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i-maritime Newsletter

Chinese lines selling ships for scrap value - 2011-12-12

Facing huge losses and cash shortages, some of China's shipping enterprises, especially small private ones, have been selling ships at dirt-cheap rates, many for price of scrap due to sinking ocean trade. In eastern China's Fujian province, about 80 privately-owned shipping companies are suffering from declining business, and some are selling their ships for the price of scrap iron in order to subsist, the government news agency Xinhua—run Economic Information Daily reported on Thursday. The average reading of the Baltic Dry Index (BDI), a key barometer of commodity shipping rates, stood at 1,528 points as of December 6, which was drastically lower than the profit-loss dividing mark of 3,000 points, the report said. The index had fallen for the fifth straight day to close at 1,848 points on Tuesday, the report said. The Fujian-based shipping companies such as Fujian Guohang Ocean Shipping Co Ltd have sold ships at sharp discounts this year to offset operating losses and ease cash strains, according to Mr Zheng Qiang, Secretary-General of the Fujian Shipowners Association. ―Scrapping the ships seems to be the only solution available to these companies because they are losing money whether or not they keep operating,‖ the report quoted Mr Zheng as saying. Shipping enterprises' pains have been further exacerbated as shipping capacity around the world has seen continued growth in recent years, and overcapacity has been a big problem in the sector since 2008, according to Mr Zhang Yongfeng, an analyst with the Shanghai International Shipping Institute. As of the end of October, global shipping manufacturers still had orders equivalent to building another 390 million tonnes of shipping capacity. The sluggish world economy, overcapacity, and low rates have posed a daunting challenge to the shipping industry, Mr Zhang said. Meanwhile, global shipping companies have also felt the pinch. Shippers such as KoreaLine and the Norway-based TCC both declared bankruptcy this year amid flagging business, the report said. Mr Zheng warned that the downturn in the sector may continue for another two or three years before improving.

Source: Hindu Business Line