By Harry Suhartono

and Alison Leung

A slow recovery in global trade and tight finance could set the stage for a wave of consolidation in the trillion-dollar shipping industry, as it gears up for a second straight year of turmoil in 2010. Hundreds of empty container ships, bulk carriers and others — the so-called “ghost ships” — have been idled in deep-sea ports of Asia and Europe this year, following a slump in freight as the global financial crisis caused world trade to plunge.

Industry watchers estimate as much as 15 percent of the world’s commercial shipping fleet could end up out of commission next year. That will only get worse as new ships ordered during the pre-crisis boom years get delivered, boosting current supply by up to another 40 percent over the next few years. “More bankruptcy is expected in the market with new (ship) building and tough financing situations still affecting the sector,” said Ng Sem Guan, an analyst at OSK Research in Kuala Lumpur.

While the broader outlook remains bleak, dry bulk shippers that focus on commodities have seen some signs of bottoming out in freight rates and even nascent price hikes as countries like China spend billions of dollars on infrastructure under its stimulus plans.

The Baltic Exchange’s main sea freight index, which tracks rates to ship dry commodities, rose to 4,220 this week from a low of 663 last December on strong Chinese demand for iron ore and coal.

“So it is positive for the dry bulk shipping sector, which carries iron ore, coal and other resources, but less so for container liners that rely on exporting goods to consumers in the west,” said HSBC after a shipping conference in October.

HSBC is overweight on dry bulk shippers, including Pacific Basin and Sinotrans Shipping, which have strong balance sheets with net cash positions built up before the worst of the downturn. Both Pacific Basin and Sinotrans are seen as potential buyers as higher quality of distressed assets, such as ships or shipping firms, come onto the market.

But even the dry bulk operators are facing a looming supply glut, with 3,264 new vessels in the orderbooks at the end of October—equivalent to 64 percent of the current dry bulk fleet size, UOB Kay Hian said.

“The over supply of ships is a structural issue and some owners are in talks to cancel expensive orders they made during the boom time,” said Geoffrey Cheng, an analyst at Daiwa Institute of Research.

“But most will only be able to delay deliveries and the problem is still there,” he added. Most of the largest operators, mostly container shippers like Denmark’s A P Moller-Maersk and Hong Kong’s Orient Overseas (Internations) Ltd, are likely to take a conservative stance with a focus on simply staying afloat rather than buying assets.

“The container industry as a whole, it is very much about managing their own company as best as possible right now, not really focusing that much on acquisitions,” said Glenn Lodden, shipping analyst for DnB NOR. Companies able to tap the market are doing so now with an aim of bolstering their finances. Maersk raised $1.58bn in a share sale earlier this year and Singapore’s Neptune Orient Lines (NOL) made a $972m rights issue.

Recent reports indicate global trade is improving, but that trend has been uneven and it could be years before the broader shipping industry fully recovers. The Clarkson Containership Timecharter Rate Index, which measures time charter rate for container ships, was down 62 percent from a year earlier at the end of September.

Analysts forecast some of the biggest liners, including China COSCO, NOL and OOIL will be in the red in 2009 and 2010 despite their repeated calls for rate hikes to stay afloat. Maersk has said it would lose $1bn in 2009 as container freight rates and volumes have plunged in the global downturn.

“The outlook for the industry is very weak, however, we expect mild recovery off a very low level going through next year,” said Mark Webb, regional head of conglomerate and transport at HSBC.