Businesses sell off oceangoing ships as freight rates fall | The Daily Star
12:00 AM, November 09, 2015 / LAST MODIFIED: 12:00 AM, November 09, 2015

Businesses sell off oceangoing ships as freight rates fall

Owners cannot pay off bank loans with earnings from the vessels

Declining freight rates and high operating costs are forcing local entrepreneurs to sell off their oceangoing ships, industry insiders said.

Owners sold 40 out of 72 ships registered with Bangladesh Ocean Going Ship Owners' Association in the last two years.

Between 2009 and 2012, local entrepreneurs bought 48 such ships.

“We are going through tough times, especially because of the sliding freight charges,” said Azam J Chowdhury, president of the association.

Chowdhury, who is also the chairman of East Coast Group, said freight rates went down 60 percent in the last few years, mainly due to a slowdown in the world economy.

Owners cannot pay off their bank loans with the freight charges they earn, said Morshed Murad Ibrahim, a former president of Chittagong Chamber of Commerce and Industry.

Ibrahim said he has decided to sell two of his ships and is looking for buyers.

Boston Consulting Group (BCG), a US-based firm, forecast shipping freight rate will decline 1.6-2.6 percent per year over the next four years. BCG's research showed that rates had declined by an average of 2 percent per year for the past 7/8 years.

A decline in China's trade with other countries has also made the ship-owners worried.

“The link between the slowing global economy and the shipping industry is evident,” said Mohammed Mohsin, vice chairman of PHP Family that sold two of its oceangoing ships.

The operating cost for an oceangoing ship hovers between $7,000 and $10,000 per day. A ship has to count huge losses if it sits idle for a day or is used for one-way business.

Another reason why the ships are being sold off is their age -- many are more than 25 years old and need special permission to sail through different routes and ports. Also, their operating costs are high.

Meghna Group of Industries sold one of its three vessels for $11 million (Tk 85 crore), although the conglomerate had bought it at $23.5 million (more than Tk 183 crore).

Meghna runs two short-haul ships on Thailand and Vietnam routes to carry raw materials for cement manufacturing. Yet, the operation is not sustainable as the costs are high.

Former commerce minister Amir Khasru Mahmud Chowdhury, who had three ships, sold all of them.

East Coast Group sold its bulk ship that had a capacity of 100,000 tonnes as scrap metal after just three years of use. PHP Family sold two ships that carried bitumen. Abul Khair Group also sold two of its ships.

Friendly policy decisions, such as the reduction of registration costs and allocation of frequency and ship station licences encouraged local entrepreneurs to buy oceangoing vessels to ply foreign waters.

The registration fee for a 40,000-tonne ship was Tk 10 crore, which was brought down to only Tk 50 lakh by the previous government.

The declining market price of ships since the global financial crisis in 2007 also pushed local businesses to buy ships at lower prices.

Depending on the age, a 40,000-tonne ship could be bought for as low as Tk 70 crore to Tk 100 crore, while the bigger ships cost Tk 150 crore to Tk 200 crore.

Conglomerates such as Abul Khair Group, Bashundhara Group, Akij Group, Meghna Group of Industries, East Coast Group, Desh Bandhu Group, HRC Group, Ratanpur Shipping, Trans Ocean Group and others bought two to three ships or more between 2009 and 2012.

Many of these companies have already sold their ships to avoid further losses. But the trend comes as bad news for prospective mariners, whose job scope had widened when the entrepreneurs started pouring money into the ships.

A ship employs 20-22 crew members, with seven of them being officers who earn up to $12,000 per month as salary, said Habibur Rahman, a former principal officer of Mercantile Marine Department.

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