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Pronounced change in market conditions in 2001

by Alfred Lo


Mr. Alfred Lo took over at the helm of P&O Nedlloyd (Hong Kong) Ltd when P&O and Nedlloyd merged in January 1997. As Managing Director, he is responsible for operations in Hong Kong, Macau and South China. There are 10 offices under his management, with a total staff of 360 and annual tunrover of some US $370mn. Mr. Lo has more than 20 years' experience in shipping.

The year 2000 was widely acclaimed as an excellent year for liner shipping companies, with most companies recording encouraging trading results.

By comparison, 2001 has seen a very pronounced change in market conditions with many carriers and industry analysts downbeat about the outlook and projecting a difficult time ahead.

Widespread reinvestment in new vessels, which are needed to serve projected trade growth over the longer term, has led to an influx of new capacity into the liner trades. Regrettably, the introduction of the new tonnage coincided with a downturn in the growth of the world's major economies.

The fortunes of global carriers are highly dependent on the demand for goods in the mature, consumer economies of the US and Europe. As we have observed, the momentum of these powerhouse economies has stalled and in some cases they have even slipped into recession.

Hence, for much of 2001, the liner shipping industry has faced a supply and demand imbalance, which has resulted in considerable erosion of revenue levels to the consternation of carriers.

Despite measures to address the capacity imbalance, revenue levels have continued to slide. The industry is now faced with an urgent need to restore revenue to levels that will allow carriers to sustain the level of service coverage which customers demand.

Geopolitical events also have a major impact on trade patterns and the cost of operations. Obviously we all wish for a future free from the violence and conflict witnessed over recent months and long for a prolonged period of stability and peace.

Looking at the situation from a local perspective, Hong Kong and its hinterland of Southern China are particularly susceptible to any fluctuation in consumer demand in overseas markets. The outlook for the shipping and logistics sectors in Hong Kong and Southern China is directly dependent on the rate of global economic recovery.

On an upbeat note, China's accession to the World Trade Organization offers much promise. WTO membership is expected to lead to a growth in trade volumes and this clearly represents positive news for those of us whose financial performance is heavily dependent on the prevailing world trade conditions.

The depth of the economic slow down also seems to be less severe than originally anticipated. There are suggestions that after a brief lull we will begin to observe a notable improvement by the middle of 2002.

Often periods of adversity provide the stimulus for some of the most profound and inspirational commercial paradigm shifts in an industry. Whilst 2002 will undoubtedly be a challenging year for container lines, there is reason to expect progressive improvement.