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Source: Reuters

FEATURE-Ships idle in Philippine port as global trade slows

Published: 08 Mar 2009 18:03:34 PST

SUBIC BAY, Philippines, March 8 - It's 11 a.m. on a weekday but huge, bulky cargo ships scattered in this Philippine port are quiet and nearly deserted, save for a handful of workers repainting chipped handrails on some vessels.

About 22 ships -- mostly empty cargo vessels -- have anchored in this former U.S. naval base northwest of Manila, some as long as three months running. It's cheaper than most other ports in the region to park a ship and most crews are dominated by Filipinos so it's a popular choice.

Before August, when the global economic crisis started to stymie trade, cargo ships rarely stayed in Subic for more than a week. At any one time there were no more than 10 ships at the port.

"We don't usually get ships docked for a prolonged period," said Armand Arreza, administrator at the Subic Bay Metropolitan Authority. "We would usually get a few ships which would be on lay up, but never to the extent that we have about 22 ships and for a prolonged period of time."

Lay ups refer to the temporary shutdown of cargo ships during periods of surplus and depressed freight rates.

Since September, Subic Bay management has been swamped with e-mails and calls from owners seeking to dock their cargo ships at the port to cut costs following the collapse in shipping charges as global trade fell to multi-year lows.

About 12 other ships have left Subic Bay since the end of 2008 to pick up cargo around Asia, waiting two weeks to three months to get a client. But for the remaining 22 ships, the wait continues.

"There is no cargo," said the captain of a European-owned container vessel docked at the bay since December who asked not to be named as he was not authorized to talk to the media.

"This ship is a feeder vessel. And it depends mostly on mother vessels. Since there are no mother ships bringing cargo from US and Europe, smaller container vessels like this are affected," said the 54-year old Filipino captain.

SHIPPING RATES FALL

Average shipping rates slumped beginning August 2008 and hit a six-year low of $15,000 per day in November. That represented a 67 percent to 70 percent drop from highs of $45,000-$50,000 per day in June 2008, based on an internal publication of a European container ship firm in January.

Freight rates for dry bulk ships have plummeted from the highs hit during the commodities bull run last year.

Rates for capesize vessels -- the largest that can ferry iron ore, coal and grains -- on the key route between Brazil and China have fallen to $21 a tonne, down from above $100 a tonne in June last year, according to Reuters data <.BATB>.

The International Monetary Fund, predicting the world economy will stagnate this year overall with the deepening global financial crisis, forecasts world export volumes will contract 2.8 percent.

In Asia, most export-driven countries like Japan, Korea and Taiwan have suffered steep double-digit declines in shipments, paralyzing their economies and resulting in region-wide ship lay ups.

Some shipping experts say they don't expect any big improvement in demand in the next six months to a year.

"Nowadays, ships sail just half full or with very little cargo, just so they could recoup their overhead and also protect their customer base," said the European ship captain who has sailed international waters for nearly three decades.

He added the severe downturn in the shipping industry is made worse because banks, which used to extend credit lines and bank guarantees to shippers, have stopped lending, resulting in prolonged lay ups.

His European ship, which can hold 1,440 20-foot containers, has had few voyages since its delivery in mid-2008 by its German shipbuilder when cargo shipping rates fell, forcing its owners to anchor the vessel in Subic and send most of its crew home because revenues cannot even cover overhead expenses.

"The shipping industry is one of the sectors most affected by the present economic situation," retired navy captain Perfecto Pascual, seaport manager at Subic Bay, told Reuters.

"Shipowners are finding ways to save costs from their operations," Pascual said, adding Subic is a favored destination in the region for lay ups because of congestion in more developed seaports in Hong Kong and Singapore.

LONG-STAYING SHIPS

Costs and security are also factors, with Subic Bay management charging discounted all-in fees -- including bay patrols -- of about $10,000 a month for long-staying ships.

To stay competitive, other ports in the region have also introduced discounted fees. The Singapore Maritime and Port Authority has deferred an annual increase in port dues for bunker tankers 16 years and older and gave port dues concessions to various cargo vessels.

The European shipping firm now has four container vessel docked in Subic, with the crew in one ship down to 8 from 18 previously.

Its three other ships sit side by side near the southern end of the bay, hidden in a cove near pristine beaches, with a total of 8 crew from about 48 before their lay up began in December.

More of its ships were likely to come to Subic from around Asia with shipping contracts ending and no new orders coming.

But Subic authorities want to prevent overcrowding in the bay and will only take up to 30 ships at a time, half of its original capacity when it was used at one point as the biggest US naval base outside U.S. territory. The Americans operated a naval base in Subic for about nine decades.

As of March 2, six more ships were expected to arrive in Subic for lay ups, the Subic bay management said.

The authorities also sent some of the vessels, mostly the Japanese car carriers, more than two kilometers away from the shore to appease the 33 hotel operators in Subic Bay who have complained that the ships were becoming eyesores to guests.

In the meantime, the ships' crew, comprised mostly of Filipinos, catch up with relatives in the Philippines by phone from their ship, or spend weekends with their family in and out of Subic.

Others spend their lay up swimming in the beaches of Subic and hitting the bars and restaurants come nightfall.

"I'm loving it. We're in paradise," said Geoffrey Wells, chief engineer of U.K.-based Global Marine, a submarine cable firm, whose Wave Venture ship has been docked in Subic for repairs since early January while waiting for a cable contract.

"We have wonderful weather. Everything is cheap compared to the U.K. So yeah, we're having a good time," he said.

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