Mitsui O.S.K. Surges as Tanker Deal May Signal End to Shipping Price Wars
Mitsui O.S.K. Lines Ltd., Japan’s largest sea-cargo carrier by market value, jumped the most in three years after a tanker deal added to signs that shipping companies are cooperating to ease overcapacity and revive rates.
The shipping line climbed 11 percent to 288 yen at the close of trading in Tokyo, the largest gain on the Nikkei 225 Stock Average. (NKY) Rivals Nippon Yusen KK (9101) and Kawasaki Kisen Kaisha Ltd. (9107) were the next two biggest climbers with increases of more than 7 percent. All three companies are based in Tokyo.
Mitsui and partners including A.P. Moeller-Maersk A/S said yesterday they will pool about 50 very large crude carriers to cut costs and boost utilization. The deal, following a tie-up last week between container lines Mediterranean Shipping Co. and CMA CGM SA, has sparked hopes that carriers may halt price wars that have caused industrywide losses, said Masaharu Hirokane, an analyst at Nomura Holdings Inc.
“Many investors are starting to expect a fundamental realignment of the industry,” he said. “Shipping companies need to keep making reforms to overcome the current market difficulties.”
In Hong Kong, China Cosco Holdings Co. (1919) and China Shipping Container Lines Co. both gained 11 percent. China Shipping Development Co. rose 7 percent and Orient Overseas International Ltd. climbed 9.8 percent.
The Mitsui-Maersk pool, which also includes Samco Shipholding Pte and Ocean Tankers (Pte) Holdings Ltd., will begin operations Feb. 1, the companies said in an e-mailed statement yesterday.
Mitsui will contribute about 10 very large crude carriers that are unprofitable because they are operating in the single- voyage market and without longer-duration charters, said Hayato Mochizuki, a general manager of its crude-oil tanker group.
This is the first time Mitsui, which has a fleet of about 40 VLCCs, has placed any of the vessels in a pool. VLCCs carry about a fifth of the world’s crude.
Copenhagen-based Maersk will be the largest contributor to the pool, with about 20 VLCCs joining by the end of 2012, said Klaus Rud Sejling, chief commercial officer at Maersk Tankers. The size of the pool will help the lines win more charters as they will have more capacity and greater flexibility, he said.
The shipping lines are cooperating as they contend with oil-tanker returns that are at the lowest levels in more than a decade. Rates have slumped as the fleet is expanding more quickly than demand to haul crude after owners ordered too many vessels.
The Mitsui-Maersk pool will come to 50 VLCCs by the end of 2012, with an average vessel age of three years, according to the companies. They will combine fleets and jointly market their services through offices in Copenhagen, New York and Singapore.
All vessels will reduce their speeds, known in the industry as slow steaming, to better manage overcapacity within the global fleet of about 600 VLCCs, Sejling said. Lower speeds increase the amount of time needed to complete a voyage, effectively curbing the supply of ships.
Earnings from VLCCS, each able to haul about 2 million barrels of crude, averaged as low as $1,000 a day in September as a glut of new ships entered service. Rates averaged $20,000 for the week ended Dec. 2, according to Braemar Shipping Services Plc in London.
Annual returns will average $19,000 a day in 2011 and $15,000 a day for the following two years, less than half of the $34,500 new tankers need to break even, Pareto Securities AS said in a report in October. Earnings for the vessels peaked in 2004 at $97,000 and were at $93,000 four years later, falling to $19,000 by 2011, according to the Oslo-based investment bank.