Saturday, December 6, 2008

Neptune Orient Lines : will cut about 1,000 jobs


The container shipping industry is closely correlated to the health of the world economy. Shipping freight rates have fallen this year as major economies such as Germany and Japan slipped into recession.

Major international shipping companies have already announced more than 3,000 job cuts in an effort to reduce costs in the wake of the increasing financial crisis that continues to adversely affect shipping operations.

Neptune Orient Lines as the world's seventh-largest container carrier will cut about 1,000 jobs, or around 9%, of its 11,000 jobs positions globally as part of efforts to reduce costs. The majority of the cuts will take place in North America because of the higher operating cost base. It also plans to relocate its Americas headquarters from Oakland, California, to a cheaper base elsewhere in the U.S. About 50 staff members will also be eliminated from its Singapore branch.

The container shipping business, APL, will reduce capacity in Asia-Europe trade by about 25 percent and in transpacific trade by 20 percent, measures that will save $200 million in costs next year. While analysts were positive about NOL's move to cut costs, they expected NOL to incurr losses over the next two year as the shipping industry faces a double-whammy of slowing demand and growing supply.

NOL also issued a "grim" outlook for the next year and said it did not see a recovery in the near-term. "This refelects our considered view that what we are seeing goes beyond a normal cyclical downturn", Chief Executive Ron Widdow said in a statement. NOL, which is 66 percent owned by Singapore state investor Temasek Holdings, last month posted an 82 percent plunge in third-quarter net profit to $35 million and forecast an operating loss in the fourth quarter.

However, shipping companies based in the Middle East are yet to tread the same path (job cuts ) since their operations have not been hit hard. "It is true that no one will escape the impact of the current financial crisis, but I do not see any companies in the region downsizing staff as a cost cutting measure at the moment," said Abdullah Al Shuraim, Chairman of Gulf Navigation Holding (GNH). "No one knows when the crisis will end but we are lucky in the region that its impact is still minimal." 

The move followed the sharp decline in freight rates because of dwindling consumer demand in the United States and Europe, and as the letters of credit (LOCs) that formed the lifeblood of trade financing throughout Asia lost their power to deliver the goods.  According to Ahmed Essa Hareb Al Falahi, CEO of Gulf Energy Maritime, it will be difficult for companies in the region to downsize their staff especially that there has been a shortage even before the crisis.

"The biggest challenge for the industry even before the financial crisis set in was the acute shortage of marine staff, especially when new and bigger vessels started entering the market," said  Al Falahi.  He said the industry was in shortage of more than 100,000 marine staff given the huge tonnage that was expected to enter the market by 2010.

"I think the current slowdown should be good news for the industry since the need to recruit more staff is declining. I believe companies will take it as an opportunity to consolidate and improve skills of their staff rather than sack them." 

James Wheeler, a shipping analyst in Dubai pointed out that shipping being a cyclical industry, it would not be wise for companies to cut down staff as they might be needed during an upturn in business. "It takes several years to train good marine staff and once they leave, it is not easy for companies to find a replacement. Unless a company is winding up its operations, it does not make sense to get rid of your good staff," said Wheeler. He said that the many companies in the dry bulk and container sectors were at the verge of bankruptcy following the persistent decline in freight rates, but added that the tanker market will continue to be healthy.