[ins't piracy enjoying a Renaissance too? :-)] Freight shipping rides the crest of a wave
Improved rates and higher volumes have swelled container profits Terry Macalister Thursday August 28, 2003 The Guardian A slowdown in large world economies such as the US, Japan and Germany normally means stormy seas for global container shipping but the maritime sector is booming. P & O Nedlloyd is heading for a decent profit this year after losing £86m in 2002 and is again dusting down plans for a stock market flotation. This week Denmark's AP Moller-Maersk, the biggest liner operator in the world, saw a huge rise in first-half shipping profits from DKr66m (£6m) to DKr1.4bn. Yesterday the Singapore arm of China's biggest shipping group Cosco announced it had returned to the black in the second quarter and forecast "significantly higher" annual profits. The bounce-back for the highly cyclical maritime business - at a time when the world's main economies remain becalmed - is attributed to better freight rates and higher volumes. P&O says that rates were up 7% year on year in the first six months and profits would have been higher if it were not for high fuel costs due to oil hovering around $29 per barrel plus a weak US currency reducing dollar-denominated income. So why is there more trade in the world at a time when gross domestic product in America grew only 2.3% in the year to the second quarter of 2003 and actually fell in Germany? The answer lies partly in a better supply and demand situation: shipbuilding has slowed so fewer new vessels have been coming into the market. The other main reason for growth is booming output from China plus more manufacturing being outsourced to lower cost Asian countries. China reported a 17% growth in industrial production during June only slightly ahead of the 16% reported by Malaysia the month before. China's demand for raw materials such as iron ore has almost single-handedly led to a revival in the bulk carrier shipping market while it needs containers to export finished goods such as computers, clothes and furniture. It is able to find markets for these goods even when economies in the west are depressed because it can offer ever cheaper supplies. The decision by Dyson to switch manufacturing of hi-tech washing machines from Malmesbury in Wiltshire to Malaysia is typical of another trend that is boosting shipping. In fact the "hollowing-out" of western economies - following a trend first seen in Japan - is partly a result of the very cheap transport available via ships which are often owned in Europe but crewed by low-cost Asians. Manufacturers such as Dyson know they can ship their finished goods back to Britain for next to nothing. P&O is not just benefiting on the liner front, but its shares have soared 40% this year because its core ports operation is taking advantage of these new trends. The company, led by chairman Lord Sterling, has been investing heavily in China and witnessed a 30% year-on-year increase in container volumes through its terminals at Qingdao and Shekou. Lord Sterling was in China alongside the prime minister, Tony Blair, during a top level political and commercial visit which saw P&O sign a deal to increase output at Qingdao. The port already handles 1.3m containers a year but when the plans are complete this figure will have ballooned to 6m making it bigger than Southampton and Felixstowe docks combined. P&O is happy with this, given it achieved a 12% return on capital from ports last year when the shipping arm was in negative territory. P&O Nedlloyd, which has a 200-strong fleet, expects conditions to improve up to 2005 but cheap financing is encouraging shipowners to order new vessels. Almost 500 are contracted to be built - representing 30% of the existing worldwide fleet - and some industry experts fear operators could once again be heading for the rocks. ==================================== To this day, no one has come up with a set of rules for originality. There aren't any. [Les Paul]
