Like other industries, the shipping sector is forecast to confront numerous difficulties and challenges in 2012, according to experts. This means bleak prospects for shipping companies.
Repeated difficulty
Vietnam joined the MARPOL 73/78 Convention – the International Convention for the Prevention of Pollution from Ships – and shipping companies have to invest in infrastructure facilities for maintenance, restoration and operation to ensure safety for moving ships and to avoid accidents. Importantly, the Convention provides that ships of any country entering ports of signing States must follow conventional regulations, or face penalties. Currently, ports of entry of Vietnamese ships on international routes are in developed countries, most of which ratified international conventions.
Meanwhile, domestic routes are struggling with certain difficulties. For instant, dry cargo vessels, bulk cargo vessels and light-load vessels cannot stand high fare rates and fall into instability on soaring costs. This has a huge impact on shipping companies.
The downtrend of ocean shipping industry is not over, as lending interests burden shipping companies already facing lower income. According to financial statements in 2011, most Vietnamese shipping companies incurred losses because of huge borrowing and depreciation costs. This is the result of massive borrowing for fleet expansion at the peak of industry development.
Besides, the expanding presence of foreign shipping companies in domestic and international routes to and from Vietnam shows the weakening of local transport firms. Income decline, cost increase and financial burdens caused by interest expenses and exchange rate losses ate away earnings of shipping operations.
Many companies borrowed huge loans, mainly in foreign currencies, to purchase ships. Hence, whenever the exchange rate was raised, they obviously suffered considerable loss from exchange rate difference. Their profits, if any, primarily came from liquidating old ships. As depreciation expenses of sold old ships ran out or almost ran out, the book profit was very high.
The director of a shipping company said financial costs were one of the main causes of shipping industry difficulties. Shipping companies usually have to borrow a large amount of working capital, he said, citing a huge value for ship purchase, repair and maintenance. And, currently exorbitant interest rates are denting corporate earnings.
Optimistic about the future success
The strength of the shipping industry has a difficult-to-explain bond to economic trends and changing business paradigms. Despite numerous difficulties, prospects in Asia, including Vietnam, are still very bright. Singapore, for example, is overcoming the global economic downturn with its tripartite relationship model of building partnerships.
Given the current tough context, any wise ship operators must anticipate risks because most shipping markets are facing a tough year in 2012. Perhaps, the only bright spot will appear in Asia where the demand remains high even in the current volatile period.
Asian maritime associations are cautiously optimistic about the ability to weather the crisis and see a better future. Maritime industries in regional countries proved they can get through difficulties and achieve substantial development. For example, the maritime industry of Indonesia is now much more developed and is gradually shifting the focus to international markets. In the domestic market, the shipbuilding, offshore fishing, tugboat, barge and large-class ship sectors are doing very well.
The commitments of Singapore, Malaysia, Indonesia and Vietnam to implementing the ASEAN Economic Community (AEC) till 2015 will transform ASEAN into a highly competitive and cohesive economic zone. Production and supply networks will be expanded in order to support the maritime industry of ASEAN member countries. ASEAN also identified immediate priorities to support all opportunities for maritime cooperation and infrastructure development in member states. This is a good sign for shipping companies to be confident in a bright future.
Tu Linh
Vietnamese
