[Fresh Ink] Revealed: The ghost fleet of the recession

[Ron Bourgeault]

Click the URL for pictures

http://www.dailymail.co.uk/home/moslive/article-1212013/Revealed-The-ghost-fleet-recession.html#



Revealed: The ghost fleet of the recession

By Simon Parry

13th September 2009

The biggest and most secretive gathering of ships in maritime history
lies at anchor east of Singapore. Never before photographed, it is
bigger than the U.S. and British navies combined but has no crew, no
cargo and no destination  -  and is why your Christmas stocking may be
on the light side this year
The 'ghost fleet' near Singapore

The 'ghost fleet' near Singapore. The world's ship owners and
government economists would prefer you not to see this symbol of the
depths of the plague still crippling the world's economies

The tropical waters that lap the jungle shores of southern Malaysia
could not be described as a paradisical shimmering turquoise. They are
more of a dark, soupy green. They also carry a suspicious smell. Not
that this is of any concern to the lone Indian face that has just peeped
anxiously down at me from the rusting deck of a towering container ship;
he is more disturbed by the fact that I may be a pirate, which, right
now, on top of everything else, is the last thing he needs.

His appearance, in a peaked cap and uniform, seems rather odd; an
officer without a crew. But there is something slightly odder about the
vast distance between my jolly boat and his lofty position, which I
can't immediately put my finger on.

Then I have it - his 750ft-long merchant vessel is standing absurdly
high in the water. The low waves don't even bother the lowest mark on
its Plimsoll line. It's the same with all the ships parked here, and
there are a lot of them. Close to 500. An armada of freighters with no
cargo, no crew, and without a destination between them.

My ramshackle wooden fishing boat has floated perilously close to this
giant sheet of steel. But the face is clearly more scared of me than I
am of him. He shoos me away and scurries back into the vastness of his
ship. His footsteps leave an echo behind them.

Navigating a precarious course around the hull of this
Panama-registered hulk, I reach its bow and notice something else
extraordinary. It is tied side by side to a container ship of almost the
same size. The mighty sister ship sits empty, high in the water again,
with apparently only the sailor and a few lengths of rope for company.

Nearby, as we meander in searing midday heat and dripping humidity
between the hulls of the silent armada, a young European offi cer peers
at us from the bridge of an oil tanker owned by the world's biggest
container shipping line, Maersk. We circle and ask to go on board, but
are waved away by two Indian crewmen who appear to be the only other
people on the ship.

'They are telling us to go away,' the boat driver explains. 'No one is
supposed to be here. They are very frightened of pirates.'

Here, on a sleepy stretch of shoreline at the far end of Asia, is
surely the biggest and most secretive gathering of ships in maritime
history. Their numbers are equivalent to the entire British and American
navies combined; their tonnage is far greater. Container ships, bulk
carriers, oil tankers - all should be steaming fully laden between
China, Britain, Europe and the US, stocking camera shops, PC Worlds and
Argos depots ahead of the retail pandemonium of 2009. But their water
has been stolen.

They are a powerful and tangible representation of the hurricanes that
have been wrought by the global economic crisis; an iron curtain drawn
along the coastline of the southern edge of Malaysia's rural Johor
state, 50 miles east of Singapore harbour.

'We don't understand why they are here. There are so many ships but no
one seems to be on board,' said local fisherman Ah Wat

It is so far off  the beaten track that nobody ever really comes close,
which is why these ships are here. The world's ship owners and
government economists would prefer you not to see this symbol of the
depths of the plague still crippling the world's economies.

So they have been quietly retired to this equatorial backwater, to be
maintained only by a handful of bored sailors. The skeleton crews are
left alone to fend off  the ever-present threats of piracy and
collisions in the congested waters as the hulls gather rust and seaweed
at what should be their busiest time of year.

Local fisherman Ah Wat, 42, who for more than 20 years has made a
living fishing for prawns from his home in Sungai Rengit, says: 'Before,
there was nothing out there - just sea. Then the big ships just suddenly
came one day, and every day there are more of them.

'Some of them stay for a few weeks and then go away. But most of them
just stay. You used to look Christmas from here straight over to
Indonesia and see nothing but a few passing boats. Now you can no longer
see the horizon.'

The size of the idle fleet becomes more palpable when the ships' lights
are switched on after sunset. From the small fishing villages that dot
the coastline, a seemingly endless blaze of light stretches from one end
of the horizon to another. Standing in the darkness among the palm trees
and bamboo huts, as calls to prayer ring out from mosques further
inland, is a surreal and strangely disorientating experience. It makes
you feel as if you are adrift on a dark sea, staring at a city of
light.

Ah Wat says: 'We don't understand why they are here. There are so many
ships but no one seems to be on board. When we sail past them in our
fishing boats we never see anyone. They are like real ghost ships and
some people are scared of them. They believe they may bring a curse with
them and that there may be bad spirits on the ships.'

As daylight creeps across the waters, flags of convenience from
destinations such as Panama and the Bahamas become visible. In reality,
though, these vessels belong to some of the world's biggest Western
shipping companies. And the sickness that has ravaged them began far
away - in London, where the industry's heart beats, and where the
plummeting profits and hugely reduced cargo prices are most keenly
felt.

The Aframax-class oil tanker is the camel of the world's high seas. By
definition, it is smaller than 132,000 tons deadweight and with a
breadth above 106ft. It is used in the basins of the Black Sea, the
North Sea, the Caribbean Sea, the China Sea and the Mediterranean - or
anywhere where non-OPEC exporting countries have harbours and canals too
small to accommodate very large crude carriers (VLCC) or ultra-large
crude carriers (ULCCs). The term is based on the Average Freight Rate
Assessment (AFRA) tanker rate system and is an industry standard.

A couple of years ago these ships would be steaming back and forth. Now
12 per cent are doing nothing

You may wish to know this because, if ever you had an irrational desire
to charter one, now would be the time. This time last year, an Aframax
tanker capable of carrying 80,000 tons of cargo would cost £31,000 a day
($50,000). Now it is about £3,400 ($5,500).

This is why the chilliest financial winds anywhere in the City of
London are to be found blowing through its 400-plus shipping brokers.

Between them, they manage about half of the world's chartering
business. The bonuses are long gone. The last to feel the tail of the
economic whiplash, they - and their insurers and lawyers - await a wave
of redundancies and business failures in the next six months. Commerce
is contracting, fleets rust away - yet new ship-builds ordered years ago
are still coming on stream.

Just 12 months ago these financiers and brokers were enjoying fat
bonuses as they traded cargo space. But nobody wants the space any more,
and those that still need to ship goods across the world are demanding
vast reductions in price.

Do not tell these men and women about green shoots of recovery. As
Briton Tim Huxley, one of Asia's leading ship brokers, says, if the
world is really pulling itself out of recession, then all these idle
ships should be back on the move.
South China Sea map

'This is the time of year when everyone is doing all the Christmas
stuff,' he points out.

'A couple of years ago those ships would have been steaming back and
forth, going at full speed. But now you've got something like 12 per
cent of the world's container ships doing nothing.'

Aframaxes are oil bearers. But the slump is industry-wide. The cost of
sending a 40 ft steel container of merchandise from China to the UK has
fallen from £850 plus fuel charges last year to £180 this year. The cost
of chartering an entire bulk freighter suitable for carrying raw
materials has plunged even further, from close to £185,000 ($300,000)
last summer to an incredible £6,100 ($10,000) earlier this year.

Business for bulk carriers has picked up slightly in recent months,
largely because of China's rediscovered appetite for raw materials such
as iron ore, says Huxley. But this is a small part of international
trade, and the prospects for the container ships remain bleak.

Some experts believe the ratio of container ships sitting idle could
rise to 25 per cent within two years in an extraordinary downturn that
shipping giant Maersk has called a 'crisis of historic dimensions'. Last
month the company reported its first half-year loss in its 105-year
history.

Martin Stopford, managing director of Clarksons, London's biggest ship
broker, says container shipping has been hit particularly hard: 'In 2006
and 2007 trade was growing at 11 per cent. In 2008 it slowed down by 4.7
per cent. This year we think it might go down by as much as eight per
cent. If it costs £7,000 a day to put the ship to sea and if you only
get £6,000 a day, than you have got a decision to make.

'Yet at the same time, the supply of container ships is growing. This
year, supply could be up by around 12 per cent and demand is down by
eight per cent. Twenty per cent spare is a lot of spare of anything -
and it's come out of nowhere.'

These empty ships should be carrying Christmas over to the West. All
retailers will have already ordered their stock for the festive season
long ago. With more than 92 per cent of all goods coming into the UK by
sea, much of it should be on its way here if it is going to make it to
the shelves before Christmas. 

But retailers are running on very low stock levels, not only because
they expect consumer spending to be down, but also because they simply
do not have the same levels of credit that they had in the past and so
are unable to keep big stockpiles.

Stopford explains: 'Globalisation and shipping go hand in hand.
Worldwide, we ship about 8.2 billion tons of cargo a year. That's more
than one ton per person and probably two to three tons for richer people
like us in the West. If the total goes down by five per cent or so,
that's a lot of cargo that isn't moving.'

The knock-on effect of so many ships sitting idle rather than moving
consumer goods between Asia and Europe could become apparent in Britain
in the months ahead.

'We will find out at Christmas whether there are enough PlayStations in
the shops or not. There will certainly be fewer goods coming in to
Britain during the run-up to Christmas.'

Three thousand miles north-east of the ghost fleet of Johor, the
shipbuilding capital of the world rocks to an unpunctuated chorus of
hammer-guns blasting rivets the size of dustbin lids into shining steel
panels that are then lowered onto the decks of massive new vessels.

As the shipping industry teeters on the brink of collapse, the activity
at boatyards like Mokpo and Ulsan in South Korea all looks like a sick
joke. But the workers in these bustling shipyards, who teem around giant
tankers and mega-vessels the length of several football pitches and
capable of carrying 10,000 or more containers each, have no choice; they
are trapped in a cruel time warp.
There have hardly been any new orders. In 2011 the shipyards will
simply run out of ships to build

A decade ago, South Korean President Kim Dae-jung (who died last month)
issued a decree to his industrial captains: he wished to make his nation
the market leader in shipbuilding. He knew the market intimately. Before
entering politics, he studied economics and worked for a Japanese-owned
freight-shipping business. Within a few years he was heading his own
business, starting out with a fleet of nine ships.

Thus, by 2004, Kim Dae-jung's presidential vision was made real. His
country's low-cost yards were winning 40 per cent of world orders, with
Japan second with 24 per cent and China way behind on 14 per cent.

But shipbuilding is a horrendously hard market to plan. There is a
three-year lag between the placing of an order and the delivery of a
ship. With contracts signed, down-payments made and work under way,
stopping work on a new ship is the economic equivalent of trying to
change direction in an ocean liner travelling at full speed towards an
iceberg.

Thus the labours of today's Korean shipbuilders merely represent the
completion of contracts ordered in the fat years of 2006 and 2007. Those
ships will now sail out into a global economy that no longer wants
them.

Maersk announced last week that it was renegotiating terms and prices
with Asian shipyards for 39 ordered tankers and gas carriers. One of the
company's executives, Kristian Morch, said the shipping industry was in
uncharted waters.

As he told the global shipping newspaper Lloyd's List only last week:
'You have a contraction of oil demand, you have a falling world economy
and you have a contraction of financing capabilities - and at the same
time as a lot of new ships are being delivered.'

Demand peaked in 2005 when, with surplus tonnage worldwide standing at
just 0.7 per cent, ship owners raced to order, fearing docks and berths
at major shipyards would soon be fully booked. That spell of 'panic
buying' has heightened today's alarming mismatch between supply and
demand.

Keith Wallis, East Asia editor of Lloyd's List, says, 'There was an
ordering frenzy on all types of vessel, particularly container ships,
because of the booming trade between Asia and Europe and the United
States. It was fuelled in particular by consumer demand in the UK,
Europe and North America, as well as the demand for raw materials from
China.'

Orders for most existing ships to be delivered within the next six to
nine months would be honoured, he predicted, and the ships would go into
service at the expense of older vessels in the fleet, which would be
scrapped or end up anchored off places like southern Malaysia.

But, says Wallis, 'some ship owners won't be able to pay their final
instalments when the vessels are completed. Normally, they pay ten per
cent down when they order the ship and there are three or four stages of
payment. But 50 to 60 per cent is paid on delivery.'

South Korean shipyard Hanjin Heavy Industries last week said it had
been forced to put up for sale three container ships ordered at a cost
of £60 million ($100 million) by the Iranian state shipping line after
the Iranians said they could not pay the bill.

'The prospects for shipyards are bleak, particularly for the South
Koreans, where they have a high proportion of foreign orders. Whole
communities in places like Mokpo and Ulsan are involved in shipbuilding
and there is a lot of sub-contracting to local companies,' Wallis says.

'So far the shipyards are continuing to work, but the problems will
start to emerge next year and certainly in 2011, because that is when
the current orders will have been delivered. There have hardly been any
new orders in the past year. In 2011, the shipyards will simply run out
of ships to build.'

Christopher Palsson, a senior consultant at London-based Lloyd's
Register-Fairplay Research, believes the situation will worsen before it
gets better.

'Some ships will be sold for demolition but the net balance will be
even further pressure on the freight rates and the market itself. A lot
of ship owners and operators are going to find themselves in a very
difficult situation.'

The current downturn is the worst in living memory and more severe even
than the slump of the early Eighties, Palsson believes.

'Back then the majority of the crash was for tankers carrying crude
oil. Today we have almost every aspect of shipping affected - bulk
carriers, tankers, container carriers... the lot.

'It is a much wider-spread situation that we have today. China was not
a major player in the world economy at that time. Neither was India. We
had the Soviet Union. We had shipbuilding in the United Kingdom and
Europe.

'But then, back in those days the world was a very different place.'