MOL looking for cheap bulk carriers

Mitsui OSK (MOL) says now is the time to buy bulk ships, and they think they can raise the cash to do so.

“We’re willing to spend several tens of billions of yen on an acquisition,” Kenichi Yonetani, a senior managing executive officer at the company, said in an interview in Tokyo yesterday. He declined to elaborate further on possible targets.

Japan’s most profitable shipping line expects to be able to borrow funds as it has avoided the worst of a collapse in commodity-shipping rates by locking in fees through long-term contracts. The rates meltdown, caused by rising capacity and slower Chinese demand for iron ore, has pushed at least four dry-bulk shipping lines into bankruptcy.

“This year is a chance for people who can buy,” Yonetani said. “We don’t see a problem in getting financing from banks to pay for our investment.”

click here for article from Bloomberg

What's it really gonna cost to ship?

This statement from the Economist would make one think you can ship a container from China to Europe for almost nothing.

$0.00, not counting fuel and handling: that is the cheapest quote right now if you want to ship a container from southern China to Europe. Back in the summer of 2007 the shipper would have charged $1,400.

But wait, how much exactly is the cost of fuel and handling today?

I can't be sure, but the last Bunker Adjustment Factor (which I assume is the fuel charge mentioned) was 1220.00 per 40ft container. And that's just for the bunker, the handling (generally called THC) could run you another 200 or more. So, it could be more than 1400, the cost mentioned from 2007.

The Economist doesn't even mention if the rate quoted is for a 20ft container or a 40ft container. I guess for their purposes it doesn't matter - they are assuming today the price is almost for free.

The ships are sailing at half capacity, so the carriers aren't making any money.

In response to this, tonnage is being pulled out, ships are being laid up.

That's what one does, get the supply down to more closely match the demand.

Here's one example MOL has pulled out 30 percent of their capacity.

TEN per cent more capacity is to be stripped from Japanese shipping giant MOL's tonnage starting in April in response to the global downturn, reported Nikkei, Japan's largest business daily.

This is in addition to the 20 per cent previously cut on the Asia-North America route and by 10 per cent on the other routes, the report said. Nikkei also said MOL had previously slashed Asia-Europe capacity by 30 per cent, but will not make any additional reductions.

"We plan to make an additional cut in our container transport capacity from April ahead of other shipping companies, as demand has been slumping globally since last autumn," an MOL spokesman said.

And I just got a press release from Hamburg Süd announcing capacity cuts and rationalization in their Asia to Mexico service.

Total nominal capacity will be
reduced by 2,500 TEU per week in the period from February 24 through
to August 2009. Hamburg Süd, CCNI and MSC will review the trade
prospects in June 2009. Should the trade situation improve
sufficiently to warrant additional capacity the lines will revert to
their original service set up.

Looks like everyone will see how things are going in mid-2009 before they make any more changes.

It's a real pain, and costs quite a lot of money, to move ships in and out of a service.

What to do with excess ships

APL has confirmed they are laying up vessels. Actually taking them out of service and parking them.

The downturn in shipping has been fast. Only a little over a month ago one of the execs at APL was saying the lines needed to reverse the current market downturn (ha).

From the Sept. 25th blog "Ocean Shipping Downturn.. duh"

"A senior executive of APL has called on individual container lines to take decisive action to reverse the current market downturn.

Dan Ryan, APL’s Greater China president, speaking at the second Containerization and Liner Shipping China conference in Tianjin, said that a negative scenario of financial market turmoil, low consumer confidence as well as rising inflation and commodity prices, compounded by historically high fuel prices, requires lines’ urgent attention.

Suggested solutions included carriers moderating growth aspirations, returning excess tonnage to the charter market, rationalizing and even suspending some services, and having stronger resolve to pass along bunker costs to customers.

“If we fail to take action, the industry could see a more significant downturn than we have seen in many years,” he said."

I have never worked for a carrier which actually laid up vessels. Sometimes we would dry dock them early. Normally if a trade got really bad we would try to start another service, or increase frequency in an existing service.

Looks like MOL has decided to take their excess tonnage and start an Asia / East Coast South America service.

The move follows the termination of the carrier's existing joint service on the route, operated with Singapore's Pacific International Lines.

The company said it will deploy five 3,000-TEU and six 4,250-TEU vessels on the new weekly service.

"By replacing some of current 3,000-TEU class vessels with larger and faster ships, MOL will provide stable cargo capacity and higher schedule integrity to meet customer demand in this growing market," the carrier stated.

Well, the problem with that is this market probably isn't really growing, with Brazil and Argentina facing the same problems as the rest of the world.

But, it's probably a better solution for MOL than just parking their ships.

I can't really think of too many trade lanes where it would be a good idea to put in ships.

Maybe Africa.

But you would probably need ships with onboard cranes to service a lot of those ports, and those ships are fairly rare.

MOL resigns from stabilization agreements

As reported in the JOC, MOL (Mitsui OSK Line) has decided to drop out of "stabilization" agreements from North America.

I am not sure what these agreements allow. It's either discussing vessel sharing, general rate increases, specific rates, or maybe capacity. Anyhow, the EU just pulled the plug on rate discussions to/from Europe. This is the official wording from MOL

"With the European Union's abolition of liner anti-trust immunity, it has become extremely difficult to align the business processes of our entire organization when its regional divisions must operate to differing standards," Masakazu Yakushiji, executive vice president of MOL's liner division, said in a statement.

I expect other carriers will follow suit.