Friday, October 24, 2008

Widdows warns worst is yet to come for box trades

image_thumb[2]NEPTUNE Orient Lines’ boss Ron Widdows is warning of grim times ahead for the container trades, with ships laid up and orders cancelled as the industry heads into an unprecedented slump.

While the situation is not so bad now, the worst is yet to come, Mr Widdows told Lloyd’s List in an interview after yesterday announcing swingeing cuts in capacity.

“We are in for a relatively unpleasant 18 months to two years,” he said.  NOL’s container shipping arm APL has already started to re-let some ships back into the market over the last two months, and it will be laying up vessels, he said. “Others will have to do the same. From the industry standpoint, vessels will be idle.”

Mr Widdows, who was attending the graduation ceremony of the Maritime Economics and Logistics students of Erasmus University in Rotterdam, said he was pleased that NOL only has eight newbuildings on order, and that “they are not really big”. These are due to enter service in 2011. The orderbook is “relatively small compared to the three largest carriers in the world”.

“Every ship we employ can be employed anywhere on the planet,” Mr Widdows said.  He added that the industry is about to see an “object lesson in the dynamics of the larger ship”.

The costings only work when these gigantic ships are full and desperation could creep in when trying to fill these behemoths, he said.  Mr Widdows added that “it is reasonable to expect that a lot of ships will not be financed”.

Those that were expected to be completed in 2011-2012 may never be built.  “It is a good thing if that happens,” he said, but added that it will not help the situation next year. The true impact of the financial crisis is still to be felt, Mr Widdows said. Inflation is significantly higher than expected and many companies would go out of business. The fortunes of the industry have changed dramatically in a short space of time, with trading “dropping off a cliff”.But this was in anticipation of new tonnage entering service, not the impact of the global financial turmoil, Mr Widdows said.

The Asia-Europe trade was going to be “very challenging for a very long time”.  Market conditions have become so bad that the abolition of the conference system last weekend has had no effect on the market at all, Mr Widdows said. If freight rates were high and ships full, this may not have been the case.

But in the current climate, the end of the conference system is not really relevant. Right now, the 25% reduction in capacity that APL announced earlier this week as part of the New World Alliance servce shake-up is the focus of his attention. It is time to hunker down, and keep costs under control, he stressed.

Mr Widdows is pragmatic on the NOL’s failed bid for Hapag-Lloyd.“It is very good that there is finality,” he said. All parties could now focus on getting their companies in shape to deal with the downturn that will probably be here for the next few years, he said. Feedback from the investment community, and those in the industry, has been “pretty positive”. It was easy to make sense of the NOL decision, he added.

“We made an assessment on how much [Hapag-Lloyd] is worth on what we thought the future looked like. What the other party bid is not relevant and what it is worth to somebody else is not relevant.”

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