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Too much easy money fuels overcapacity in shipping says DBS CEO

SURPLUS shipping capacity continues to plague the sector because of access to "too much cheap money", says a top Singapore banker.

Development Bank of Singapore (DBS) CEO Piyush Gupta said shipping represented a "prime case" of too much liquidity fuelling oversupply and creating massive shipbuilding capacity.

"In the next two to three years, the excess supply is not going to get drained out in a hurry," Mr Gupta told a panel at the Sea Asia Global Forum in Singapore.

Mr Gupta said that speaking as a "reluctant owner", especially in the offshore services sector, he deeply regretted the situation.

Apart from the collapse of offshore companies, shipping firms are also hit by the protracted slump of the industry with Singapore-listed shipping trust Rickmers Maritime deciding to wind up.

Another shipping trust First Ship Lease Trust (FSL Trust) is also facing going concern issues, flagged up by its auditors, in view of its losses.

Mr Gupta pointed out that the model of shipping trusts has not worked because the nature of the shipping business being able to put a steady stream of revenue into the trusts has continued to be uncertain.

The banker said the long-term viability of shipping businesses would seem to work only if they are either state-owned such as the Chinese shipping and shipbuilding conglomerates or private ownership with minority public interest.

Euronav CEO Paddy Rodgers said part of the oversupply problem was caused by family-owned businesses that tend to bet on assets by placing a small 10 per cent deposit for newbuildings at yards, and then try to sell the completed new ships at higher prices.

The resolve of some governments to continue to bailout state-owned yards is not a solution to deflate the supply glut, as the yards will dangle low newbuilding prices to tempt buyers, said Mr Rodgers.

Indonesia's Tanjung Priok Port is undergoing expansion works that are slated to bring capacity up to 19.5 million TEU a year by 2024.

In addition, the Indonesian government is also moving quickly to secure Japanese funding to commence construction of a new 7.5 million TEU port at Patimban in West Java at full build-out to ease the pressure on Tanjung Priok which is currently operating at full capacity.

These developments come amid concerns that the arrival of the mega shipping alliances may lead to some re-shuffling of transshipment hubs and dragged down terminal revenues.

Another factor that could impact terminal operators in Asia in is China's Belt and Road initiative. "Singapore is geographically well-positioned along the maritime Silk Road, and there is space for PSA to facilitate potential trade growth as economic activities increase in this region," said Mr Ong.

"We are also working closely with China Cosco Shipping, the world's fourth largest container shipping line, and have expanded our already existing partnership in our joint venture terminal Cosco-PSA Terminal to include three new mega berths at our Pasir Panjang Terminals.

"In line with this commitment, China Cosco Shipping has also chosen us as their main transshipment hub port in south east Asia," he said.