Downturn Shreds European Forest Products
The forestry industry in Europe, the former Soviet Union and
The slump in the global paper and pulp industry is nearly a decade old, and industry insiders say the business is still struggling with chronic overcapacity, shrinking demand, softening prices, production cuts and layoffs as it reels under the collapsing housing markets in developed countries.
Consumption of sawn wood, paper and board in the main markets fell 8.5 percent to 1.26 billion cubic meters, the steepest drop since the 1973 oil crisis, according to the U.N. Economic Commission for
The slump’s heavy toll
“I cannot say that there is light at the end of the tunnel based on my experience and my discussions with our customers,” Juha Vanhainen, head of Stora Enso’s publication paper unit, told a Reuters paper and packaging summit in Helsinki in late August. “It seems that the decline has more or less stabilized, but the absolute level is still very, very low.”
Days earlier, Stora Enso announced it would close two mills in
The slump has taken a heavy toll on shipowners, cargo terminals and ports involved in the global forest products supply chain, which stretches from sawmills to newspaper printing plants to products for supermarket shelves.
The specialized forest shipping sector is grappling with overcapacity, softening freight rates and vessel layups. Cargo terminals are working well below capacity.
No shelter from the storm
Until recently, however, many open-hatch vessels operating in the forest trades enjoyed relatively high rates despite lower demand. Some shipowners were shielded from the downturn in the forest sector because their vessels can carry other bulk and breakbulk cargoes such as steel, grain and china clays, so they benefited from the pre-crash run-up in charter rates.
“The bulk market clearly had an impact on time-charter rates for open hatch vessels,” said Bjorn Bodding, an analyst with
And some were shielded because they are active in other shipping sectors. For example, at Swedish forest products carrier Transatlantic, “fiscal 2008 was one of the best years ever,” according to CEO Anders Kallstrom, thanks to the company’s icebreaking and offshore units.
Now, however, the global downturn is derailing expansion plans and forcing splits and consolidations in a weakening market.
Transatlantic postponed plans to sell its trans-Atlantic operation because of a lack of buyers, and
Business is poor across the transport chain. “Our volume is down 17 percent in the first half. The overall market is down 25 to 30 percent,” said Bob de Lange, managing director of Interforest Terminal Rotterdam, one of
The trans-Atlantic forest products shipping market is “very, very depressed,” said Marten Carlquist, head of Transatlantic’s industrial shipping business.
Ports that invested heavily in breakbulk facilities because they generate more jobs on the waterfront than other cargoes are reporting even steeper declines.
“We expected the decline in conventional breakbulk to be smaller, but the volumes have stabilized in the past few months,” said Eddy Bruyninckx, CEO of the Antwerp Port Authority.
Shipowners are putting a brave face on the crisis, pointing to new opportunities in emerging markets as production moves from the Northern Hemisphere to the Southern Hemisphere. In Latin America, after all, eucalyptus trees can be harvested after seven to 10 years, compared with 60 years for spruce and birch in
Exports from South America to Asia are still growing, and “
Westerlund, a leading
International Paper expects to double its shipments within the Chinese domestic market this year compared to 2008, Chief Financial Officer Timothy Nicholls told the Paper and Packaging summit in
But even South America isn’t immune to the global downturn, underscored by Stora Enso’s decision in the spring to halt expansion of a mill in
And the high levels of Chinese imports, spurred by strategic purchases on lower prices to replenish stockpiles, are not sustainable, according to industry watchers.
In the long run, however, there’s no doubt over
Right now, the most pressing challenge for owners of open-hatch ships operating in the forest products trades is getting back-haul cargoes from the
Most of Saga’s outward cargo is carried under long-term contracts, but it has to compete on the open market on the return trip, and has to decide on a case-by-case basis whether to go for a quick ballast voyage or pick up cargoes such as steel pipes and coils.
Saga, the commercial operator for ships in a joint pool between
However, open-hatch ships have been losing market share to other vessel types for a decade, Platou analyst Bjorn Bodding said. And freight rates need to return to much higher levels to justify the $60 million to $70 million price tag on a new open-hatch vessel.
Another problem is the forest shipping sector is being invaded by container ships, roll-on, roll-off vessels, multipurpose project cargo/heavy-lift tonnage and car carriers whose markets have collapsed and are desperate for any cargo and any price to generate revenue.
“Everybody is chasing everything,” Traaseth said.
Sweden’s Transatlantic bucked the trend, with Carlquist attributing increased westbound cargoes from Europe to North America in the second quarter – “but from a very lower levelin the first quarter” – to beating container carriers on price and service. Starting calls at
Transatlantic is constantly seeking new markets and is eyeing
Russia offers potential export trades to shipping lines facing reduced volumes and too much capacity on Baltic routes to northern Europe and
European forest products carriers have survived the slump because they have built strong ties with producers. Transatlantic, for example, charters out vessels to Stora Enso and SCA and is involved in their logistics planning.
But shipowners and stevedores remain on a knife edge as the paper and pulp industry braces for further restructuring.
“If the crisis continues, we might see smaller (terminal) companies disappear,” Westerlund’s de Mulder warned. And Traaseth fears some of the record number of dry bulk ships under construction will further invade the forest shipping trades.
Nobody in the industry, from paper producer to shipowner, can predict the next few years with any confidence.
Issued by: BreakBulk
Author: Bruce Barnard
Issue date: October 13, 2009
Link to Article: Origin of text