Firms sell ships as 'scrap iron'

Updated: 2011-12-08 17:03


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BEIJING - In the face of huge profit losses and cash strains, some of China's shipping enterprises, especially small private ones, have been selling ships at dirt-cheap prices as ocean-going business sinks.

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 Xinhua-run Economic Information Daily reported 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.

Fujian-based shipping companies such as Fujian Guohang Ocean Shipping Co have sold ships at sharp discounts this year to offset operating losses and ease cash strains, according to 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 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 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 metric tons of shipping capacity. The sluggish world economy, overcapacity, and low rates have posed a daunting challenge to the shipping industry, Zhang said.

Meanwhile, global shipping companies have also felt the pinch. Shippers such as KoreaLine and Norway-based TCC both declared bankruptcy this year amid flagging business.

Zheng warned that the downturn in the sector may continue for another two or three years before improving.