Withdrawal from container cargo ops to benefit Sarawak shipping firms including Syscorp
KUCHING: Shin Yang Shipping Corp Bhd (Syscorp) and other local shipping firms are likely to gain from reduced competition with the impending withdrawal of Hubline Bhd from the container cargo transportation business.
Hubline, one of the key shipping players in Sarawak, announced last month that it would cease container shipping operation by September 2015 to stop the heavy losses it had incurred in the past several years.
Founded in 1993, Hubline group operated a fleet of some 30 vessels, half of them container ships, before it downsized its operations in 2013. The group has been serving Malaysian ports, where it was said to have a strong presence in certain sectors, and also plying intra-Asian routes during the good old days.
According to Hubline, the container liner industry has been suffering due to overcapacity and that operators are struggling to stay profitable with the depressed freight rate environment brought about by the fierce competition for cargo.
Currently undergoing a restructuring exercise, Hubline will withdraw from various trade routes, terminate related services and operational contracts and dispose off its container vessels and related assets. The exit plan is expected to result in a one-off cost of RM350mil.
With Hubline pulling out, a local shipping firm executive expects the move to benefit other container operators which Hubline’s traditional customers would have to turn to to transport their cargo.
Syscorp group financial controller Richard Ling sees it an opportunity for his company to capture a bigger slice of the cake in container cargo shipment within Malaysia following Hubline’s exit.
“Currently, we have a fleet of 15 container vessels serving ports between Sarawak, Sabah and Peninsular Malaysia,” Ling told StarBiz.
He said Syscrop had laid off three container vessels after ceasing the unprofitable regional operations late last year. The group had previously operated in routes between Malaysia, Thailand and Vietnam.
Ling said concentrating its container shipment services to Malaysia would enable the group to achieve economic of scale in operation.
A market leader, Syscorp is said to command a market share of some 50% in container transportation in Malaysia. Other main players include Bintulu-based Harbour-Link Group Bhd and Penang-based MTT Shipping Sdn Bhd.
In the 12 months to June 30, 2014, Syscorp’s 18 container vessels transported 70,738 twenty-foot equivalent units (TEUs), a jump of 22.9% from 57,526 TEUs year-on-year.
The increase was mainly attributed to the deployment of refurbished container vessels, which Syscorp had acquired from Swee Joo Bhd, one of Sarawak’s oldest and most established shipping firms.
Syscorp, which owns shipbuilding and repair yards in Miri and Bintulu, bought 20 vessels, including eight container ships and four chemical tankers, from Swee Joo after the latter went into voluntary liquidation due to insolvency as the group was saddled with some RM460mil in debts.
According to Ling, the container shipping market was still “very tough” and that overcapacity and demand would continue to put freight rates under pressure in the short term.
“After the Chinese New Year celebration, the demand for container cargo shipment is very weak. With the implementation of the goods and services tax (GST), people are reducing consumption and this might affect import cargo volume.”
However, Ling sees a silver lining in the current low price of bunker fuel, which has helped to reduce Syscorp’s operational costs and, thereby, improved its profit margin.
“As long as bunker fuel (marine fuel oil) remains at the current price level of between US$400 to US$450 per tonne, it will benefit us (Syscorp). At the current price level, it could reduce our operational costs by between 4% and 5%,” he added.
The price has fallen from between US$600 and US$650 per tonne in December last year in tandem with the drastic drop in global crude oil price from over US$100 per barrel to around US$53 per barrel currently.
Syscorp group’s larger cargo vessels and chemical tankers, which transport crude palm oil between Malaysia and China, consume marine fuel oil while the smaller vessels use industrial diesel, the price of which has also dropped in tandem with lower global crude oil prices.
Shin Yang group owns and operates a fleet of some 295 vessels, with some of them deployed in the Middle East.
The lower bunker fuel price had bolstered Syscorp’s bottom line as shown by the company’s October-December 2014 quarterly results. The group’s shipping business chalked up a pre-tax profit of RM9.7mil, a reversal from a loss of RM8mil a year ago as revenue grew 16.3% to RM171mil from RM147mil due to higher cargo volume.
Over a six-month period to Dec 31, 2014, Syscorp posted a group net profit of RM9.1mil compared with RM607,000 a year ago despite a drop in revenue to RM529.1mil from RM565.5mil.
The shipping segment contributed RM324.2mil while the shipbuilding, ship repair and metal fabrication segment chipped in RM202.5mil (versus RM308mil and RM254.6mil respectively during June-December 2013).
Ling said Syscrop was still involved in the transportation of building materials like quarry and aggregrates for infrastructure projects in the United Arab Emirates, where it operates a shipyard.