Box shipping at a turning point, warns NOL chairman

10/18/2012

Cost control, not growth, is the focus for the foreseeable future at Neptune Orient Lines (NOL), Chairman Kwa Chong Seng told bunker suppliers and traders in Singapore this week, adding that new vessels could be funded by South Korea or China as traditional European sources fall away.

In a downbeat speech to the Singapore International Bunkering Conference, Kwa highlighted the fact that demand growth among liner companies had fallen to 5%, some four percentage points lower than the historical trend.

Meanwhile, he said, capital expenditure for the biggest vessels was rising, as were running costs, with the result that the industry had lost some US$15 billion since 2009 and fuel costs were running at around $20 billion annually.

“We’re at a turning point in the industry, because the current model is simply not sustainable,” Kwa said. “We need to change our focus, and efficiency has to be the watchword.”

A new business model must emerge centred on cutting fuel demand per teu shipped, he said.

NOL has ordered 34 newbuildings, all fully funded. “This is not additional capacity but replaces old and inefficient charters,” Kwa said. “This will help us reset our cost base.”

He warned that a supply race was being “driven by over-ordering of large containerships and many of these mega-container ships are being delivered at the time the industry needs these least”.

Supply would “substantially offset demand in the next few years, resulting in volatile and depressed container rates” and higher capital expenditure, he said

Kwa said it could cost around $1 billion to place 10 new vessels on a route, although he conceded that the trend toward larger and more efficient vessels was “irreversible”.

He said NOL was determined to switch from a “managing-growth mindset to a managing-costs mindset”, focusing on standardising operating processes for masters and closer collaboration with ports to achieve just-in-time arrivals and slower steaming.

Some in the industry had talked of speeds as low as 11 knots, he said, but NOL’s focus was on efficient vessels and using lubricants to bring speeds down to 18 knots from a current industry average of 22 knots.

Elsewhere, he noted that financing for smaller container lines had proved to be a challenge. Chinese and South Korean banks could emerge as new funding sources, financing ships built in their shipyards, as an alternative to Europe, a traditional source of funding for such vessels.