Shipping Industry Making Permanent Changes in Face of 5-Year Downturn
Kristof, Nicholas D., THE JOURNAL RECORD
Chao, whose Wah Kwong Shipping Group is in the middle of a painful restructuring with creditor banks, raised less than $10 million from the jade sale. But if the gesture was more poignant than meaningful, it was a reminder that the industry that created so many fortunes in the past now is erasing them at a dizzying pace.
From the Port of Los Angeles to the docks of Liverpool and the shipyards in South Korea and Japan, the shipping world has been turned upside down by five catastrophic years of tumbling freight rates, rising costs and sinking values of used ships. While the problems are rooted in cyclical overcapacity, many executives now say the downturn is so deep and traumatic that the industry is changing permanently.
``Shipping is like a piece of ice under a hot sun,'' said Frank W.K. Tsao, chairman of International Maritime Carriers, one of Hong Kong's biggest shipping companies. ``There used to be hundreds of shipowning companies in Hong Kong. Now, out of every 10, eight are bankrupt. And the survivors are badly wounded.''
While not everyone agrees that conditions have been quite that bad, shipping companies are indeed collapsing all over the world. Just last month, McLean Industries, an American company whose United States Lines unit is one of the world's largest container shippers, sought protection from its creditors under Chapter 11 of the Federal Bankruptcy Code. And Japan Line Ltd., one of the biggest tanker operators in the world, asked its bankers this month for help in reorganizing the company.
Ships built for $50 million a half-dozen years ago are sometimes sold as scrap for $5 million. Shipowners who used to earn $20,000 a day on a charter now are happy to accept $5,000 a day. In October 1973, the freight charges of a crude oil cargo on a supertanker voyage from the Persian Gulf to Western Europe amounted to 106 percent of the value of the cargo; by last year the freight rate had plummeted to just 3 percent of the value of the oil.
Since then, tanker freight rates and used tanker prices have risen somewhat, and some shipping executives say they believe the worst is over. As a sign of the new optimism, orders for new ships are picking up, giving a new lease on life to shipyards around the world whose order books were virtually blank just a year ago.
Last summer, some ships were on the way to scrapyards when they were called back in midocean because of rising tanker freight rates and ship prices. …