Container shipping to stabilise by end 2011

Shipping finance specialist HSH Nordbank sees container shipping recovering from the downturn as early as end-2011, just as the bank is forced to shrink its exposure following a state bailout.

"We expect that container shipping markets will be well-balanced by the end of 2011 or early 2012," said the bank's Global Head of Shipping in an interview.

"The current development is not only driven by restocking, but by a rebound in consumption," Harald Kuznik said, adding that container capacity growth lagged the pickup in demand, creating an upside for an even quicker recovery.

But HSH has to drastically reduce its balance sheet following a state bailout. HSH has transferred about €8 billion ($9.8bn, Dh36bn) in shipping loans to be wound down into a restructuring unit. Currently, 41 per cent of HSH's €34bn shipping book is related to container vessels.

"We will only marginally underwrite new business in 2010," Kuznik said, echoing recent remarks by rival state-controlled bank NordLB.

"I do not see that HSH will finance new container vessels to a noteworthy extent in the years to come," he said. HSH's restraint might open the door for Asian peers like Export-Import Bank of China, Bank of China or Japan's Mitsui, which may expand in ship financing.

"We are the market leader in ship financing, but it is clear that Asia will gain importance as a centre for the industry," Kuznik said.

"Intra-Asian trade is the growth engine for worldwide container trade."

Some seven per cent of the loans in HSH's shipping book relate to Asian ship owners, 48 per cent to German and 10 per cent to Greek companies. Separately, Deutsche Bank's ship financing unit said recently it aims to grow its business in Asia as seaborne trade flows shift eastwards. Driven by a strong development in Asia, the container shipping market's growth rate could reach pre-crisis levels this year, Kuznik said.

"In recent years, we usually saw demand grow by 10 per cent. This year we could see nine per cent," Kuznik said, adding that global container shipping capacity meanwhile is expected to increase by only six per cent after some shipping companies cancelled or deferred new ship orders. "Forty-five per cent of new container capacity to be delivered in 2009 was deferred to later years, and 60 per cent of ships ordered for 2010 will come later," Kuznik said.

Slow steaming – a process by which shippping companies run their vessels at slower speeds to save fuel – further added to the effect as ships are tied up for longer periods of time.

"And slow steaming will increase further as fuel costs are likely to rise," he added.

Demand for capacity on big vessels -- those carrying more than 5,000 TEU (twenty-foot equivalent unit) standard containers and benefitting from economies of scale – in some cases already exceeds supply.

"Demand for them is so strong that we already see forward chartering for 2011," Kuznik said.

"The first shipping companies are starting to think about ordering new vessels, but ship builders' prices are still too high."

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