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Excess container vessel tonnage is a ‘permanent problem’: OOIL

Excess container vessel tonnage is a ‘permanent problem’: OOIL
The excess tonnage capacity in the container shipping market is a “permanent problem”, as carriers have the tendency to keep growing their market share by investing in new and bigger ships, according to Tung Chee Chen, chairman of Orient Overseas (International) Ltd (OOIL).

Tung, who was speaking at the 9th Singapore Maritime Lecture on Wednesday, said that in good times, lines will invest in new ships to enlarge their market share, while in bad times they believe owning newer and larger ships will help to reduce their unit cost.

“Irrespective of good or bad times, the industry tends to over-invest in newbuildings. With this behaviour the industry constantly suffers from the syndrome of perpetual excess capacity, forcing the industry to become more commoditised and cost-drive,” Tung said.

“It is the nature of the container shipping business to constantly compete in the race to order bigger and bigger ships. It is a free market and anybody who can find the financing are free to build as many ships as they wish,” he added.

If the industry is growing healthily in terms of demand, the excess tonnage will be taken care of. But with the shipping recession into its sixth year, the growth of consumer spending is still rather weak, leading to the present situation of an exacerbated excess capacity, he said.

Once the big containerships enter the market and players start to see the cost advantage, those that do not yet own such mega-sized vessels will feel compelled to order, even when there are no clear signs of improving demand growth.

Moreover, money is freely available even during the worse times. “When banks are not lending, there are private equity investors. Shipowners will find a multitude of interested parties to provide funding to build ships, so the availability of ships will always be here,” Tung said.

For Orient Overseas Container Line (OOCL), subsidiary of OOIL, the group decided to order its first series of large containerships of 13,000 teu in capacity in 2011. This year, it contracted for six 21,000 teu boxships at South Korea’s Samsung Heavy Industries, putting it on a growing list of carriers opting for ships at or above the 20,000-teu mark.

Amidst the gloomy environment of container shipping marked by low freight rates, high operating costs and oversupply, Tung pointed out that the  container shipping business has continued to survive and helped to promote global trade at higher efficiency and lower costs, as opposed to loose goods being shipped in the olden days.

“If you look at freight rate it has never really risen, if at all. It is actually continuously falling over a long period of time. So transportation cost is reduced, enhancing the international trade. And that’s the good of container shipping,” Tung told Seatrade Global.