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Daewoo wins $2 bn Maersk order, talks on $2 bn more: source

Daewoo wins $2 bn Maersk order, talks on $2 bn more: source
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First Published: Fri, Feb 18 2011. 11 50 AM IST
Updated: Fri, Feb 18 2011. 11 50 AM IST
Hong Kong/Seoul: Daewoo Shipbuilding & Marine Engineering has won a $2 billion order from A.P. Moeller-Maersk AS to build 10 of the world’s biggest type of container ships , a source said on Friday.
Daewoo is in talks to build a further 10 of the ships for Maersk, the owner of the world’s largest container shipping firm, which would mean a total order worth $4 billion and mark the Korean firm’s biggest ever single order.
The news boosted Daewoo shares by more than 7% and sent other Korean shipbuilders higher by providing a sign of confidence in the outlook for trade and raising hopes that further orders would follow.
“The deal has been signed and they are preparing for details ahead of a public announcement expected next week,” said the source, who declined to be identified because the deal had not been made public.
Both Daewoo and Maersk declined to comment. Maersk Line’s North Asia chief, Tim Smith, plans to hold a news conference on Monday in Hong Kong over its business plans in Asia.
Daewoo has said it wants to secure $6 billion in shipbuilding orders this year, so a $4 billion deal with Maersk would be a shot in the arm for the business so early in the year.
Under the deal, Daewoo will build 10 container ships with a capacity to carry 18,000 twenty-foot-equivalent containers, the largest type of ship available in the sector. The additional 10 ships would be similar vessels.
Analysts said such large ships would most likely be used on trade between Europe and Asia, which have the ports that can accommodate such large vessels.
Tan Hua Joo, an analyst at shipping consultant Alphaliner, said the deal represented a big win for Daewoo because since 1996 Maersk had built its biggest ships in Denmark.
If Daewoo completes the deal, it would be its largest ever single order after a $2.3 billion container ship order from Maersk in July 2008.
Maersk decided 15 years ago to maintain its market position by operating the largest containerships in the world that would give it an economy of scale over competitors, Tan said.
Shares in Daewoo, the world’s number 2 shipyard by number of deliveries, rose close to 6% on the news and were even higher earlier.
South Korean shipbuilders jumped 5% on a positive order outlook. The world’s top shipbuilder, Hyundai Heavy Industries , rose 2.7% and Samsung Heavy Industries gained 6%.
The news was taken in Korea’s stock market as a boost of confidence for the shipping industry and the global trade outlook following the financial crisis.
The International Monetary Fund described the global crisis as the “Great Trade Collapse”. Shipping consultant Drewry said the downturn cost shippers $19.5 billion in lost profits.
Maersk’s container shipping business swung back to profit last year as trade picked up. Alphaliner estimated that global demand growth for containers jumped to 14% in 2010, but that will slow to 7.7% this year.
Doubts
The International Monetary Fund has forecast global economic growth in 2011 of 4.4%, picking up to 4.5% next year.
But there are doubts about the outlook for shipping, including whether booming Chinese demand growth can be maintained as authorities tighten monetary policy to combat a worrying rise in inflation and whether the euro area debt crisis will cause any more damage to the European economy.
“Obviously, if they can fill the ships, this will give Maersk a key cost advantage because the unit cost will be the lowest,” said Sam Lee, head of Asia transport research for Credit Suisse. “But then one thing I would like to highlight is this is based on the assumption that the ships are full.”
Teddy Tsai, shipping analyst for DnB Nor Markets in Singapore, saw other risks in Maersk’s bid to build bigger and bigger container ships.
“A big portion of the industry is not yet convinced this is the future trend for the market. You are reaching a point where the economic benefits of economies of scale are starting to reach diminishing returns,” he said.
South Korea’s Hanjin Shipping , the world’s ninth biggest container shipper, predicted on Thursday global container shipments would grow up to 8% this year, supported by bright trans-Pacific trade prospects.
But underlining how the shipping industry is still feeling the impact of the global crisis, Korea Line , South Korea’s No.2 dry bulk carrier, filed for bankruptcy protection last month after it was squeezed by a sharp drop in freight rates since the crisis.
It sparked concerns over the firm’s exposure to other bulk shippers and dampened sentiment towards the shipping industry.
The Baltic Exchange’s main sea freight index , which gauges the cost of shipping commodities such as iron ore, grain and fertiliser, has been on a rising trend in February after falling steadily between October and January.
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First Published: Fri, Feb 18 2011. 11 50 AM IST