiliates handing over 135 vessels, predominately container vessels and tankers. There won't be any deliveries of more lucrative drill ships and offshore units.

Next year, the company will hand over five drill ships, which are used to explore for oil in deep waters. It will also install a $2.06 billion liquefied natural gas processing facility in Australia for Chevron Corp., completing a four-year project.

Floating production units and drill ships account for almost 50 percent of order backlogs at Hyundai Heavy, Samsung Heavy and Daewoo Shipbuilding, the world's three largest shipbuilders. That compares with about 30 percent at the end of 2010.

Drill Ships

Drill ships take about two years to build compared with about eight months for a capesize commodity vessel. They sell for about $600 million, more than 10 times the price of the capesize.

The greater investment and time needed to build a drill ship can squeeze shipyards as customers traditionally pay in installments as work progresses, leaving the shipbuilder to finance each stage.

The global order slump has exacerbated this trend as shipyards are offering more generous payment terms to win business, said Kim Hong Gyun, an analyst at Dongbu Securities Co. in Seoul. For instance, customers may get to pay 70 percent of the contract price on completion instead of spreading payments during the work, he said.

"Shipyards don't have the negotiating power like they used to," Kim said. "Orders have slumped and financing has become more difficult. Things are more difficult now than in 2009."

Global shipbuilding orders fell 56 percent from a year earlier in the first seven months to 24.6 million deadweight tons, according to Clarkson Plc, the world's biggest shipbroker. That was the lowest tally for the period since 1999.

Samsung Heavy

Samsung Heavy got $6.5 billion of orders in the first seven months, compared with $14.9 billion for the whole of 2011. The company sold 700 billion won of three- and five-year bonds in February with 4.16 percent and 4.39 percent coupons, respectively. It will deliver more than 10 drill ships next year compared with four this year.

Daewoo Shipbuilding sold 500 billion won of bonds last month. The sale was to take advantage of low interest rates and to increase the availability of funds, it said by e-mail. The company is working on 20 of the world's largest container ships, which were ordered by A.P. Moeller-Maersk A/S. The first five are due to be handed over next year, starting in June.

The pickup in deliveries should end the funding squeeze for the shipyards, according to Park Moo Hyun, an analyst at E*Trade Securities Co. in Seoul.

"The shipbuilders are going through a transition," he said. "Liquidity issues will be resolved next year as more orders are completed and shipyards receive payments."

Source: Bloomberg

Container Ship Prevents Near Collision with Navy Tugboats

Thursday, 23 August 2012 | 00:00

Early yesterday, an APL container ship dropped anchor in the Thimble Shoals shipping channel – near the Chesapeake Bay Bridge Tunnel – just in time to avoid colliding with two Navy tugboats that were in the middle of a training exercise.

Coast Guard investigators found no damage after a thorough inspection of the vessels. The APL Oman [pictured in thumb image] crew was subsequently commended, along with an onboard harbor pilot, for successfully avoiding an accident. Again, there were no reported injuries or damage.

The tugs were towing a roll-on/roll-off ship and were crossing the bow of the Oman. According to the Coast Guard, the crew made the appropriate, instinctive decision to drop anchor, which ensured that the ship would stop faster.

The 902-foot Oman was transiting the 1,000-foot wide Thimble Shoals Channel for foreign trade purposes, which automatically requires the vessel to have a pilot onboard as they enter port. The Virginia Pilots Association is expected to guide ships into ports in the area.

The investigation into this near-miss is currently ongoing.

A separate APL container carrier was docked this week at the Portsmouth Marine Terminal, but it wasn't loading or unloading cargo. The company, last week, notified customers that the APL Pearl suffered an engine problem on departure from Port of Norfolk on August 15th, according to Virginia’s Daily Press. The ship is without main engine power and has to rely temporarily on the vessel's emergency generator. Apologizing for shipment delays, APL originally estimated that repairs would take about five days. The Pearl left Portsmouth on Tuesday, a day later than anticipated.

Source: Maritime Executive

Emirates launches The Far East - Gulf Express Service
Wednesday, 22 August 2012 | 11:00

Emirates Shipping Line yesterday announced its FGX - Far East Gulf Express Service. 

Emirates has slots on Hanjin's PSG premier Asia to Middle East service.

The first sailing of FGX will commence from Pusan on 3rd September.

The port rotation is Pusan / Shanghai / Ningbo / Yantian / Singapore / Jebel Ali / Dammam /

Port Klang / Singapore / Laem Chabang / Yantian

With this new service, Emirates is offering 3 sailings per week covering Far East

The FGX is a unique service linking Korea, central and south China directly to major Middle East ports of Dammam and Jebel Ali and a direct call to Thailand

In an official statement released today, Emirates stated "The FGX service offers a superior regional coverage from Asia to Middle East with Emirates now having multiple, weekly coverage in this important trade lane." It further stated "With the introduction of this new service we continue to focus on our core markets of Far East to Indian subcontinent/Middle East and Africa offering a unique network coverage in partnership with major global shipping lines"

Source: Emirates Shipping

 

Container Lines Losing Price Battle As Costs Overwhelm: Freight

By Niklas Magnusson and Christian Wienberg - Aug 22, 2012 2:01 AM GMT+0400

The world’s container lines can’t raise freight rates fast enough to cover soaring fuel prices as persistent overcapacity works against the industry.

Hapag-Lloyd AG, Europe’s fourth-biggest container company, said Aug. 14 that further increases are “crucial” if it’s to offset rising bunker costs -- the price of fuel used on ships -- and generate an operating profit this year. Still, a lack of demand forced the Hamburg-based carrier to delay a rate increase this month on routes between east Asia and northern Europe and cut a planned peak-season charge by more than half.

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A 14 percent increase in average fuel prices last quarter sent Hapag-Lloyd’s transport expenses up by 26 percent, or 330 million euros, from a year earlier, according to the company’s Aug. 14 statement. Photographer: Michele Tantussi/Bloomberg

3:10

Aug. 14 (Bloomberg) -- Nils S. Andersen, chief executive officer of A.P. Moeller-Maersk A/S, talks about second-quarter profit reported today and the outlook for the shipping industry. He speaks from Copenhagen with Francine Lacqua on Bloomberg Television's "On the Move." (Source: Bloomberg)

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Maersk Line, the world’s largest carrier, cut its forecast on Aug. 14 for global seaborne-container demand to 4 percent from 4 percent to 6 percent previously. Photographer: Denis Doyle/Bloomberg

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The Shanghai Containerized Freight Index - a measure of prices for cargo leaving the world’s busiest port - has dropped 6.6 percent since June 29 as Europe’s debt crisis drags down the global economy and stunts trade. Photographer: Nelson Ching/Bloomberg

Bunker fuel prices have jumped 19 percent to $673 a ton from this year’s low on June 22, according to data compiled by Bloomberg. At the same time, the Shanghai Containerized Freight Index -- a measure of prices for cargo leaving the world’s busiest port -- has dropped 6.2 percent since June 29 as Europe’s debt crisis drags down the global economy and stunts trade. Bunker prices will remain between $600 and $700 a ton this year, according to a forecast by ICAP Plc.

Chinese export growth collapsed in July, and the world’s second-largest economy expanded at the slowest pace in three years in the quarter through June.

“Weak fundamentals are making successful rate-restoration programs harder to implement,” Richard Ward, an analyst with ICAP, said in an e-mailed reply to questions. “Carriers are facing a struggling battle, as cargo volumes will drop off and capacity won’t be adjusted quickly enough.”

Falling Demand

Maersk Line, the world’s largest carrier, cut its forecast on Aug. 14 for global seaborne-container demand to a 4 percent rise from 4 percent to 6 percent previously. The company, a unit of Copenhagen-based A.P. Moeller-Maersk A/S (MAERSKB), also said inbound European volumes will fall as the debt crisis drags on.

Container lines had relied on a recovery in demand to restore profits after excess vessels, high fuel prices and a price war on routes between Asia and Europe last year led to losses at some of the world’s biggest carriers, including Maersk, CMA CGM SA of Marseille, France, and Hapag-Lloyd.

Hapag-Lloyd “is striving to post positive operating earnings again for the current financial year, provided that there is no fundamental escalation of the risks and assuming it proves possible to implement further rate increases in the course of 2012,” the company said this month. Such increases “are crucial to compensate for these elevated external costs. The cargo on board our vessels has to cover the cost of transportation.”

Rising Expenses

A 14 percent jump in average fuel prices last quarter sent Hapag-Lloyd’s transport expenses up by 26 percent, or 330 million euros ($411 million), from the second quarter of 2011, according to the company’s Aug. 14 statement. The weighted average freight rate in the period increased 7.4 percent to $1,594 from the first quarter and 4.1 percent from a year earlier, Hapag-Lloyd said. The company reported a net loss of 7.3 million euros for the period.

The Hamburg-based company cut its planned peak season surcharge between east Asia and northern Europe to $150 per standard container on Aug. 2 from an original $350 in response to flagging demand. The surcharge applies between Aug. 1 and Sept. 30. It also postponed a planned $250 per-container general rate increase on the route to Sept. 1 from Aug. 15.

The industry may be digging its own price hole, according to Paris-based industry consultant Alphaliner. Companies still are adding new vessels on the Asia to Europe route, where capacity has exceeded demand every month since at least January 2010, Alphaliner said in an e-mail distributed Aug. 14.

Net Loss

China Cosco Holdings Company Ltd. (601919), the country’s largest listed shipping company, reported a preliminary net loss for the first half of this year that widened by more than 50 percent from a deficit of 2.8 billion yuan ($441 million) a year earlier. South Korea’s Hanjin Shipping Co. (117930) reported a net loss on Aug. 2 of 1.27 billion won ($1.1 million) in the second quarter.

“Even though there’s more discipline in the container market, we expect volatility to continue because the fundamental problem with overcapacity is still there,” said Per Kronborg Jensen, a senior portfolio manager at Sparinvest A/S, which owns about 0.5 percent of Maersk’s B shares.

A.P. Moeller-Maersk stock is up 10 percent this year in Copenhagen, compared with about 11 percent for the Europe Stoxx 600 Index. China Cosco has lost 10 percent in Hong Kong, while Hanjin Shipping gained 29 percent in Seoul after falling 68 percent in 2011.

Lower Estimates

At least five banks cut their price estimates on Maersk after last week’s earnings report. The 12-month target as of yesterday was 47,445 kroner, the lowest since March 15, according to the consensus of 15 analysts.

Size may prove the best protection against the corrosive effect of overcapacity and rising bunker costs. Maersk said Aug. 14 its container line returned to profit in the second quarter, reporting net income of $227 million compared with a loss of $95 million a year earlier.

“It looks like current rate levels are OK for them, maybe due to efficiencies of vessels, exposure to routes and cost efficiencies,” ICAP’s Ward said.

Maersk’s average freight rate in the second quarter was $3,014 per 40-foot container, a rise of 4.2 percent, while the average bunker cost jumped 10 percent, the carrier said in its earnings report. Still, the company raised its earnings forecast, saying it now projects a “modest” 2012 profit after earlier seeing a “negative to neutral” result.

Jensen said Sparinvest has no plans to increase its Maersk stake. The fund isn’t planning to reduce it either, because Maersk’s other units, which include an oil explorer and a port- terminal operator, make up for the container business.

“We wouldn’t be surprised if Maersk Line should fall back into losses at some point because the volatility may be there to stay, more or less,” he said.

To contact the reporters on this story: Niklas Magnusson in Hamburg at nmagnusson1@bloomberg.net;

Christian Wienberg in Copenhagen at cwienberg@bloomberg.net

To contact the editor responsible for this story: Angela Cullen at acullen8@bloomberg.net