Asian shipping lines 'must look to' merger, buyouts
Asian shipping lines 'must look to' merger, buyouts
SINGAPORE (AFP): Asian shipping lines will have to look increasingly to mergers and buyouts to survive falling freight rates, tougher regulations and fierce competition, industry officials said yesterday.
A giant merger last month between the Singapore-based Neptune Orient Lines Ltd. (NOL) and its U.S.-based competitor APL Ltd. confirmed the trend, the sixth Asian Shipowners Forum (ASF) was told.
ASF chairman Sumate Tanthuwanit noted the establishment of stringent safety standards, anti-pollution regulations and structural standards for bulk carriers, over which the industry has no control.
"Shipowners are facing extremely difficult operating and technical environments," Sumate told more than 100 key executives of Asian shipping lines.
"This is further aggravated by a declining freight market in most of the major shipping trades. Some shipowners have succumbed in the wake of all these difficult conditions whilst others have decided to rationalize to survive."
He said mergers such as the one between NOL and APL will be the "new trend as we enter the 21st century."
NOL announced last month that it would buy APL for US$825 million to create one of the world's biggest shipping groups. The union would result in a streamlining of operations that would save NOL $130 million a year, company officials said.
The merger came as shipping firms worldwide battle pressure to reduce costs and boost efficiency in a soft marine market.
Asian shipowners control more than 40 percent of the world merchant fleet, and their share is expected to grow to 50 percent by 2000.
NOL chief executive Lua Cheng Eng, who heads the Singapore National Shipping Association, said the industry was not "in the best state of health" and warned that shareholder support could dwindle if profits dipped.
"We have to respond to the demands of the market place. We have to deal with old problems like changes in oil price, currency fluctuations, over-tonnage of shipping and declining freight rates," Lua said.
"Above all, we have to satisfy the demands of our customers and of consumers for more efficient and economical transportation and the demands of our investors and shareholders for a reasonable return on their investment."
Freight costs have dropped more than half in real terms over the past 20 years from five-to-10 percent of the cost of goods to one-to-two percent, Lua said.
The freight cost from Japan to the United States for a $500 television set has dropped to $10 and a $1 can of beer to one cent.
Sumate told reporters that "nobody knows" when shipping lines could expect an improvement. He said Asian lines were also faced with an "overtonage" situation and foresaw more mergers as part of a rationalization of the industry.
"Saving costs, that is the rationale for the whole thing," he said.
Japanese delegate Jiro Nemoto said a shipping line would have to boost market share by 70 percent in order to gain the profit that would accrue from an increase of 10 percent in freight rates.
"Pursuit of an additional 70 percent market share would definitely cause a decline of the general rate level," he said, and warned against "useless competition" that could lead to chaos in the industry.
The shipowners meeting here will discuss how Asia can play a more influential role in international shipping and maritime issues. Topics include world trade trends, safety standards and ship insurance.