HK shipping tycoon forecasts years of gloom
23 Mar 2009
Source:The Financial Times

One of the most respected figures in world container shipping has predicted years of difficult conditions for the industry if government economic stimulus packages fail to produce a quick upturn in the world economy. CC Tung, chairman of Hong Kong’s Orient Overseas International, was speaking Friday as the company, which owns property interests and Orient Overseas Container Line (OOCL), announced profits for 2008 that were sharply down on 2007.
Mr Tung said the board was managing the company in the expectation of a continuing deterioration in rates paid for each container shipped throughout 2009, after already steep declines in the last quarter of 2008.
His predictions are the latest gloomy sign for the industry, which enjoyed five boom years until 2007. The sector is now suffering plummeting demand and an oversupply of ships as vessels ordered during the years of growth are delivered.
Container ships, which mainly move manufactured goods, depend on western countries’ demand for Asian-made consumer goods.
There could be a recovery in demand towards the end of the year if worldwide stimulus packages succeeded, Mr Tung said.
But he added: “If there is only a gradual improvement in the global economy during 2010, then it is likely that conditions in the container shipping industry will take longer to improve.”
The balance between supply of ships and demand for services would continue to worsen over the next three to four years if there was no significant change in the number of ships on order, Mr Tung said.
Shipowners have been reluctant to cancel orders for new ships, in spite of the obvious oversupply, because they would have to forfeit deposits to shipyards.
OOCL would be able to offset the increase in its fleet through new deliveries, however, by handing back chartered ships to their owners and potentially through lay-ups of excess ships.
About 10 per cent of the world’s container ship capacity is laid up, according to industry observers.
Mr Tung, son of the legendary Hong Kong shipowner CY Tung and brother of CH Tung, Hong Kong’s first chief executive under Chinese rule, is widely respected for his astute management of OOCL.
The company’s already slowing growth ground to a near-halt in the second half.
Growth in container volumes for the year overall was 5.1 per cent, but only 1 per cent in the second half.
The average proportion of space filled on each sailing – which is critical to container lines’ profitability – was only 77 per cent over the year, against 80 per cent in 2007.
Pre-tax profits for the group for 2008 fell to $304m against $592m in 2007, partly as a result of a $25m write-down in the value of its Wall Street Plaza property in New York. Revenue rose to $6.55bn from $5.65bn.