Tuesday, November 11, 2008

Shipping fee plunging, pushing Vietnam's firms against the wall

15:42' 10/11/2008 (GMT+7)

VietNamNet Bridge – The shipping fee has dropped by 90% just over the last three months after a long period of skyrocketing. The downturn in shipping fees has been described as terrible and unprecedented over the last few decades.


No one could imagine that the dry carriers with the tonnage of 40,000 to over 100,000 tonnes could see such a sharp fee decrease of 90%

Ta Hoa Binh, Director of Dong Do Shipping Company, said that this is the most terrible decrease in the last few decades of the world’s shipping history. The periodic ups and downs of shipping fees is a normal thing in business, but Binh said he has never seen such a plunge.


No one could imagine that the dry carriers with the tonnage of 40,000 to over 100,000 tonnes could see such a sharp fee decrease of 90%. It happened within just one week that the time chartering fee for bulk cargo ships with the tonnage of 74,000 DWT fell from $40,000/day to $19,000/day.


At the time when the shipping fee was at its highest peak, the time chartering fee of this kind of ship reached $70,000/day, while it is now hovering around $10-12,000/day.


Since the beginning of July, the average shipping fee has decreased by 30-70%. Small ships still receive regular small orders, while big tonnage ships seemed to have no consignments to carry.


Container carriers have also seen their fees decrease sharply, slightly less of the shipping fees of big tonnage ships. Currently, only oil tankers can keep the fee fixed as single hull tankers have been prohibited by the International Maritime Organization (IMO). As many new double hull tankers have not been built, oil tankers still have many jobs to do.


Binh said that the sharp fall of shipping fees have been anticipated for the last two years because of many reasons. He said that the sharp falls of shipping fees have been attributed to the global economic recession, which has led to the sharp falls of cargo in the last few months. However, this is just one of the reasons.


The direct reason, according to Binh, is that a lot of single hull tankers, which are unable to meet the requirements set by IMO’s convention, have been turned into large cargo carriers, which has led to the excessive carry capacity.


Experts have warned that the ‘shipping fee storm’ will have severe impacts on Vietnam’s shipping industry. As Vietnam’s fleet is not big and it does not have stable clients, when the tonnage capacity excess occurs, Vietnamwill be eliminated as the weak rival.


Meanwhile, Vietnam’s fleet has been built with loans rather than businesses’ own capital, and therefore Vietnamese enterprises have been put under the hard pressure of paying debts. The enterprises, which have only invested in large tonnage ships and will see the sharpest falls in shipping fees, will suffer the most. No one can say for sure what will happen if the market continues to plummet.


Vu Huu Chinh, General Director of Vosco, one of Vietnam’s biggest shipping firms, said that Israeli ship owners have decided to keep their ships idle because of overly low shipping fees. Chinh said that Vosco, the company that has its brand name well known in the world’s shipping market, also finds it very difficult now to find cargo for large tonnage ships.


Nguyen Van Hanh, Director of Vinalines, said that it is now a very difficult period for Vietnam’s shipping firms, and that it will require a big exertion to survive the difficulties. Representatives from Vinaship also said that it just strives to break even while not dreaming of making profit, something they haven’t done in the last three months of the year.


The lifebuoy for Vietnam’s shipping firms is the long term contracts on time chartering that were signed before. However, the lifebuoy may go flat if the fee decreases continue for a long time as the clients who charter ships may break contracts.


There would be two choices for Vietnamese firms and their clients in case the shipping fee continues dropping; either to cancel contracts and accepting compensation, or to continue chartering but with lower chartering fee. In both cases, Vietnamese ship owners will be put at a disadvantage. The worse scenario could occur when the foreign chartering partners announce the bankruptcy.