Oversupply in shipping to remain for next 2-3 years: DBS

Oversupply in shipping to remain for next 2-3 years: DBS

THE CEO of DBS Group, Piyush Gupta, has said that the excess capacity in shipping and offshore will not go away "in a hurry" due to the sectors having witnessed a prolonged period of having access to "too much cheap money".

Speaking as a panellists at the recent Sea Asia Global Forum held in Singapore, Mr Gupta said that the shipping sector is a "prime case" of too much liquidity giving rise to the fundamental oversupply problem, creating massive shipbuilding capacity as well as too many ships.

"In the next two to three years, the excess supply is not going to get drained out in a hurry," he said, adding that he was speaking as a "reluctant owner" especially in the offshore services sector.

Media reports mentioned that DBS Bank has a US$721 million exposure to bankrupt offshore services firm Swiber, and it is also bankrupt Ezra's largest unsecured creditor with claims totalling $281.4 million. Apart from Swiber and Ezra, both of which are listed on the Singapore Exchange (SGX), other SGX listed offshore companies in trouble included Ezra's subsidiary EMAS Offshore, Swissco, Nam Cheong and Marco Polo Marine.

Apart from the collapse of offshore companies, shipping firms are also hit by the protracted slump of the industry with Singapore-listed shipping trust Rickmers Maritime deciding to wind up. Another shipping trust First Ship Lease Trust (FSL Trust) is also facing going concern issues, flagged up by its auditors, in view of its losses.

Mr Gupta pointed out that the model of shipping trusts has not worked because the nature of the shipping business being able to put a steady stream of revenue into the trusts has continued to be uncertain.

The bank chief opined that the long term viability of shipping businesses would seem to work only if they are either state-owned such as the Chinese shipping and shipbuilding conglomerates or private ownership with minority public interest, the Colchester's Seatrade Maritime News reported.

Paddy Rodgers, CEO of Euronav, a New York-listed independent crude oil tanker company, said part of the oversupply problem was caused by family-owned businesses that tend to bet on assets by placing a small 10 per cent deposit for newbuildings at yards, and then try to sell the completed new ships at higher prices.

The resolve of some governments continuing to bailout state-owned yards is also not a long term solution to deflate the supply glut, as the yards will dangle low newbuilding prices to "tempt" buyers, according to Mr Rodgers.

The CEO of Orient Overseas Container Lines (OOCL), a family-owned business, Andy Tung, responded that for OOCL at least the company has not engaged in speculative newbuilding orders.

"Liners typically operate in a network so liners are not into the business of trading assets for profitability but rather focused on operating the assets," Mr Tung said.

"In the liner business, however, there is the issue of scale - the general thought and acceptance that having a bigger scale can help drive down costs and is part of the game. In reality there is a portion of truth to that," Mr Tung said.

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