A Hong Kong container ship unloads cargo. The global container shipping industry had lost money in the third quarter. Some shipping companies are reported to have lowered capacity. Robert Francois / AFP

Operators and analysts have turned more cautious on the outlook for the container shipping industry as the deteriorating European debt crisis and sluggish economic growth in other developed economies weighs on global trade activities.

Hong Kong-based container shipping company Orient Overseas (International) Ltd (OOIL) has cut its capacity on routes to Europe by 20 percent amid lower demand for trade, Chairman and Chief Executive Tung Chee-chen said on Friday.

Tung explained that he remains pessimistic on the shipping industry's outlook due to the slowdown in the global economy and higher costs.

"Asia-Pacific is good and growing. The problem is Asia to America and Europe," Tung told reporters on the sidelines of a logistics and marine services conference.

In August, the operator of Hong Kong's biggest container line, which ships finished and semi-finished goods ranging from toys to garments to the West from Asia, reported an 86 percent slump in its first-half profit.

OOIL said it expected "difficult" conditions next year as shipping rates continue to decline due to the sluggish global trade activities.

The global container shipping industry had lost money in the third quarter, Tung noted. In October, OOIL reported that third-quarter revenue fell 8 percent from a year earlier, partly because of falling freight rates due to softening demand for international trade.

Tung said the company hasn't decided whether to cut its capacity for next year and will continue to review trading conditions.

A SWS Research report said on Tuesday that some Chinese shipping companies plan to withdraw capacity from late November as both the freight rate and load factors are declining.

Shipping tariffs have declined 5.8 percent and 4.7 percent in the Asia-Europe (AE) and Mediterranean routes due to weakening demand. The load factor has declined from 80 percent to 75 percent both in AE and Mediterranean with the fade out of Christmas shipment, the report noted.

"We are quite pessimistic about the European economy and Chinese export to Europe in coming several months," Zhang Yang, an analyst from SWS wrote. "The declining trend will continue unless the shipping companies cooperate and idle the ships again."

On Friday, Maersk Line, the unprofitable container shipping unit of A.P. Moeller-Maersk A/S, said it will combine some of its routes on the trade from Asia to Europe as freight rates are declining.

MISC Bhd, Southeast Asia's largest shipping line by market value, announced on Thursday that it will exit container shipping to focus on its core tanker operations, after the unit lost $789 million in three years.

Eunkyung Park, an analyst with Samsung Securities, said MISC's withdrawal is consistent with the view that unprofitable tonnage will exit the industry over the next two quarters - either as a consequence of prudent management or through economic imperative.

"A combination of reduced capacity and unilateral efforts on the parts of shipping companies is expected to allow freight rates to reset at higher levels and for share prices to reflect an improved earnings environment," Park wrote in the report published Friday.

litao@chinadailyhk.com

China Daily

(HK Edition 11/26/2011 page2)